Features of Limited Liability Partnership

LLP is a Body of Corporate

As per Section 3 of the Limited Liability Partnership Act 2008 (LLP Act), an LLP is a corporate body established and registered under the Act. It exists as a distinct legal entity separate from its partners.

Perpetual Succession

Unlike a general partnership firm, a limited liability partnership has the advantage of perpetual succession. This means that even if one or more partners retire, become insolvent, suffer from mental incapacity, or pass away, the LLP can continue its operations. Additionally, the LLP has the capacity to enter into contracts and own property in its own name.

Separate Legal Entity

Similar to corporations or companies, an LLP is recognised as a separate legal entity. It holds full liability for its assets and obligations. Moreover, the individual partners’ liabilities are limited to their contributions to the LLP. As a result, the creditors of the LLP are not considered creditors of the individual partners.

LLP Agreement

The LLP Agreement is a contract agreed upon by all partners, outlining their rights and duties. Partners have the freedom to create the agreement according to their preferences. The Act will govern their mutual rights and duties if they don’t create one.

Artificial Legal Person

For legal purposes, an LLP is considered an artificial legal person. It is created through a legal process and possesses all the rights of an individual. It exists as an intangible, immortal entity but is not fictional since it has real existence.

Common Seal

An LLP may have a common seal if the partners use one (Section 14(c)). However, having a seal is not mandatory. If they choose to use a seal, it must be kept under the custody of a responsible official. The seal can only be affixed by at least two designated partners.

Limited Liability

Under Section 26 of the Act, each partner is an agent of the LLP for its business activities. However, a partner is not an agent of other partners. The liability of each partner is limited to their agreed contribution to the LLP, providing personal liability protection to all partners.

Minimum and Maximum Number of Partners

Every LLP must have a minimum of two partners, and at least two of them must be individuals serving as designated partners. At least one designated partner should always be a resident of India. There is no maximum limit on the number of partners in the LLP.

Business Management and Structure

The partners of the LLP have the authority to manage the business. However, only the designated partners are responsible for ensuring legal compliance.

Business for Profit Only

LLPs are specifically formed to conduct lawful business to earn a profit. They cannot be established for charitable or non-profit purposes.

Investigation

The Central Government holds the power to investigate the affairs of an LLP. They can appoint a competent authority for this purpose.

Mutual Agency

Unlike a partnership firm, in an LLP, actions taken by one partner independently and without authorisation do not make other partners liable. Each partner is considered an agent of the LLP, and the actions of one partner do not bind the others.

Pre-requisites for Incorporating an LLP

• Minimum two partners allowed (Individual or body corporate)
• At least two designated partners are required, with one being an Indian resident
• A digital signature certificate needed
• Mandatory to have an LLP name
• An LLP agreement is essential
• A registered office must be established.

Stages of Incorporation of LLP

Procure Digital Signature Certificate

To file online forms with the MCA, applicants and partners of the LLP need a Digital Signature Certificate (DSC) with a validity of 2 years PAN CARD

Reserve LLP Name

• The new process for reserving a unique name for an LLP involves using the web form ‘RUN-LLP’ (Reserve Unique Name – Limited Liability Partnership)
• This simplified form replaces the old LLP Form 1 and requires basic details and the significance of the desired name
• Applicants can provide up to 2 names in order of preference, ensuring compliance with applicable provisions for name reservation
• If none of the names provided are approved, there is an opportunity to apply for two more names
• The government fees for the RUN form follow the Register Office Fees Rules
• DSC (Digital Signature Certificate) and DIN (Director Identification Number) are not required for filing the RUN form, but having an MCA portal account is mandatory
• Once the name is allotted for the LLP, it is reserved for 90 days from the date of approval.

LLP Incorporation and DIN Application

LLP Incorporation Application with FiLLiP

The new LLP incorporation application process brings a significant change with the introduction of FiLLiP (Form for incorporation of Limited Liability Partnership). This updated form streamlines the process and offers the integration of the DIN Allotment Application with the incorporation application.

Here are the key points to know about this application:

DPIN/DIN Application

• Up to 2 Designated Partners (DPs) can apply for DPIN/DIN through this application
• Additional DPs without DIN can be added later through respective filings.

