A Limited Liability Partnership (LLP) in India is a legal business structure that combines the flexibility of a partnership with the benefits of limited liability. India introduced the concept of a Limited Liability Partnership (LLP), regulating it through the Limited Liability Partnership Act of 2008. Establishing an LLP requires a minimum of two partners, with no specified upper limit on the maximum number of partners. It offers its partners the advantage of limited liability, meaning that their assets are protected in case of business debts or liabilities.
In an LLP, each partner is not personally responsible for the actions of other partners, and their liability is limited to their agreed-upon contribution. This structure is popular among professionals, consultants, and small to medium-sized businesses, providing them with a formal yet flexible framework for collaboration and business operations. In this blog let’s look into the steps to incorporate LLP, the documents required and eligible criteria.
Features of Limited Liability Partnership (LLP):
- Limited Liability: Partners have limited liability, protecting personal assets from business debts.
- Separate Legal Entity: An LLP is a distinct legal entity with its rights, obligations, and perpetual existence.
- Minimum and Maximum Partners: Requires a minimum of two partners, with no maximum limit on the number of partners.
- No Minimum Capital Requirement: No mandatory minimum capital contribution for formation.
- Perpetual Succession: Continuity unaffected by changes in partner composition.
- Audit Exemption: Small LLPs may be exempt from mandatory audits.
- Pass-Through Taxation: Profits are taxed at the partner level, avoiding double taxation.
- Foreign Investment: Permits foreign direct investment, encouraging international collaboration.
Advantages of Limited Liability Partnership (LLP):
- Limited Personal Liability: Partners’ assets are protected from business debts.
- Separate Legal Identity: LLP is considered a legal entity separate from its partners.
- Flexible Management: Allows flexibility in management and decision-making.
- No Minimum Capital Requirement: No mandatory minimum capital for incorporation.
- Reduced Compliance: Simplified compliance procedures compared to other structures.
- Tax Benefits: Follows a pass-through taxation system, reducing tax complexities.
- Transfer of Ownership: Ownership can be easily transferred with the induction of new partners.
Disadvantages of LLP:
- Penalties for Non-Compliance: Failure to meet compliance deadlines incurs heavy penalties.
- Winding Up Challenges: Dissolution may occur if the minimum number of partners falls below two for an extended period.
- Capital Raising Difficulty: LLPs face challenges in attracting equity investments from angel investors or venture capitalists due to their partnership structure.
Checklist for LLP Registration:
- Minimum of two partners.
- Each designated partner must have a DSC (Digital Signature Certificate) and DPIN (Designated Partner Identification Number).
- The chosen LLP name should be unique, and not similar to any existing LLP or trademark.
- Capital contribution by the LLP partners is mandatory.
- An LLP Agreement between the partners is required, outlining roles and responsibilities.
- Proof of the registered office of the LLP is a vital documentation requirement.
Steps to Incorporate LLP
The following steps will help in Limited Liability Partnership (LLP) formation.
- Obtain Digital Signature Certificates (DSC) for the Partners:
To obtain the Director Identification Number (DIN) for the LLP Partners, it is essential to have a Digital Signature Certificate (DSC). Consequently, the prospective Partner needs to obtain a Digital Signature Certificate. The DSC application can be filed with Taxxinn, and the DSC is typically valid for one or two years.
- Obtain Director Identification Numbers for the Partners:
Once Digital Signatures are secured for the Partners, the application for a Director Identification Number (DIN) can be initiated. DIN registration is usually prompt, and in rare cases, additional documents may be required for DIN application approval. DIN and DPIN are interchangeable terms. Once a DIN is obtained, there is no need for renewals, and each individual can possess only one DIN.
- Secure Name Approval:
With two DINs at hand, an application for name reservation can be submitted to the MCA. Adhering to the LLP naming guidelines is crucial, and appropriate names should be suggested to ensure swift approval. The Registrar of Companies (ROC) in the State of Incorporation processes the name approval application.
- File for LLP Incorporation:
After MCA accepts the name approval application, an LLP name approval letter is issued to the proposed Partners. They have 60 days to file the necessary incorporation documents and register the LLP. Failure to file within this timeframe requires re-obtaining approval for the LLP’s name.
During the LLP formation filing, documents demonstrating possession of the registered office are necessary. Once prepared, these documents, along with the signed subscribers’ sheet, must be submitted to the MCA for LLP registration.
- Apply for PAN and TAN:
Obtaining a PAN (Permanent Account Number) and TAN (Tax Account Number) is crucial. As part of the LLP registration process, practising professionals must submit forms 49A and 49B to secure PAN and TAN for the LLP.
- Draft LLP Agreement:
The LLP Agreement is an important document outlining the roles and responsibilities of the designated partners within the company. To initiate this process, submit Form 3 through the MCA portal, ensuring it is filed within 30 days of completing the LLP registration. Failure to meet this deadline incurs additional charges.
LLP Formation Documents Required for Partners:
- PAN cards and identity documents are required for each partner.
- Address proofs for partners, including documents like a driving license, passport, or voter ID, must be provided.
- Passport-size photograph of each partner.
- For foreign citizens and NRIs intending to become partners in an LLP, passport submission is mandatory.
Documents of the LLP
- Proof of registered office address
- Digital signature certificate.
LLP Forms
- FiLLiP: Form for LLP Incorporation
- RUN LLP: Form for LLP Name Reservation
- Form 3: Details about LLP Agreement
- Form 5: To rename an LLP.
- Form 8: Statement of Account and Solvency
- Form 17: For converting an existing partnership into an LLP.
- Form 18: For converting a private company into an LLP.
- Form 11: Annual Return of Limited Liability Partnership (LLP)
- Form 24: Application to Registrar of Companies for LLP Name Removal
Penalty:
File the agreement with the MCA within 30 days of the incorporation date. Any delay incurs a penalty of Rs. 100 per day until the actual filing date.
Eligibility Criteria for Obtaining LLP Registration:
- The minimum age for LLP formation is 18 years, and individuals below 18 years can also become members.
- A minimum of two individuals is necessary to establish an LLP.
- There is no maximum limit on the number of partners.
- No minimum capital is required to initiate an LLP, except for stamp duty.
- At least one person should be a resident of India.
- The LLP’s name should not resemble that of an already existing company.
Conclusion
The steps to incorporate LLP involves several key steps, each playing a crucial role in establishing the legal entity. From obtaining Digital Signature Certificates and Director Identification Numbers to securing name approval and filing for incorporation, each step contributes to the seamless formation of an LLP. Attention to detail, adherence to guidelines, and timely submission of necessary documents are essential throughout the process. By following these steps diligently, individuals can successfully navigate the LLP incorporation journey, laying a strong foundation for their businesses. At Taxxinn, we help you incorporate an LLP without any hassle.
Related Reads,
Digital Signature Certificate (DSC) for NRI/Foreign Nationals.