The Limited Liability Partnership (LLP) Act, passed into law in 2008, brought a significant level of liability protection and operational flexibility to the Indian business community, thus benefitting both professionals and entrepreneurs. This revolutionary law designated limited liability partnerships (LLPs) as separate legal entities from their partners, safeguarding personal assets from company obligations. This important change empowered small and medium-sized businesses and fueled the expansion of several service sectors by creating a favorable atmosphere for cooperation and creativity.
The Limited Liability Partnership Act of 2008 upholds transparency, accountability, and compliance with regulations, guiding the creation, operation, and closure of LLPs. This law not only encourages international investments and collaborations, bolstering India’s standing as a global business destination, but also upholds ethical business standards.
Why choose LLP:
1) Limited Liability:
Prior to the introduction of the Limited Liability Partnership Act, 2008 traditional partnerships used personal assets of the partners to pay their financial obligations and lead them towards unlimited liability.
In response to this risk, the LLP Act was enacted to safeguard partners’ personal assets.
2) Reliable for investment credit:
The requirement for LLP documentation to be submitted to governmental and regulatory bodies upon establishment is a notable benefit. This process minimizes the risk of fraud and deception, consequently enhancing the LLP’s credibility for obtaining credit and investments.
3) Simple and Inexpensive to incorporate:
One of the major benefits of incorporating an LLP is its simple procedure. The procedure is incredibly simple, inexpensive, and fast. The online completion of all documentation and applications highlights the cost and time efficiency of the process.
4) Simplified Compliance Procedures
Reduced compliance requirements and costs offer a notable advantage to Limited Liability Partnerships (LLPs). The act provides for compliance with a very handful of requirements, making its operational legal costs quite modest. Submission of LLP financial statements, annual returns, declaration of Solvency, and ITR are some of the compliances of LLP.
Formation of LLP: Pre incorporation compliance:
1) Obtain DSC and DPIN for Designated Partner:
In an LLP, a Designated Partner is selected to sign legal documents and represent the partnership in legal affairs. Obtaining a Digital Signature Certificate (DSC) for such a partner enhances credibility, strengthens security, and ensures compliance by enabling digital signing and certification of documents. Additionally, LLP formation requires a minimum of two partners.
A Designated Partner Identification Number (DPIN) is also necessary during LLP incorporation. Individuals aspiring to serve as designated partners in an LLP must secure their DPIN to have their information stored in the database maintained by the Ministry of Corporate Affairs (MCA), facilitating oversight of their directorial activities.
Documents required for DSC and DPIN:
1. Aadhar card for Address Proof.
2. PAN card
3. Bank statement.
4. Photograph (Passport Size)
2) Name Reservation:
Name reservation is one of the vital steps during the formation of an LLP. The RUN (Reserve Unique Name) form is used to file for a reservation of name, which the partners choose for their upcoming LLP. A person can propose up to two names that he desires for his LLP. A nominal fee of Rs.200/- must be paid while submitting the form. Once the name is filed, it is reserved for the next 90 days, in case the name is rejected, the same needs to be filed within 15 days from the date of marking the application as “Resubmission Required.”
During the naming process, it is essential to ensure that the proposed names are not already in use by another organization and do not infringe upon any provisions of the Trademark Act, 1999.
NIC Code:
Every business objective has a different 5-digit code allocated to it. The National Industrial Classification Code 2008 is used to determine the business’s activity sector and sub-sector. One can select the appropriate NIC code based on the primary business activity of their company or LLP while filing for registration. An LLP can choose up to three NIC codes to mention its objectives.
Steps for Reserving Name for LLP:
1. Complete the formalities of RUN form
2. Enter the desired name(s) for the LLP, up to two names permitted.
3. Fill out all the necessary details and sections to finish the form prior to submitting it.
4. After finishing all the necessary steps, pay the required fees and submit the form.
3) Incorporation of LLP:
For incorporating a new LLP, filing of FiLLiP form is necessary. Following are the quick steps on how to incorporate a new LLP using the FiLLiP form on MCA.
1. Create MCA login.
2. Click on MCA services, go to LLP e-filing and open Filip incorporation of LLP.
3. Enter the SRN number (in case name has already been approved).
4. Select the LLP form as a new incorporation and select next.
5. Mention the Registered office of LLP along with Longitude and Latitude.
6. Mention the contact details as per the given information along with necessary attachments.
7. Mention the details of LLP according to the information specified in RUN form.
8. Select the total number of Designated partners and partners in LLP.
9. The FiLLiP form shall be filed through Form 9 to the ROC.
4) Registrar verification:
Following submission, the registrar will examine the forms and supporting documents. If the registrar is satisfied with the legal requirements, authorization to proceed will be granted. In case the event that the Registrar is not satisfied due to the occurrence of any reasonable doubt, the form may be rejected with feedback provided for resubmission.
5) Certificate of Incorporation:
After completing all the legal requirements and documents, the registrar shall issue a Certificate of Incorporation, serving as conclusive proof of the LLP’s establishment. The LLP will then receive the LLPIN (Limited Liability Partnership Identification Number), as detailed in the COI.
After obtaining the COI, the LLP can commence its business. Any person can view the details of the LLP by using the LLPIN number on Master Data section of the Ministry of Corporate Affairs (MCA) website.
Beyond Incorporation: Post Incorporation Compliance
1) Filing of LLP Agreement:
Once the LLP is formed, there will be an LLP agreement between the partners. The purpose of this agreement is to define the rights and responsibilities of the partners in an LLP, and the rules for governing the business. The LLP agreement must be printed on stamp paper of the specified value, notarized, and signed in the presence of two witnesses.
2) Filing of Form-3:
Once the LLP agreement is drafted with all the necessary legal requirements, it shall be attached to Form-3. Form-3 shall be filed within 30 days of the incorporation of the LLP. The form shall be affixed by the DSC of a designated partner along with the DSC of a professional, making it certified.
3) Bank account opening of LLP:
While not strictly a part of post-compliance, opening a bank account is a crucial step following the LLP’s incorporation. As an LLP is legally distinct from its partners, it is essential to establish a separate bank account for the LLP. The process of opening a bank account for an LLP is typically straightforward.
Documents required for opening Bank account for LLP:
1. Copy of LLPIN of LLP.
2. DPIN of designated partner
3. Copy of LLP agreement
4. Copy of resolution to open bank account
Conclusion:
The Limited Liability Partnership (LLP) is a shining example of modern corporate innovation, offering a flexible framework that brings both legal stability and entrepreneurial spirit together. In this fast-paced era, LLP arises as a promoter of advancement, ensuring firms put and pursue their goals more confidently. In the coming years, LLP will remain an essential component of the ever-evolving business scenario, illustrating the power of mobility in an organization.
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