Optional Name Reservation

• The application allows for optional name reservations, which can be done either through LLP-RUN or this form

Document Submission

• The application requires the submission of necessary documents, including the subscriber’s sheet and proof of the registered office address

Attestation and Certification

• Partners need to attest the e-form using a PAN-based DSC (Digital Signature Certificate).
• The form must be certified by a practising professional (CA/CS/CWA).

Application Processing

• The Central Registration Centre (CRC) processes the application for approval.If required, the registrar may ask for further documents or information, with a maximum resubmission period of 20 days.

Certificate of Incorporation (CoI)

• The Certificate of Incorporation (CoI) in Form 16 is issued upon approval
• DPIN/DIN is also provided for the Designated Partners
• The CoI contains the LLP Identification Number (LLPIN), marking the official date of LLP incorporation

Commencing Business

• With the Certificate of Incorporation in hand, the LLP can legally commence its business under its registered name.

Apply for PAN and TAN

Unlike companies, LLPs must separately apply for PAN and TAN through offline or online mode. Applications are made directly to the Income Tax Department using forms 49A and 49B, respectively, with the Certificate of Incorporation as supporting proof.

Drafting and Filing LLP Agreement

The next crucial step in the LLP incorporation process involves carefully crafting the LLP Agreement to meet the partners’ specific requirements. This agreement serves as the foundational document of the LLP and outlines key aspects of the business.

Here are the essential details included in the LLP Agreement:

• LLP’s Name: The agreement specifies the chosen name of the LLP, ensuring it aligns with the approved name reserved during the earlier stage of the process.
• Partners and Designated Partners’ Details: The agreement includes the names and addresses of all partners and designated partners involved in the LLP.
• Business Objectives: The objectives and scope of the LLP’s business activities are clearly defined in the agreement.
• Place of Business: The physical location of the LLP’s registered office and any additional places of business are documented.
• Contribution and Interest on Contribution: The agreement outlines the capital contributions made by partners and the corresponding interest on those contributions.
• Profit Sharing Ratio: The distribution of profits among partners is stated, highlighting the agreed-upon profit-sharing ratio.
• Rights and Duties of Partners: The agreement delineates the rights and responsibilities of partners in various scenarios, such as admission, resignation, retirement, etc.
• Proposed Business: A detailed description of the proposed business activities and operations of the LLP is provided.
• LLP Governance Rules: The internal governance structure and decision-making processes within the LLP are outlined in the agreement.

Execution of the LLP Agreement

Once the LLP Agreement is meticulously drafted, it undergoes a thorough review and agreement among all partners. Once consensus is reached, the agreement moves to the execution stage, involving the following steps:

• Payment of Stamp Duty: The LLP Agreement attracts a stamp duty, which must be paid in accordance with the applicable state laws.
• Signing by Partners: All partners involved in the LLP must sign the agreement, indicating their acceptance and commitment to its terms.
• Attestation by Witnesses: The signed LLP Agreement is attested by witnesses, validating the authenticity of the signatures and the document.

Once all partners thoroughly review and agree upon the LLP Agreement, it will be executed by paying the necessary stamp duty. The amount of stamp duty required will be determined by the respective State Stamp Act of the location where the registered office of the LLP is situated. After the payment of stamp duty, the agreement will be formally executed with the signatures of the partners and attestation by witnesses.

Effect of Registration (Section 14)

Upon receiving the certificate of registration from the Registrar of Companies, the LLP attains the status of a body corporate, establishing itself as a distinct legal entity separate from its individual members.

As a result, the LLP is entitled to exercise the following rights:

• Legal Representation: The LLP has the authority to initiate legal actions and be a party in legal proceedings, both as a plaintiff (suing others) and as a defendant (being sued by others) under its own name
• Property Rights: The LLP can acquire, own, hold, develop, or dispose of various types of property, whether tangible or intangible, movable or immovable
• Common Seal (Optional): While the LLP has the option to have a common seal, it is not a mandatory requirement for its operation
• Legal Capacity: The LLP is empowered to undertake any lawful acts and endure any legal consequences that other bodies corporate are permitted to do and suffer.

