[ecis2016.org] Here’s all you need to know about Limited Liability Partnerships or LLPs.
In 2008, the concept of Limited Liability Partnerships or LLPs was introduced in India. LLPs combine the characteristics of a partnership and a company and are governed by the Limited Liability Partnership Act, 2008. Although two partners are required to establish an LLP, it does not come with a ceiling limit on the number of partners and follows the perpetual succession principle.
LLP agreements govern the rights and duties of designated partners. They are directly responsible for ensuring compliance with all the provisions of the LLP Act, 2008 and the LLP agreement.
How to file the Limited Liability Partnership (LLP) Agreement?
Partners’ rights and responsibilities, as well as those of the LLP, are governed by LLP agreements.
- The LLP agreement must be filed online on MCA Portal in form 3.
- LLP agreements must be filed within 30 days of incorporation using Form 3.
- The LLP Agreement should be printed on the stamp paper, the cost of which varies from state to state.
- It is a separate legal entity similar to companies.
- The liability of every partner is restricted to the contribution made by the partner.
- The value of forming an LLP is low.
- Fewer regulations and compliances.
- No demand for minimum capital contribution.
- Among its partners, at least one should be a resident of India.
How are LLPs and Partnership firms different?
LLPs must be registered under the LLP Act in order to operate. Under the Partnership Act, 1932, however, the registration of a partnership firm is voluntary. An LLP limits each partner’s liability to the contribution made by the partner. Partner firms, however, are personally liable for the losses/debts of all partners.
LLPs are separate legal entities that can buy property, sue, and be sued in their own names. It is illegal for partnership firms to sue anyone or buy properties. Due to the lack of a separate legal entity, the document must be in the name of the authorised partner.
How are LLPs and a company different?
In LLPs, the internal governance structure is regulated by a contractual agreement between partners. In contrast, a joint stock company’s internal governance is regulated by the Companies Act, 1956.
There is no difference between management and ownership in an LLP as is present in a company. LLPs have more flexibility and have to adhere to fewer compliances as compared to an LLP.
Do LLPs require a Memorandum of Understanding and an Agreement of Participation?
A company’s Memorandum of Association (MOA) and Articles of Association (AOA) are both important documents under the Companies Act, 2013. LLP agreements are governed by LLP agreements and not by MOAs or AOAs. Therefore, an LLP does not have to draft the MOA and AOA. Only the LLP agreement needs to be drafted.
LLP: Why is it a good idea?
Distinct legal entity
LLPs are separate legal entities, just like companies. They are separate from their partners and can sue and be sued on their behalf. LLP contracts are signed in the name of the company, which helps to gain the trust of various stakeholders and instil confidence in the company among customers and suppliers.
Partners have limited liability
In LLP, the partner’s liability is limited to the contributions made by them. Accordingly, they are liable to pay only the amount of contributions made by them and are not personally responsible for any losses incurred in the business. An LLP that is insolvent at the time of winding up is only liable for its debts if its assets exceed its liabilities. The partners are free to operate as credible businessmen because they have no personal liabilities.
Lower cost for incorporation
As compared to incorporating a public or private limited company, the cost of forming an LLP is low. The LLP also has few compliance requirements. Annual Returns and Solvency Statements are the only two statements the LLP needs to file every year.
No lower limit for capital contribution
An LLP does not require minimum capital. Getting incorporated does not require a minimum paid-up capital. The partners can contribute any amount of capital.
LLP must follow minimal compliance requirements. However, the LLP will have to pay a heavy penalty if these compliances are not completed on time. It is required to file annual returns with the Ministry of Corporate Affairs (MCA), even if the LLP has no activities in the year. LLPs that fail to file their returns will be subject to heavy penalties.
Easier to get dissolved
An LLP will dissolve if it has fewer than two partners for six months. If the LLP cannot pay its debts, it may be dissolved.
Raising sufficient capital can be challenging
In contrast to a corporation, an LLP does not have shareholders or equity. An LLP cannot be owned by angel investors or venture capitalists. LLP shareholders have to be partners and have to assume all the responsibilities of partners. Therefore, venture capitalists and angel investors prefer investing in a company rather than an LLP, making it difficult for LLPs to raise capital.
How to incorporate an LLP?
- The Form for Incorporation of Limited Liability Partnership (FiLLiP) must be submitted to the State Registrar, who has jurisdiction over the state where the registered office of the LLP is located, for incorporation. It is an integrated form.
- Fees according to Annexure ‘A’ will be paid.
- The DPIN (Designated Partner Identification Number) application form permits the allocation of a DPIN (Designated Partner Identification Number) to a designated partner who does not already possess one.
- A maximum of two individuals can apply for allotments.
- FiLLiP can also be used to apply for a reservation.
- A name that has been approved and reserved shall be used as the proposed name of the LLP if the application is approved
Why is it necessary to get an LLP registered?
