Article by Aryan Khanna.
Limited Liability Partnership, also known as an LLP for short, is a legal business structure, which is formed and registered under the Limited Liability Partnership Act, 2008. It is a form of partnership but with the added benefit of limiting the liabilities of its members.
An LLP has its liability limited to the complete extent of its assets and the partners are only liable to the extent of their financial contribution in the LLP.
The statute provides that the limited liability partnership, as be a separate legal entity and shall have perpetual succession.
In recent times, several entrepreneurs have begun to incorporate their new ventures as LLPs. This is because of certain features that attract potential individuals to incorporate their ventures in this particular form.
Businesses, which prefer this business legal structure the most are consultancies, law firms, accountancy firms and other professionals. In this article, I will show exactly how to register a Limited Liability Partnership in India step-by-step.
Unique Features of a Limited Liability Partnership
As with every business legal structure, a limited liability partnership has several features unique to itself. These features create the pros and cons which an entrepreneur has to consider when incorporating his / her business.
#1. LLPs have a perpetual existence like a company.
This means that an LLP can continue irrespective of change of the partners. (Section 3(2) of the Act). Death or change in the partners does not bring an end to the partnership
#2. Limited Liability Partnerships have Limited Liability
Under an LLP, if the partnership fails, its creditors will not be able to go after the personal assets of the partners, unless in cases of fraud.
If an LLP defaults on its debts, creditors will have to approach the IBBI to compel the LLP to go through Corporate Insolvency Resolution Process, after which the creditors will be able to recover their dues from the assets of the Limited Liability Partnership.
Such a liability structure ensures that no partner is liable for the independent actions of the other partners; thereby they are protected from joint liability that maybe imposed owing to the misconduct or wrongful actions of any other partner.
#3. LLPs have a separate legal entity similar to companies.
This means that LLPs do business under their own name and not on the name of the partners who constitute the LLP.
The LLP has to engage in deals and business transactions under its own name and its common seal and authorized partners sign on the transaction so as to enforce the transaction.
#4. An LLP can be incorporated at a Comparatively Lower Price in comparison to a Company.
A limited liability partnership is rather easy and fast to incorporate with very little paperwork as we shall show soon. Comparatively registering a private limited company or a one person company involves much more compliances and paperwork.
#5. Registration of an LLP does not need a Minimum Capital Contribution.
All the partners bring forth what they can or what is required as per the partnership agreement and they get allotted shares accordingly. Unlike that of companies, there is no minimum statutory bar for registering a Limited Liability Partnership
6. A Minimum of Two Partners is necessary for incorporation of an LLP, but there is no Maximum Limit.
This means you can bring in as many partners as you want depending on the requisite skill set.
7. There are tax benefits given to an LLP.
An LLP is not a pass-through entity. However, it does have advantages when it comes to direct taxation for itself and its members.
How to Register a Limited Liability Partnership Step-by Step
A Limited Liability Partnership shall be registered as per the requirements mentioned in Limited Liability Partnership Act. It requires approximately fifteen days to complete the entire obtaining a digital signature certificate and LLP registration.
#1. First Select the Name for the Limited Liability Partnership
Selection of a name for an LLP must abide by the two requirements mentioned under Section 15 of the LLP Act-
- firstly, it should not be undesirable and
- secondly, it should not be identical or resemble the name of any other firm, or a registered trade mark, or which is subject of an application for registration, of any other person under the Trade Marks Act, 1999. (Otherwise you may be liable to infringement proceedings)
Under Section 17, the Central Government may order a change in the name of the LLP if it violates the criteria set by Section 15 of the Act. Moreover, if the proposed LLP refuses to comply with the direction, it shall be penalized under Sub-section 2 of Section 17.
Section 18 permits another entity to apply to the Registrar to order a change in name of another LLP, which has been incorporated subsequently. However, such an application shall only be considered, if it is made within 24 months from the date of registration of the subsequently incorporated LLP having a similar name.
Furthermore, Section 19 provides for the voluntary change in the Registered Name of the LLP, through an application to the Registrar and payment of necessary dues.
Section 20 provides for penalty in the case of improper use of the term “Limited Liability Partnership or LLP”. Any firm shall be punished under this section, if they are conducting their business, using the term “Limited Liability Partnership” or “LLP” or any contraction or intimation, without having duly incorporated their business as an LLP.
Ensure You Have the Pre-Requisites to Setting up an LLP in Order-
#1. The designated partners, at least two of them, must have a valid digital signature certificate or obtain a new one.
Digital Signature Certificate is mandatory for all your dealings with the Ministry of Corporate Affairs or the Registrar. As such, getting a class 3 digital signature certificate is mandatory.
This guide shows you all the FAQs regarding getting your Digital Signature Certificate.
#2. Two partners (who are going to be known as authorized partners) must obtain the Director’s Identification Number (DIN).
It is basically a number that serves to identify directors of a company and partners in a Limited Liability Partnership and helps determine whether they are qualified to serve as partners in an LLP or not.
