How to Incorporate a Limited Liability Partnership (LLP) in India

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Introduction:

 

A Limited Liability Partnership (LLP) is a body corporate having a separate legal entity from its partners. It is governed by the Limited Liability Partnership Act, 2008 which was notified with effect from 31st March 2009 and its rules. A Limited Liability Partnership is different from a partnership firm which is governed by the Indian Partnership Act, 1932. For the formation of an LLP, minimum two partners are required, however, unlike a partnership firm; there is no maximum limit to the number of partners. An LLP exhibits the characteristics of partnership firm and a body corporate. The members of an LLP have limited liability to the extent of the amount of contribution made by them. This is different from a partnership firm where each partner has a joint and several liabilities.

Steps to incorporate an LLP:

 

Step 1: Decide the Partners of  LLP

  1. An LLP shall have atleast two partners. There is no limit to the maximum number of partners.
  2. Any individual or a body corporate may be a partner of an LLP.

 

Step 2: Decide the designated partners of LLP

  1. An LLP shall have atleast two designated partners.
  2. Designated partners shall be individuals.
  3. Atleast one of them shall be a resident of India. (The term “resident of India” means a person who has stayed in India for a period of at least 182 days during the immediately preceding one year.)
  4. In case of an LLP, in which all the partners are body corporate or in which one or more partners are individuals and bodies corporate, atleast two individuals who are partners of that LLP or nominees of such bodies corporate shall act as designated partners.

Step 4: Application for Digital Signature Certificate (DIN)

  1. Each designated partner must obtain a DSC from a Certifying Authority eligible to issue a DSC.
  2. Applicants can directly approach Certifying Authorities (CAs) with original supporting documents, and self-attested copies of the same or by using Aadhar eKYC based authentication. Link for details regarding CA : .
  3. The cost of obtaining DSC may vary from INR 1000 to INR 2000, depending the agency issuing such DSC.
  4. The time generally taken by CAs to issue a DSC may vary from three to seven working days. On fulfilment of terms and conditions, DSC is issued by some CA’s on same day based on eKYC for Aadhaar Holders.
  5. Application form for DSC can be obtained from this link : http://www.e-mudhra.com/Application-Forms.html
  6. Digital Signature of Designated Partner must be registered on the website of Ministry of Corporate Affairs. Digital signature certificate will have to be uploaded. On successful registration, system will give a message that you have been registered successfully.

 

Step 3: Application for Director Identification Number (DIN)

  1. Every designated partner shall make an application electronically in Form No. DIR-3 to the Central Government for obtaining DIN. Link for downloading DIR-3: http://www.mca.gov.in/MinistryV2/Download_eForm_LLP.html
  2. The fees for filing DIR-3 is Rs. 100 which has to be paid electronically.
  3. Information and documents required for obtaining DIN –
  • Applicant’s information like Name, Father’s name, Citizenship, Occupation, etc.
  • Proof of Identity – Income-tax PAN (Indian national) / Passport (Foreign national)
  • Proof of residence of applicant
  • Photograph
  • Digital Signature certificate – the applicant has to sign the form digitally using his/her DSC.
  • Attach the photograph and scanned copy of supporting documents. Along with the supporting documents, verification by the applicant for applying for allotment of Director Identification Number (DIN) shall also be attached. This shall contain the Name, Father’s name, date of birth, present address, and text of declaration and physical signature of the applicant.

 

Step 4: Consent of designated partners and filing of their particulars

  1. Designated partners must give their prior consent in writing to act as such to the LLP and DIN by filing Form 9 with the ROC.
  2. The particulars of the designated partners and intimation of their DIN shall be filed by the proposed LLP with the Registrar of Company in Form 4 within 30 days of their appointment.
  3. The fees for filing Form 4 depends upon the contribution of LLP which is as follows:-
  • Contribution </= 1 lakh – Rs. 50
  • Contribution > 1 lakh but </= 5 lakhs – Rs. 100
  • Contribution > 5 lakhs but </= 10 lakhs – Rs. 150
  • Contribution > 10 lakhs – Rs. 200

The fees must be paid to the Registrar.

Step 5: Reservation of a name

  1. A name must be reserved for the proposed LLP and the name must be such as is not prohibited by the Rule 18 of the Limited Liability Partnership Rules, 2009. Link to find the rules : http://www.llponline.in/llp_rule_issued.php#1
  2. Application for reservation of name must be made in Form1 to the Registrar within whose jurisdiction the registered office of the proposed LLP is to be situated.
  3. Approximate time for intimation of reservation of name by Registrar – 7 days from date of filing application.
  4. The name shall be available for reservation for a period of 3 months from the date of intimation by Registrar.
  5. Fees for filing Form-1 is Rs. 200
  6. Every LLP should have the words “limited liability partnership” or acronym “LLP” as the end of its name.

