Limited Liability Partnership (LLP) – Introduction and Advantages?
Limited Liability Partnership (LLP) is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. It can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. It is a separate legal entity and is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
Further, no partner is liable on account of the independent or unauthorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
The Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity. Since an LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.
Legal Procedure for Incorporating a LLP:
1. User Registration on MCA Website:
The first step towards incorporating an LLP is to register oneself on the website of the Ministry of Corporate Affairs, developed for LLP services, i.e. www.llp.gov.in. This website may also be accessed through the website of the ministry www.mca.gov.in.
On the home page of the URL www.llp.gov.in click “Register” tab on top right hand corner of the page and the registration form will open. Then you have to fill in the registration form. Fields marked * in the form are to be filled mandatorily by every person.
Then the person has to select his username and password and the digital signature of that person should also be uploaded by him. After completion of this process you will be registered successfully.
2. Obtain Director Identification Number (DIN).
Every individual intending to be appointed as a designated partner of a limited liability partnership has to make an application for allotment of Director Identification Number. MCA has vide its notification amended the limited liability partnership rules, 2009. Now instead of DPIN, every partner who will be appointed as designated partner, will need to apply for DIN and not DPIN.
There is a fixed fee of Rs 100 for this e-Form and it can only be paid through online mode (credit card/ internet banking). There shall be no requirement for physical submission of the documents at the DIN cell. All the necessary documents shall need to be provided to person intending to become a director in a new Company who is required to apply for the allotment of Director Identification Number only through SPICe eform at the time of incorporation.
Any person intending to become a director in an existing company shall have to make an application in eForm DIR-3 for allotment of DIN. DIR-6 Form has to be filled to make changes to any particulars uploaded in DIR-3 Form. DIN may be applied from: http://www.mca.gov.in/MCA21/ Din.html .
3. Digital Signature Certificate
The Partner/Designated partner of LLP or any proposed LLP, whose signatures are to be affixed on the e-forms has to obtain a class 2 or class 3 Digital Signature Certificate (DSC) from any authorized certifying agency and the names and details of these certifying authorities are available on the home page of the LLP portal under the tab “Certifying Authorities”.
4. Reservation of Name
For reserving a name for your LLP you have to log on to the LLP portal by clicking the “login” tab on the top right corner of the homepage and enter your username and password. After login, click on the “E-Forms” link. Open Form-1 for reservation of name and fill in the details and then select the name of the proposed LLP.
Any partner or designated partner in the proposed LLP may submit Form-1 after entering the digital signature on it. The necessary fees have to be submitted using a credit card.
Free name search facility of existing companies / LLPs is also available on MCA portal. The system will provide the list of similar/closely resembling names of existing companies/LLPs based on the search criteria filled up by the person.
Details of minimum two designated partners of the proposed LLP is required to be filled in the application for reservation of name. In order to check status of your application, you can do so by logging onto the portal.
5. Incorporation of LLP
Once the name is reserved by the Registrar, log on to the portal and fill up Form-2 “Incorporation Document and Statement”. Pay the prescribed registration fee as per the slab given in Annexure A of the LLP Rules, 2009, based on the total monetary value of contribution of partners in the proposed LLP.
Statement in the e-form is to be digitally signed by a person named in the incorporation document as a designated partner having permanent DIN and also to be digitally signed by an advocate/company secretary/chartered accountant/cost accountant in practice and engaged in the formation of LLP.
On the submission of complete documents the Registrar after satisfying himself about compliance with relevant provisions of the LLP Act, will register the LLP within 14 days of filing of Form-2 and will issue a certificate of incorporation in Form-16. You can check status of your application by logging on to the portal.
6. Filing of LLP agreement (Form-3) and Partners’ details (Form-4)
Form 3 (Information with regard to LLP agreement and changes, if any made therein) and Form-4 (Notice of Appointment of Partner/ Designate Partner, his consent etc.) may be filed with the prescribed fee simultaneously at the time of filing Form-2 or within 30 days of the date of incorporation or within 30 days of such subsequent changes.
Annual Filings of an LLP:
One of the most critical requirements after forming an LLP are the annual form filings. The Statement of Account & Solvency has to be filed using the FORM No. 8. Further the Annual Return has to be filed using the FORM No. 11. The deadline for filing both forms is the 31st May of each year. Failure to file the forms on time would entail monetary penalty to the tune of Rupees One Hundred (Rs. 100/-) per day, resulting in a huge sum as time flies by.
Time Limit for Filing Annual Return and Statement of Accounts and Solvency:
Annual return of a LLP is due within 60 days at the end of a financial year. LLPs must uniformly maintain a financial year that starts on April 1st and ends on March 31st, therefore the Annual return of a LLP is due on or before May 30th of each financial year. On the other hand, Statement of Accounts and Solvency of an LLP is due within 30 days from the end of six months of close of financial year. Statement of Accounts and Solvency is a mandatory filing that is required for all LLPs in India.
LLPs – The Way Ahead:
The advantages of LLPs are many. There is no requirement of minimum contribution whereas in case of private limited companies minimum capital of Rs 5 lakh is required. There is also no limit on the maximum number of partners in a LLP but in case of a private limited company it should not have more than 200 members. The registration cost is also lower as compared to that of a company. There is also no requirement of compulsory audit in a LLP. Therefore, so long as one is regular with his annual filings and regulatory compliance, forming an LLP is an efficient way to do business. The only disadvantage would be its inability to avail of the corporate tax reduction schemes announced by the Government of India, as it would continue to be taxed as a standard partnership at 30%.