The Ministry of Corporate Affairs (MCA) portal requires the registration of an LLP. For a limited liability partnership to be a legally valid entity, it must be registered under the Limited Liability Partnership Act.
You must register your Limited Liability Partnership under the Limited Liability Partnership Act, 2008 to start your venture.
|Name of the form
|Why is the form required?
|LLP (Limited Liability Partnership for Reserve Unique Names)
|Necessary for reserving a name for the LLP
|Necessary for change of name
|Needed for conversion of a private company/ unlisted public company into an LLP
|Mandatory for the conversion of a firm into an LLP
|Mandatory for incorporation of LLP
Read also : How does nomination affect property inheritance
What are the documents required for LLP registration?
- A PAN/ ID proof of all partners is required at the time of LLP registration. PAN cards serve as the primary identification documents.
- Partner’s Proof of Address: The partner can submit any one of the following documents – Voter ID, Passport, Driver’s licence or Aadhar Card. The name and other details on the address proof and the PAN card should be the same. If the spelling of one’s own name or father’s name or date of birth differs between the address proof and PAN card, it should be corrected before submitting to the RoC.
- For partners, a recent bank statement, telephone bill, mobile bill, electricity bill, or gas bill should be provided as proof of residence.
- This statement or bill should not be more than 2-3 months old, and it must contain the partner’s name as it appears on the PAN card.
- A passport-size photograph of each partner, preferably with a white background, should also be provided.
- Foreign nationals and NRIs must submit a passport in order to become partners in an Indian LLP. It is possible for the Indian Embassy in the country of origin to certify documents for foreign nationals and NRIs whose passports have not been notarised or apostilled by the requisite authorities. NRIs and foreign nationals are also required to submit proof of address, which may include a driving licence, bank statement, residence card or another government-issued identity document.
- Translation copies notarised or apostilled should accompany documents in languages other than English.
- Proof of Registered Office Address: Proof of the registered office must be submitted at the time of registration or within 30 days of incorporation.
- If the registered office is rented, a lease agreement and a no objection certificate from the landlord are required. The No Objection Certificate (NOC) will include the landlord’s consent to the LLP’s use of the space as a registered office.
- Additionally, any utility bill such as gas, electric, or telephone bill must be submitted. Documents should not be older than two months and include the full address and name of the property owner.
- As all applications and documents will be digitally signed by the authorised signatory, one of the designated partners must acquire a digital signature certificate as well.
LLP: Mandatory requirements for registration
- At least two partners
- DSC for all designated partners
- DPIN for all appointed partners
- Name of the LLP, which may not be similar to any existing LLP or trademark
- LLP Agreement between the partners
- Partners’ capital contribution to the LLP
- Proof of registered office of the LLP
How to register an LLP?
Apply for Digital Signature Certificate (DSC)
The partners of a proposed LLP must apply for digital signatures before registering the company. Due to the fact that all documents for LLPs are filed online and must be digitally signed, this is required. A government-recognised certifying agency must issue the digital signature certificates to the designated partner.
Obtain Director Identification Number (DIN)
All designated partners or those intending to become designated partners of the proposed LLP must have their DINs. The DIN must be applied using Form DIR-3.
Get the LLP name approved
For Limited Liability Partnerships with Reserved Unique Names, LLP-RUN is filed with the Central Registration Centre for non-STP processing of the proposed LLP name reservation. The MCA portal offers a free name search facility that should be used before quoting a name in the form.
LLP: Registration cost
Below are the government fees for filing forms:
- A limited liability partnership with a capital contribution of less than Rs 1 lakh will require Rs 500/-
- For incorporation of a limited liability partnership with a capital contribution of more than Rs 1 lakh but less than Rs 5 lakhs, you will need to pay Rs 2000/-
- An amount of Rs 4000/- for the incorporation of a limited liability partnership with a capital contribution exceeding Rs 5 lakhs but not exceeding Rs10 lakhs
- A capital contribution of more than Rs 10 lakh will require a fee of Rs 5000/- for the incorporation of a limited liability partnership
LLP: Other costs for registration
- A name reservation for LLP that is valid for 90 days, after which it expires.
- There is a charge for digital signatures for both designated partners, which is determined by the certifying agency
- Fees for registering
- Fees for drafting LLP agreements
- Fees associated with DIN forms
- There is a stamp duty on the execution of the LLP agreement that varies from state to state
- Fee for registering the agreement within 30 days of registration. The fee depends on the capital contribution, and if it is not filed within 30 days, a late fee of Rs 100/- will be assessed.
LLP: Registration time
An LLP can be formed starting from obtaining a DSC to filing Form 3, subject to departmental approvals and reverts from each department.
LLPs are taxed the same way as partnerships in India. The tax is levied on the LLP and the partners are exempted from tax.
Read also : How does nomination affect property inheritance
Copyright belongs to: ecis2016.org