Step 6: Drafting of LLP agreement

  1. An agreement in writing must be made before incorporation of an LLP between the partners who will subscribe their names to the incorporation document. A sample LLP Agreement is available here : http://www.llponline.in/draft_llp_agreement.php
  2. Such an agreement will state the mutual rights and duties of the partners of the LLP and the LLP itself.
  3. The agreement must be subsequently ratified by the LLP, after incorporation.

 

Step 7: Filing of Incorporation document

  1. The partners of LLP shall subscribe their names to the incorporation document. The incorporation document shall include the following details:
    1. Name of the LLP
    2. Proposed business of the LLP
    3. Address of the registered office of the LLP
    4. Names and addresses of all the persons who are to be partners of LLP on incorporation
    5. Names and addresses of all the persons who are to be designated partners of the LLP on incorporation
    6. Such other information concerning the proposed LLP as may be prescribed.
  1. The incorporation document shall be filed with the Registrar in Form-2 along with the fees which depend on the amount of contribution of LLP as follows:-
  • Contribution </= 1 lakh – Rs. 500
  • Contribution > 1 lakh but </= 5 lakhs – Rs. 2000
  • Contribution > 5 lakhs but </= 10 lakhs – Rs. 4000
  • Contribution > 10 lakhs – Rs. 5000
  1. A statement must be filed along with the incorporation document made by either an advocate, or a Company Secretary or a Chartered Accountant or a Cost Accountant who is engaged in the formation of such LLP and by anyone who subscribed his name to the incorporation document, that all the requirements in respect of incorporation have been complied with.
  1. The statement shall be provided in the format provided in PART B of Form 2.

 

Step 8 : Certificate of Incorporation

  1. After the Registrar is satisfied that all the formalities with respect of incorporation has been complied with, he will issue a “Certificate of Incorporation” as to formation of LLP.
  2. The Certificate of Incorporation will be issued within a maximum of 14 days from the date of filing of all documents.
  3. Every LLP, so registered, shall be assigned a LLP Identification Number (LLPIN) in one consecutive series.

Step 9: Filing of LLP agreement

  1. The LLP agreement must be filed with the Registrar, after ratification from all partners, in Form 3 within 30 days from the date of incorporation of LLP.
  2. The fees for filing Form 3 depends upon the amount of contribution of LLP as follows:-
  • Contribution </= 1 lakh – Rs. 50
  • Contribution > 1 lakh but </= 5 lakhs – Rs. 100
  • Contribution > 5 lakhs but </= 10 lakhs – Rs. 150
  • Contribution > 10 lakhs – Rs. 200

  1. The LLP agreement must be stamped in accordance with the Stamp Act applicable in the relevant State where LLP is being incorporated.

Advantages:

 

  1. Limited Liability – Unlike proprietorship and partnership, if an LLP becomes insolvent and is wound up, only the assets of the LLP are used to clear its debts. The partners of LLP have no personal liabilities.

  1. Audit Requirements – Audit is not required unless capital exceeding Rs. 25 lakhs or turnover exceeding Rs. 60 lakhs.

  1. Separate Legal Entity – An LLP is a legal entity, a juristic person established under the Act. It has its existence separate from its partners.

  1. Tax benefits – LLPs are taxed like general partnership firms. LLPs pay an effective tax of 30.9%. They are exempted from 10% surcharge. LLPs tax payment is lower than that of companies.Unlike Private or Public Companies, no requirement for payment of Dividend distribution/Corporation Tax on distribution of income/profits among partners and there is no requirement as to Minimum Alternate Tax.

  1. Other Important Advantages
  • Low cost of formation and compliances [Approximate cost – INR 8000]
  • Less statutory compliances as compared to Private limited Companies
  • Less requirements as to maintenance of statutory records
  • No requirement of any minimum capital contribution
  • No restrictions as to maximum number of partners
  • Body corporate can be a partner of an LLP
  • Easy to dissolve or wind-up

Disadvantages:

  1. Disagreements – As the partnership is jointly run, it is necessary that all partners agree with things that are being done. This may lead to disagreements and disputes which can harm the business and relationships of those involved.

  1. Taxation – The partners of an LLP must pay tax in the same way as sole traders, each submitting a Self Assessment taxreturn each year. Therefore, if the partners earn higher profits, they are subjected to greater levels of personal taxation than they would be in a limited company.

  1. Profit Sharing – Partners share the profits equally. This can lead to inconsistency where one or more partners may not put a fair share of effort into management of business, but still they reap the rewards.

  1. Less Business Credibility – Corporations gain much more respect and are generally more successful than LLPs. Many consumers or clients do not see LLPs as a credible business.

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