Need for the New Corporate Form

1. With the growth of the Indian economy, the role played by its entrepreneurs as well as its technical and professional manpower has been acknowledged internationally. It is felt opportune that entrepreneurship, knowledge and risk capital combine to provide a further impetus to India’s economic growth. In this background, a need has been felt for a new corporate form that would provide an alternative to the traditional partnership, with unlimited personal liability on the one hand, and, the statute-based governance structure of the limited liability company on the other, in order to enable professional expertise and entrepreneurial initiative to combine, organize and operate in flexible, innovative and efficient manner.

2. The Limited Liability Partnership (LLP) is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. The LLP form would enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements. Owing to flexibility in its structure and operation, the LLP would also be a suitable vehicle for small enterprises and for investment by venture capital.

3. Keeping in mind the need of the day, the Parliament enacted the Limited Liability Partnership Act, 2008 which received the assent of the President on 7th January, 2009.

Need for the New Corporate Form

i) The LLP shall be a body corporate and a legal entity separate from its partners. Any two or more persons, associated for carrying on a lawful business with a view to profit, may by subscribing their names to an incorporation document and filing the same with the Registrar, form a Limited Liability Partnership. The LLP will have perpetual succession;

ii) The mutual rights and duties of partners of an LLP inter se and those of the LLP and its partners shall be governed by an agreement between partners or between the LLP and the partners subject to the provisions of the LLP Act 2008. The act provides flexibility to devise the agreement as per their choice. In the absence of any such agreement, the mutual rights and duties shall be governed by the provisions of proposed the LLP Act;

iii) The LLP will be a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both tangible and intangible in nature. No partner would be liable on account of the independent or un-authorized actions of other partners or their misconduct. The liabilities of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP;

iv) Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be resident in India. The duties and obligations of Designated Partners shall be as provided in the law;

v) The LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A statement of accounts and solvency shall be filed by every LLP with the Registrar every year. The accounts of LLPs shall also be audited, subject to any class of LLPs being exempted from this requirement by the Central Government;

vi) The Central Government have powers to investigate the affairs of an LLP, if required, by appointment of competent Inspector for the purpose;

vii) The compromise or arrangement including merger and amalgamation of LLPs shall be in accordance with the provisions of the LLP Act 2008;

viii) A firm, private company or an unlisted public company is allowed to be converted into LLP in accordance with the provisions of the Act. Upon such conversion, on and from the date of certificate of registration issued by the Registrar in this regard, the effects of the conversion shall be such as are specified in the LLP Act. On and from the date of registration specified in the certificate of registration, all tangible (moveable or immoveable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company, shall be transferred to and shall vest in the LLP without further assurance, act or deed and the firm or the company, shall be deemed to be dissolved and removed from the records of the Registrar of Firms or Registrar of Companies, as the case may be;

ix) The winding up of the LLP may be either voluntary or by the Tribunal to be established under the Companies Act, 1956. Till the Tribunal is established, the power in this regard has been given to the High Court;

x) The LLP Act 2008 confers powers on the Central Government to apply provisions of the Companies Act, 1956 as appropriate, by notification with such changes or modifications as deemed necessary. However, such notifications shall be laid in draft before each House of Parliament for a total period of 30 days and shall be subject to any modification as may be approved by both Houses;

xi) The Indian Partnership Act, 1932 shall not be applicable to LLPs.

Check List for Incorporation of LLP
A LLP can be incorporated with at least two partners who may be either Individuals or Body Corporate (through their nominees). Further for incorporating an LLP, of the total number of partners, at least two shall be Designated Partners, of which at least one must be an Indian Resident.

