Oct 16, 2017
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Limited Liability Partnership Incorporation under The Companies Act, 2013

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In this article brief of Limited Liability Partnership has been explained. A law to allow Limited Liability Partnership (LLP) in India has thus enacted by the Parliament of India. (Limited Liability Partnership (LLP) Act of 2008). The basic motive for the introduction of Limited Liability Partnership (LLP) is to provide a form of business entity that is simple to maintain while providing limited liability to the owners.

Limited Liability Partnership Incorporation

Limited Liability Partnership (LLP) was introduced in India by way of the Limited Liability Partnership Act, 2008. Since Limited Liability Partnership is one of the easiest form of business to incorporate and manage in India.

Hence the main advantage of a Limited Liability Partnership over a traditional partnership firm is that:

  • In a LLP, one partner is not responsible or liable for another partner’s misconduct or negligence.
  • LLP also provides limited liability protection for the owners from the debts of the LLP. Therefore, all partners in a LLP enjoy a form of limited liability protection for each individual’s protection within the partnership, similar to that of the shareholders of a private limited company. However, unlike private limited company shareholder, the partners of a LLP have the right to manage the business directly.
  • Since, LLP thus not capable of issuing equity shares, LLP should however used for any business that has plans for raising equity funds during its life-cycle.

Limited Liability Partnership

  1. Limited Liability Partnership therefore an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. LLP can continue its existence irrespective of changes in partners.
  2. Limited Liability Partnership is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. It is capable of entering into contracts and holding property in its own name.  Hence no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
  3. With an easy incorporation process and simple compliance formalities, LLP however preferred by Professionals, Micro and Small businesses that seems family owned or closely-held.
  4. Every LLP shall have at least two partners and shall also have at least two individuals as
    Designated Partners, of whom at least one shall be resident in India.
  5. The Indian Partnership Act, 1932 shall not be applicable to LLPs. A partnership firm, a private company and an unlisted public company may convert themselves to LLP in accordance with provisions of the proposed legislation.

Procedure for Incorporation of Limited Liability Partnership

A Limited Liability Partnership may incorporated as per the procedure explained below:

User Registration

  • Register yourself on the website of Ministry of Corporate Affairs, developed for LLP services.
  • Fill in the registration form. Fields marked in the form are to be filled mandatory. Select your user name and password.
  • Upload digital signature certificate.
  • On successful registration, system will give a message that you have been registered successfully.

Digital Signatures for incorporation of company

The first step towards the incorporation of company is to obtain authorized signatories as specified under the Information Technology Act, 2000. A digital signature, an electronic signature which thus duly issued by a certifying authority that shows the authority of a person signing the same.

While under MCA-21 there are four types of identified users of digital signatures:

  • MCA Employees;
  • Professionals (CA, CS, cost accountants and lawyers);
  • Authorized signatories of the company including Managing Director or Manager or Directors or Secretary;
  • Representatives of banks and financial institutions

Director Identification Number (DIN) for incorporation of company

DIN then required before commencing the incorporation of the company. Every individual thus appointed as director of a company shall make an application for allotment of Director Identification Number in form DIR-3 to the Central Government with such fees as may thus prescribed. It is however mandatory for the directors to apply for the DIN.

Name for proposed incorporation of company

An application for the reservation of a name shall be made in Form No. INC.1 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 which may be approved or rejected, as the case may be, by the Registrar, Central Registration Center. In selection of Company name should thus in accordance with name guidelines given in Rule-8 of Companies (Incorporation) Rules, 2014. After approval of name by registrar of companies, the ROC will issue a Name availability letter with respect to approval for availability of name for a proposed company.

Validity of Name approved by Registrar Of Companies for incorporation of company

The Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of sixty days from the date of the application.

While filing for formation of LLP, the documents showing possession of the registered office would however required. Once prepared, the registered office related documents along with the signed subscribers sheet must thus file with the MCA for registration of the LLP.