The MCA portal here allows you to register for a DIN easily.
- Documents of partners that must be kept ready for submission are as follows:
- PAN Card/ ID Proof of the Partners
- Address Proof of the partners
- Residence Proof of Partners
- Passport (in case of Foreign Nationals/ NRIs)
Documents of the LLP that must be kept ready for submission are as follows:
- Proof of Registered Office Address
- Digital Signature Certificate
The applicant must utilise form FiLLiP (Form for incorporation of Limited Liability Partnership) for the purposes of incorporation. The form’s listed here.
An applicant shall submit the required form to the Registrar, who has the jurisdiction over the particular state where, the LLP is located. Fees as per Annexure ‘A’ must be paid.
This differs according the capital contribution of the LLP. It ranges from Rs. 500 and goes up to Rs. 5000.
Having explained the basics of the LLP and prerequisites for incorporation, the following steps shows the steps of Registration and associated tasks, that one needs to fulfill for successful incorporation.
Registration of LLP – The Main Steps
In this article, we are going to talk about a lot of forms. You can find the entire list of forms here.
The First Step to Register Your Limited Liability Partnership
#1. User Registration:
One must register oneself on the Website of the Ministry of Corporate Affairs, dedicated for LLP related services and assistance. The tab for Registration can be found on the top right-hand corner of the webpage.
This shall open a “Registration Form”. You can also go to the Registration form directly via this link.
You must fill all the mandatory fields and choose a username and password for future usage. After this, you need to upload your “Digital Signature Certificate”. You will receive an indication, once the registration is successful.
The next two steps are more akin to directions that one can follow to procure certain prerequisites.
#2. Get Your DPIN
All the partners of the LLP must obtain a Designated Partner Identification number (DPIN). The same can be applied for through the Ministry’s website, via the link shared above. The application must be electronically made in Form-7 for obtaining the D-PIN number.
Second Step for LLP Registration
Designated Partner of the proposed LLP, whose signatures need to be affixed on the e-forms, have to procure a Class 2 or Class 3 Digital Signature Certificate (DSC) from an authorised certifying agency.
However, it’s better you go for Class 3, straight of the bat.
Third Step for LLP Registration
Reservation of a Name
This particular step can be accomplished through Form-1. This form can be procured from the LLP portal after logging in using one’s user name and password. After logging in, you need to go to the E-forms link. Any designated partner of the LLP has the authority to submit Form-1.
Once the form is opened, you must fill in the necessary details and indicate 6 choices for the name of the proposed LLP.
You need to append the necessary digital signatures and only then can you submit the e-form. After this, you need to also pay the necessary dues for the Reservation of the Name.
The Ministry of Corporate Affairs Portal also provides a free tool to search for LLP names. This shall provide the names or similar names of existing LLP’s or Companies, based on the search criteria.
Select the Designated Partners
You need to fill in the details of the two proposed designated partners, one of whom must be an Indian resident in the application for the Reservation for Name. Only nominees appointed by the proposed LLP’s or corporate entities can serve as designated partner of the LLP.
Finally, one can check the status of his or her application by logging into the portal.
Fourth Step: Incorporation of the LLP
Once the name has been reserved by the Registrar, the applicant must log on to the LLP portal and complete Form-2 “Incorporation Document and Statement”.
This shall be followed by the requirement to furnish the mentioned registration fee according to the slab that has been given in Annexure ‘A’ (Refer to Limited Liability Partnership Rules, Notification 2009). The specified registration fee varies according to the total capital of the contribution of partners in the proposed LLP.
Similar to previous forms, the designated partners of the proposed LLP, who are named in the incorporation document and having procured a permanent DPIN, must digitally sign the statement in the e-form.
The same must also be digitally signed by the Lawyer or Company Secretary, who has been engaged in the incorporation of the LLP.
Upon submission of the necessary documents and forms, the Registrar after satisfying himself with the compliance of all the requisites of the act, shall register the LLP, within 14 days of completing and submitting Form-2 and a Certificate of Incorporation shall be issued through Form-16.
Finally, one can check the status of his or her application by logging into the portal.
Fifth Step: Final Step for Registering an LLP
Form 3 (Information related to the LLP agreement and alterations, if any have been made therein) and Form-4 (Notice of Appointment of Partner/ Designate Partner, and their consent) should now be submitted along with the mentioned fee simultaneously along with the submission of Form 2 or within thirty days, since the date of incorporation.
And that’s it. You just need to wait for a few days and you’ll be granted incorporation for your LLP.
Wrapping it Up
Limited Liability Partnerships are relatively recent business structures that are being used across India to incorporate many upcoming ventures like Start-ups, Law firms and professional service firms. The various benefits associated with this legal entity like tax Benefits, less personal liability, perpetual succession and etc. make it an attractive option for many entrepreneurs.
That’s all. If you have any questions, leave it down in the comments or send me an email and I’ll get back to you.
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Aryan Khanna is a lawyer from NALSAR University of Law and an incoming associate at AZB Partners. Connect with him on LinkedIn.