Step 1 :
• Parameters for deciding the Partners and Designated Partners :

  1. At least Two Partners; Individuals or Body Corporate through individual nominees.

  2. Minimum of Two Individuals as Designated Partners, of total no. of Partners.

  3. At least One Designated Partner to be Resident Indian.

Step 2 :
• Reservation of Name : The next step is to decide the name for the proposed LLP to be incorporated, anyone intending to incorporate an LLP has to evaluate his proposed name under the prescribed parameters and make an application in RUN Form, for reservation of the desired name.

  a) The name of the limited liability partnership shall not be similar or identical with Company or LLP already registered in India. It should not contains words prohibited under the Emblems and Names (Prevention of improper use) Act, 1950. Name should not be such that it is ‘Undesirable’ in the opinion of Central Government. It should also satisfy the conditions prescribed under rule 18(2).

  b) In case any Body Corporate is partner, copy of Board resolution authorizing the incorporation of LLP shall be attached.

  Information required

• Details regarding Main object of a LLP
• MCA Fees for RUN Form is Rs. 200/-

Step 3 :
• Digital Signature Certificate (DSC) : As Every Designated Partner is required to obtain a DIN from the Central Government by submitting Form DIR 3 which is to be signed electronically by way of affixing DSC, DIN applicant needs to obtain a DSC. Like manual signature, DSC is individual specific and no partner needs to obtain more than one DSC.

  For the preparation of Digital Signature Certificate we require the same documents as for DIN

Step 4:
• Director Identification Number (DIN): Every Designated Partner is required to obtain a DIN from the Central Government by submitting Form DIR 3. If a person already has a DIN, the same can be used for forming LLP.

  For the preparation of DIN we require the following documents:

  a) Self attested photocopy of Pan Card;

  b) Proof of Identity- Self attested photocopy Voter Card, Passport, Driving License (any one);

  c) Proof of Residence- Self attested photocopy Bank Statement, Electricity Bill, Telephone Bill, Mobile Bill (any one);

  d) Self attested photocopy Highest Educational Qualification Certificate;

  e) Passport size Colour Photo

  f) Mobile number and E Mail address.

  Note : Bank Statement; Telephone Bill; Electricity Bill shall not be older than two months. All the documents need to be self attested.

Step 5:
• Filing of FILLIP (Form for Incorporation of Limited Liability Partnership): Next is the filing of Incorporation documents, consent of Partners and declaration electronically through the medium of e-forms prescribed with the Registrar of LLP for incorporation of the LLP on payment of prescribed fees based on the total monetary value of contribution of partners in the proposed LLP. This is an informative document setting down the details of LLP, its Partners including designated partners along with their amount of contribution and consent for forming a Limited Liability Partnership to carry on a lawful business with profit motive along with declaration stating that all the requirements of Limited Liability Partnership Act, 2008 regarding incorporation of LLP in India have been complied with.
• Subscription Sheet: The partners are required to subscribe their names along with signatures to the subscription sheet, which shall be witnessed by any chartered Accountant/ Company Secretary/ Advocate in practice.
• In case the subscription sheet is executed outside India, than it must be notarized and consularized. After the Registrar is satisfied that all the formalities with respect to the incorporation has been complied, he will issue a Certificate of Incorporation as to formation of the LLP within maximum of 14 days from date of filing of documents. The Certificate of Incorporation issued shall be the conclusive evidence of formation of the LLP. MCA Fees for this Form vary from Rs. 500/- to Rs. 5000/- depending on amount of contribution of the LLP.

  List of documents and information required:

  • Proof of Address of Registered Office

  • E Mail id of proposed LLP

  • Details regarding monetary contribution of partners

  • Subscription Sheet

  • Consent of partners

Step 6:
• Form 3: Details of LLP Agreement : This form provides for the necessary information in respect to the LLP Agreement entered into between the partners. The said eform is required to be filed within 30 days of incorporation. The next pertinent step is drafting of Limited Liability Partnership Agreement governing the mutual rights and duties among the partners and among the LLP and its partners. The basic contents of Agreement are:

  • Name of LLP

  • Name of Partners & Designated Partners

  • Profit Sharing ratio

  • Rights & Duties of Partners

  • Proposed Business

  • Rules for governing the LLP