A Limited Liability Partnership (LLP) is a type of partnership in which some or all the partners have limited liabilities. No partner in an LLP is held responsible for another partner’s negligence or misconduct. Hence, LLP provides the benefits of private limited companies and corporations, while keeping the hassles in the registration process to a minimum.
Like with shareholders in a corporation, some partners in an LLP have a form of limited liability. That is a stark difference from the traditional partnership in which each partner has several and joint liabilities. LLP also differs from a corporation in the sense that partners in an LLP manage the business directly unlike shareholders who elect a board to carry out important duties.
In India, LLPs are governed by the Limited Liability Partnership Act 2008. For purposes of taxation however, LLPs are treated like the conventional partnership firm. Partners in an LLP are protected from personal liabilities except to the extent of their contribution to the capital.
Differences between LLP and Partnership
Partnership Act 1932
Limited Liability Partnership Act, 2008
To be registered with a registrar
Cost of formation
Formation costs are negligible
Higher than partnership, lesser than company
No succession as it depends on the will of each partner involved
Can have perpetual succession as partners come and leave
Formalities of Incorporation
For registration, deed of partnership + form/affidavit has to submitted to Registrar of firms and the required fee must be paid
Multiple forms need to be filled and submitted to Registrar of LLP along with required fee
Min: 2Max: 20
Min: 2Max: No upper limit
Liability of members
Unlimited. Every member is jointly and severally liable for actions of other members
Each member’s liability is limited to the extent of their contribution to the capital
Members share joint ownership of assets belonging to the firm
The LLP firm has the ownership of the assets
Inheritance/Transfer of rights
Not transferable. If a partner dies, legal heir inherits the share
Rules of inheritance/ transfer are governed by the contract of LLP
Right to vote
Depends on the agreement
Depends on terms of LLP
Can be done by agreement, court order, mutual consent or other fixed contingencies
Can be done voluntarily or by the order of National Company Law Tribunal
Registering an LLP in India
To register an LLP in India, there are six specific steps. Before you begin with these steps, it would be wise to decide a name for your LLP. Following are the steps that you need to follow to register an LLP in India-
#1 Obtaining the Designated Identification Number (DIN)
Every person who wishes to be identified as a designated partner of an LLP must submit the application for allotment of the DIN. The Ministry of Corporate Affairs (MCA) has made it clear that no member wishing to become a member need to submit an application for Designated Partner Identification Number (DPIN). As of now, DIN is sufficient.
The e-form costs Rs. 100/- and can be submitted only through the internet. Physical submission is not possible or necessary. Keep the following in mind while you apply for the DIN-
Prefixes like Ms/Mrs/Mr etc are not allowed. Single letters cannot be placed in the fields for first names or surnames.
What name you submit on the form must be exactly the same as the name in your ID document.
A photograph with clear frontal view of applicant’s face must be attached to the form.
Applicant’s name, father’s name and DOB must be exactly the same as submitted for tax PAN details. PAN is mandatory for applicants of Indian nationality.
All documents submitted must not be older than two (2) months, including photograph.
If you are a foreign national, documents including address proof must not be older than one (1) year.
Submit an affidavit as per the rules stated in Annexure 1 of DIN rules.
Submit application online and collect system generated DIN
#2 Registering the Digital Signature
In order to submit your application for DIN, you need to obtain Class 2 or Class 3 digital signature certificate (DSC). This can be obtain from any authorized certifying agency. Once you get the certification, register the same on the MCA website. You will need to upload your DCS to the website.
#3 Filing the Form 1 for availability of name
On the MCA portal, you can check whether the name you have selected is available or not. The site may pull up a list of companies already registered with similar names. Once you ensure that the name of your choice is not already taken, download and fill the Form 1.
You will need to submit the details of a minimum of two (2) designated members and their DIN and DSC. If the designated partner is a company, submit the company’s CIN. Recheck the form to make sure than incorrect information has not been entered. Append the DIN and DSC and pay a fee of Rs. 200/- and submit the form. This has to be done online.
#4 Submission of Form 2
Form 2 is regarding the incorporation and submission document. In this form, you will need to mention the number of partners and the total number of designated partners. You will also need to mentioned the exact monetary value of each member’s contribution to the capital.
In Form 2, every partner’s/nominee’s/witness’s name, signatures and other relevant details must be included. Proof of registered office of the LLP too should be submitted. All individuals should give prior consent in writing to become a designated partner of an LLP.
Once the form is ready, pay the required fees and submit it online.
#5 Creation of LLP agreement
This is without doubt, one of the most important documents concerning an LLP. Its drafting must be in accordance with the clauses mentioned in LLP Act 2008. As this is a document which will decide the behaviour of partners and the functioning of the LLP as such, it is recommended that this document be drafted with the help of a professional.
Here are some clauses that must never be missed from an LLP document.
Details of designated partners
Initial contribution made by each partner
Ratio of sharing of net profit and losses
Interest payable on capital loan
Names of working partners and the remuneration payable to them
Operation mode of bank accounts
Duties and rights of partners/designated partners
Appointment procedure for arbitrator
Amendment, winding up and extent of liability of LLP
#6 Filing the LLP agreement – Form 3
The LLP agreement prepared in accordance with the rules mentioned above must now be uploaded to the MCA website. Once it is approved, your LLP’s registration is complete!
The easy way out!
Just looking at the lengthy procedure to register an LLP makes potential entrepreneurs cringe. These procedures often require professional help or supervision. Hence, if you are not confident enough to do it yourself, you can approach LegalDesk.com. We shall deal with the tough bits while you can take care of more important things. Contact us and we will get things done for you!
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