Limited Liability Partnership- the legal entity
Limited Liability Partnership (LLP) is incorporated under the Limited Liability Partnership Act, 2008 and Rules made there under. LLP is body corporate and has perpetual succession and separate legal entity. The LLP has independent legal rights and obligations and its existence does not depend on the existence of the partner.
This is an alternative form of business entity wherein the liability of the partner is limited as under the Companies Act. LLP is best suited for professional services providers, traders, research personnel, especially when the liability for the services provided by the professionals can be huge as compared to assets of the LLP.
On operational flexibility front the LLP has much greater advantage as compared to the company. Due to this reason many private companies have converted themselves into LLP.
The incorporation and all filing requirement under the Act are done online and are required to be digitally signed.
Formation of LLP:
1) Minimum number of partners required for forming a LLP is two, they may be individual or body corporate who may be acting through their representative. At least one designated partner must be resident in India.
2) Obtain digital signature for the proposed Designated partner.
3) Obtain DPIN (designated partner identification number) from the central government for all the proposed Designated Partners. Where the Body Corporate is a designated partner, individual who will be nominee of that body corporate shall obtain the DPIN.
4) Apply for the name approval in Form 1
5) Obtain the Consent letter in FORM 9 from each designated partner.
6) Submit the incorporation documents within 3 months from the date of name approval in Form 2 with the ROC having jurisdiction over the proposed LLP
7) The documents/details needed at the time of filing form 2
i) Proof of address of the LLP
ii) Business activities to be carried on
iii) Name of the partners and designated partners
iv) Profit sharing ratio among the partners
v) Contribution by each partner and the manner of contribution
vi) Total contribution in the LLP
vii) Subscription sheet including the consents
viii) In- principle approval of the regulatory authority, if necessary
8) The Registrar of Companies will issue the certificate of Incorporation, if it is satisfied that all the incorporation formalities are followed
9) Finalize the LLP agreement and get it stamped and signed by all the partners.
10) LLP agreement and details of the designated partners shall be filled in Form 3 and 4 respectively within 30 days from the date of incorporation with the ROC.
The LLP can be incorporated in 20 to 25 days.
Formation of LLP only by bodies corporate:
The LLP Act permits formation of LLP only by the Bodies Corporate. The two individuals who are partners or representative of such Bodies Corporate can be designated as designated partners. One of the designated partners must be resident Indian.
Compliance requirement of LLP
Can be divided into two categories:
2)Event Based Compliance
Maintenance of Accounts – On cash or accrual basis. Books to be maintained at the registered office of the Company
Annual Returns Within 60 days from the close of financial year i.e. by May 30th For the LLPs formed after September 30th of a year, the financial year may end on the March 31st day of march of the year next following that year
Preparation Statement of Accounts and Certificate of Solvency Within six months from the close of financial year i.e. by September 30th For the LLPs formed after September 30th of a year, the financial year may end on the March 31st day of march of the year next following that year
2) Event Based Compliance:
Vacancy in the designated partner: Fill up the vacancy within 30 days of vacancy arising
Change in the LLP agreement: Intimate registrar within 30 days of the change
Change in the partner or designated partner Intimate registrar within 30 days of the change
Change of name or address of the partner Intimate registrar within 30 days of the change
The LLP needs to follow certain procedure for change in the name and address of the LLP.
Circumstance under which limited liability of the partners becomes unlimited
The number of partners in the LPP reduces below minimum requirement of two and the business of the LLP is carried on for more than six months and the partner has knowledge that it is carrying business with alone. In these circumstances the liability of the partner acting shall be unlimited.(Section 6)
When LLP or the partner of LLP act fraudulently, the liability of the partners becomes unlimited.