If the application for LLP Registration is acceptable, the Registrar would issue the incorporation certificate. Once, the incorporation certificate issued, the LLP will consider to register and application for PAN for the LLP can thus made. The Partners of the LLP then have 30 days time to file the Partnership Deed of the LLP with the MCA. In case, the LLP Partnership Deed is not filed within 30 days, a fine will be applicable.

Note- Where after reservation of name if found that name then applied by furnishing wrong or incorrect information,—

  1. if the company has not incorporated, the reserved name shall thus cancel and the person making application shall also liable to a penalty which may extend to one lakh rupees;
  2. if the company has incorporated, the Registrar may, after giving the company an opportunity of being heard—
  • either direct the company to change its name within a period of three months, after passing an ordinary resolution;
  • take action for striking off the name of the company from the register of companies; or
  • make a petition for winding up of the company.

Filing of Form 2 for Incorporation and Subscription Document

As a result after Form No. INC.1 ones should apply for Form-2. On submission of complete documents the Registrar after satisfying himself about compliance with relevant provisions of the LLP Act will
register the LLP, maximum within 14 days of filing of Form-2.

Filing of Limited Liability Partnership agreement (Form-3) and Partners’ details (Form-4)

Form 3 (Information with regard to LLP agreement and changes, if any made therein) and Form-4 (Notice of Appointment of Partner/Designate Partner, his consent etc.) may file with the prescribed fee simultaneously at the time of filing Form-2 or within 30 days of the date of incorporation or within 30 days of such subsequent changes.

Drafting of Limited Liability Partnership Agreement

Limited Liability Partnership agreement has drafted line with LLP Act. It is not mandatory to file LLP agreement at the time of registration and same can be file within 30 days. Designated partners however responsible for doing all acts, matters and things that thus require to done for complying with the provisions of the LLP act. They are liable to all penalties imposed on the LLP. So it is very important to draft LLP agreement with professional help. Finally drafting of LLP agreement should duly printed on Stamp paper and signed by Designated partners with the Signatures of two witnesses.

However the following clauses are important to be incorporated in an agreement:

  • Name, Object and Register Office of LLP
  • The initial Contribution of the LLP by Partners
  • of valuation of Non Monetary contribution
  • The net profits or losses sharing ratios
  • Detail of Designated Partners
  • Interest  payable on Capital Loan prescribed u/s. 40(b) of the Income-tax Act, 1961
  • Remuneration payable to the working partners or as prescribed u/s. 40(b) of the Income-tax Act, 1961
  • Mode of operation of Bank Accounts
  • Maintenance of Book of Accounts
  • Appointment of arbitrator
  • Rights and Duties of Partners
  • Rights and Duties of Designated Partners
  • Indemnity clause
  • Goodwill clause
  • Change in name
  • Procedure to appoint Auditor
  • Admission of New Partner
  • Meeting
  • Cessation of Existing Partners
  • Winding up of LLP
  • Amendments of LLP
  • Extent of Liability of LLP
  • Liability of  Partners in LLP
  • Ancillary or other business carried over by LLP

Note- The Stamp duty applicable for agreement will vary from State to State depending upon total contribution of LLP.

Certificate of Incorporation

After verification by the Registrar of Companies and if so satisfied by it shall send a physical Certificate of Incorporation by post and soft copy by email in Form-16.

Documents Required

To register a Limited Liability Partnership in India, the following documents hence required:

  • PAN Card of the Partners
  • Address Proof of the Partners
  • Utility Bill of the proposed Registered Office of the LLP
  • No-Objection Certificate from the Landlord
  • Rental Agreement Copy between the LLP and the Landlord

The documents pertaining to the Registered Office of the LLP can thus submitted after obtaining name approval for the LLP from the Registrar of Companies.

Find legal advisor for issues relating to company law.

Article Categories:
The Companies Act, 2013

Avani is a LL.B. student of New Law College. Classical use of language and adeptness with the written word make her treasure useful legal information. In her spare time, she writes prose and pursue an active interest in creative writing.

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