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UNDERSTANDING LIMITED LIABILITY PARTNERSHIPS
In recent years, Indian businesses have seen a significant rise in the formation of Limited Liability Partnerships (”LLPs”). Combining the flexibility of a partnership with the limited liability protection of a company, LLPs have become a favored choice for entrepreneurs and professionals.
An LLP is a hybrid business structure that merges the flexibility of a partnership firm with the benefits of limited liability for its partners. It operates as a separate legal entity, ensuring that the partners’ personal assets are protected from the business’s liabilities.
THE ESSENTIALS OF LLP INCORPORATION
- The formation and operation of LLPs in India are governed by the Limited Liability Partnership Act, 2008. Below are the fundamental requirements:
- Minimum Partners: A LLP must have at least two partners, who can be either individuals or corporate entities. These partners contribute capital and share profits and losses according to the ratio specified in the LLP Agreement.
- Designated Partners: A LLP must have at least two designated partners, with one being a resident of India. These partners oversee the day-to-day operations and are accountable for the LLP’s contracts and obligations. They are also responsible for ensuring compliance with all statutory and regulatory requirements.
- LLP Agreement: This essential document details the rights, duties, profit-sharing ratios, and dispute resolution mechanisms for the partners. It regulates the internal operations of the LLP and acts as a binding contract between the partners.
The LLP Agreement should be drafted meticulously, addressing aspects such as capital contributions, profit-s haring ratios, voting rights, admission of new partners, procedures for partner retirement or death, and dispute resolution methods.
THE INCORPORATION PROCESS
- Obtain Digital Signature Certificates (“DSC”): All designated partners require DSC for online filing.
- Apply for Designated Partner Identification Number (“DPIN”): All designated partners must have a DPIN, which is acquired through the Ministry of Corporate Affairs (“MCA”) portal.
- Incorporate LLP using Form for Incorporation of Limited Liability Partnership (“FiLLiP”): This online form simplifies the incorporation process by combining name reservation, DPIN application (if not already obtained), and LLP incorporation into a single step.
- File LLP Agreement (eForm-3): Within 30 days of incorporation, file the drafted LLP Agreement with the MCA (eForm-3).
- Pay the Statutory Fees: Pay the required statutory fees for incorporation, which typically includes the registration fee and fee for filing the LLP Agreement.
- Obtain the Certificate of Incorporation: Once the Registrar of Companies (“ROC”) approves application, it issues the Certificate of Incorporation, officially recognizing LLP as a legal entity.
KEY FEATURES OF FiLLiP:
- Streamlined Name Reservation: Traditionally, name reservation for an LLP involves filing a separate eForm-1 with the MCA. FiLLiP integrates this step into the LLP incorporation process, saving time and effort. One can propose multiple names in order of preference, and the MCA will check for availability and compliance with naming rules.
- Integrated DPIN Application: Not all designated partners may have a DPIN beforehand. FiLLiP allows for the online application of DPINs during the LLP incorporation process itself. This eliminates the need for a separate DPIN application for each designated partner, streamlining the process.
- Document Submission: FiLLiP facilitates the electronic upload of all necessary documents, including the DSC of the partners, the LLP Agreement, and proof of identity and address for all partners. This online document submission process ensures efficiency and eliminates the need for physical submission of paperwork.
Post-Incorporation Compliances
After successfully incorporating LLP, there are several ongoing compliances one must adhere to:
- Maintain Statutory Registers and Records: The Limited Liability Partnership Act, 2008 mandates maintaining statutory registers like the Register of Partners, Register of Contributions of Partners, and the Statement of Account and Solvency.
- Comply with Tax Obligations: LLPs are taxed as pass-through entities, meaning the profits/losses are passed on to the partners and taxed according to their individual tax brackets. However, LLPs are liable to pay indirect taxes like Goods and Services Tax (GST) depending on the nature of their business.
- Update any changes in the LLP Agreement or partner details: Any changes in the partnership structure, profit-sharing ratios, or partner details must be mentioned in the LLP Agreement and filed with the RoC.
OVERVIEW
Incorporating an LLP in India offers a compelling option for businesses seeking the benefits of limited liability and flexible internal management structures. By following the steps outlined above, understanding the legalities involved, and potentially seeking professional guidance, it becomes easier to successfully register LLP in India.
How we can help?
- Our experts provide comprehensive instructions on all the steps involved in LLP registration. We will assist our clients by obtaining necessary documents like name reservation approval, DPINs, and DSCs.
- Our team will draft and file LLP Agreement, outlining the rights and responsibilities of partners.
- Our team efficiently handles the preparation and submission of incorporation documents along with the required registration fees.
- Our team ensures that our client receives the official Certificate of Incorporation, marking the successful registration of LLP. The expertise and guidance of our professionals will help navigate and comply with all relevant to efficient LLP registration.
For more information or queries, please email us at
[email protected]