LLP Agreement Format

LIMITED LIABILITY PARTNERSHIP AGREEMENT

Name of Partner 1 (the ‘First Partner’):

Address: [Address]
Capital Contribution: [Amount or Description]
Profit-Sharing Ratio: [Percentage]
Name of Partner 2 (the ‘Second Partner’):

Address: [Address]
Capital Contribution: [Amount or Description]
Profit-Sharing Ratio: [Percentage]
[Add more partner sections if there are additional partners]

1. NAME AND ADDRESS OF THE LLP:

The name of this Limited Liability Partnership shall be [LLP Name], and its registered office address shall be [Address].

2.NATURE OF BUSINESS:

The LLP shall engage in the business of [Describe the nature of the business activities].

3. DURATION OF THE LLP:

This LLP shall exist indefinitely unless dissolved by the mutual agreement of the partners or as otherwise provided by law.

4.CAPITAL CONTRIBUTIONS:

Each partner’s initial capital contribution and any additional contributions shall be as specified above. Capital contributions shall be made in cash or as otherwise agreed upon by the partners.

5. PROFIT AND LOSS SHARING:

Profits and losses of the LLP shall be allocated among the partners based on their profit-sharing ratios as specified above.

6. MANAGEMENT AND DECISION-MAKING:

The management of the LLP shall be vested in the partners. Major decisions shall require a unanimous vote of all partners, except as otherwise specified in this Agreement.

7. MEETINGS AND VOTING:

Regular meetings of the partners shall be held [Specify frequency]. Notice of meetings shall be provided [Specify notice period]. Voting shall be based on the profit-sharing ratios unless otherwise agreed.

8. WITHDRAWAL OR RESIGNATION:

A partner may withdraw or resign from the LLP by providing [Specify notice period] written notice to the other partners. The treatment of the withdrawing partner’s capital shall be determined as per the agreement.

9. ADMISSION OF NEW PARTNERS:

New partners may be admitted with the unanimous consent of the existing partners, subject to negotiation of their capital contribution and profit-sharing ratio

10. DISSOLUTION AND WINDING UP:

The LLP may be dissolved by a unanimous vote of the partners or as otherwise provided by law. Upon dissolution, the winding-up of affairs shall be conducted in accordance with applicable legal requirements.

11. GOVERNING LAW:

This Agreement shall be governed by and construed in accordance with the laws of [Jurisdiction].

12. AMENDMENT OF THE AGREEMENT:

This Agreement may be amended by written agreement of all partners.IN WITNESS WHEREOF, the partners hereto have executed this Agreement as of the date first above written.

LLP Name Structure

The name of an LLP must comply with the following requirements:

• It must contain the words ‘Limited Liability Partnership’ or the abbreviation ‘LLP’.
• It must not be identical or deceptively similar to the name of any other existing company or LLP.
• It must not contain any words or expressions that are obscene, offensive, or misleading.

Advantages of Limited Liability Partnership

• Limited liability: The partners of an LLP are not personally liable for the debts and liabilities of the LLP. This means that their assets are protected if the LLP becomes insolvent.
• Pass-through taxation: LLPs are taxed as pass-through entities, which means that the income of the LLP is taxed directly in the hands of the partners. This avoids double taxation when companies distribute their profits to shareholders.
• Flexibility: LLPs are relatively flexible regarding their management structure and ownership. The partners can agree on any management structure they choose, and there are no restrictions on transferring ownership interests.

LLP Registration Fees

Details of Fee

**Subject to change as per the state requirements, additional professional fees incurred.

For registration of Limited Liability Partnership, including conversion of a firm or a private company or an unlisted public company into Limited Liability Partnership:

The difference between the fees payable on the increased slab of contribution and the fees paid on the preceding slab of contribution shall be paid through Form 3.For filing, registering or recording any document, form, statement, notice, Statement of Accounts and Solvency, annual return, and an application along with the Statement for conversion of a firm or a private company or an unlisted public company into LLP by this Act or by these rules required or authorized to be filed, registered, or recorded:

Fee for any application other than the application for conversion of a firm or a private company or an unlisted public company into LLP shall be as under:

Fee for inspection of documents or for obtaining a certified copy thereof shall be as under:

Important Forms in LLP Registration

Highlights

• The agreement must be submitted to the Ministry of Corporate Affairs (MCA) within 30 days from the date of incorporation. Failure to do so will result in a penalty of Rs. 100 per day until the actual filing date.
• The filing is done using LLP form-3, which remains the same as in the previous process. The verification and approval are now processed by the concerned State Registrar of Companies (ROC) instead of the Central Registration Centre (CRC).
• The name allotted under LLP-RUN will be reserved for a duration of 90 days. If the LLP registration application (FiLLiP) is not filed within this period, the name reservation will expire and can be reserved again through a new application.
• FiLLiP allows for the allocation of only 2 DPIN/DIN (Designated Partner Identification Number). If there are more than 2 designated partners, the additional partners will need to obtain DPIN/DIN by filing DIR-3 after the incorporation process. Subsequently, the LLP can add new designated partners or change the designation of partners as required.
• The certificate of incorporation serves as conclusive evidence that the limited liability partnership is incorporated under the specified name.
• The Registrar of Companies (ROC) assigns a unique Limited Liability Partnership Identification Number (LLPIN) to every registered LLP.

Difference between Partnership and LLP

The LLP Agreement will contain essential details such as the LLP’s name, the names and addresses of partners and designated partners, the business objectives, and the registered office address. Additionally, it will include other crucial clauses, such as the form of contribution and interest on contribution, profit sharing ratio, and the rights and duties of partners in various scenarios like admission, resignation, retirement, cessation, and expulsion. The agreement will also outline the proposed business activities and the rules governing the LLP

Recent Amendments

LLP (Amendment) Rules, 2023 – Revised LLP Form No.3

The LLP (Amendment) Rules, 2023, which came into effect on June 2, 2023, have revised LLP Form No. 3, which is used to file information about the LLP agreement with the Registrar of Companies (ROC). The revised form includes additional disclosure requirements, such as the following:

• Whether the nominee of a partner is a body corporate, and if so, the body corporate and its LLPIN/CIN/FLLPIN/Other Identification Number
• Whether the LLP agreement contains any provisions relating to the conversion of the LLP into a company, and if so, the details of such provisions
• Whether the LLP agreement contains any provisions relating to the winding up of the LLP, and if so, the details of such provisions.

New Web-Based Forms for LLP Formation:

• The LLP Amendments, 2022 have introduced web-based forms for all LLP processes
• LLP incorporation can now only be completed through these web-based forms, similar to SPICe Plus Forms used for company incorporation
• A notable change is that every LLP must now include Latitude and Longitude in the Address Block
• Directors’ information can be retrieved from the Digi Locker Database.

No Separate PAN and TAN Application Required:

• The Registrar issues the Certificate of Incorporation of an LLP in Form 16.
• Form 16 now includes the PAN (Permanent Account Number) and TAN (Tax Deduction Account Number) given by the Income Tax Department.
• Hence, like companies, LLP incorporation includes the PAN and TAN applications together, eliminating the need for separate applications.
• LLPs receive their PAN and TAN along with the official Certificate of Incorporation.

Five Designated Partners without DIN:

• The Limited Liability Partnership (Second Amendment) Rules, 2022 allow up to 5 individuals to apply for DPIN in the Form FiLLiP.
• At the time of incorporation, LLPs can now have up to five Designated Partners (without having a DIN), instead of just two.
• This enables the appointment of more than two Designated Partners (without DPIN/DIN) during incorporation.

Statement of Solvency and Certificate of Truthfulness:

The Statement of Account and Solvency must now be signed on behalf of the LLP by specific professionals. | The requirement for DPs to sign the Statement of Solvency has changed. | LLPs with Partner’s Contribution up to INR 50 Lakhs or sales up to INR 5 Crore must file a Certificate of Truthfulness and Correctness of Annual Returns. | Form 8 now includes specific reporting for contingent liabilities.

Other Changes in LLP (Amendments) Rules, 2022:

• Form 9 is now an online web-based form for filing Consent of Partners, replacing the previous offline format.
• All Designated Partners must provide their Digital Signatures at the time of LLP incorporation, instead of just one DSC.
• Forms 28 and 29 have been combined, and Form 28 should be filed with specific notices.
• Modifications to the LLP Deed must be recorded in detail in Form 3, unlike before when only the deed needed attachment.
• Form 11 (Annual Return) should now include information about penalties and compounding of offences.
• Special courts are to be established for speedy trials on criminal offences like fraud, according to the LLP (Amendments) Rules, 2022.