Limited Liability Partnership in India

Formation of a Limited Liability Partnership in India

The Law defines LLP as: “A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership”

The concept of Limited Liability Partnerships was introduced in India after the enactment of the Limited Liability Partnership Act, 2008. In a Limited Liability Partnership, partners have limited liability unlike traditional partnerships established under Indian Partnership Act, 1890, where all the partners have joint and several liabilities. ) Every Limited Liability Partnership shall use the words “Limited Liability Partnership” or its acronym “LLP” as the last words of its name.

Being the separate legislation (i.e. LLP Act, 2008), the provisions of Indian Partnership Act, 1932 are not applicable to an LLP and it is regulated by the contractual agreement between the partners. A Limited Liability Partnership is a body corporate and legal entity separate from its partners. Going by the premise of a Limited Liability Partnership, partners are only liable to the extent of their own professional conduct and are not answerable for the professional misconduct, misjudgments, mistakes, fraudulent activities of any kind, etc. Thus, the idea behind the formation of an LLP is that it gives rise to a kind of organisation that allows for easy handling of businesses since it’s an amalgamation of the characteristics of a partnership and a company, but where in traditional partnerships hold all partners jointly responsible, and in a company the shareholders although they are similarly liable only in a limited scope, but the difference is that unlike company shareholders, partners in a limited liability partnership are allowed to manage the business directly.

An LLP is a separate legal entity than its partners, but it requires no minimum capital contribution. Hence, it’s less expensive than the formation of a company. At the same time, fewer hassles are involved in the formation of an LLP. A lesser number of restrictions are enforced on an LLP by the Government as compared to the restrictions enforced on a Company. It’s important to remember that being a separate juristic legal entity, it can sue and be sued by others, but the partners aren’t liable to be sued for the acts of an LLP. LLP agreement is not mandatory but in the absence of LLP agreement, mutual rights and liabilities of partners shall be determined as provided under Schedule I to the LLP Act.

The only potentially problematic disadvantage of forming LLPs is that they can’t raise money from the public by coming out with their IPO (Initial Public Offering or Stock market launch), which a company form of organization can easily do. And in some cases, liability may extend to personal assets of the partners.

According to the LLP Act, 2008, the formation of LLPs is not restricted to just the classes of Professionals and is available to be used by all enterprises. Minimum 2 partners are required to set up an LLP, and there’s no restriction on the maximum number of partners in this kind of a setting. The first step taken towards the formation of an LLP is obtaining the Designated Partner Identification Number-DPIN or DIN for which an e-form DIN-1 needs to be filled. The Ministry of Corporate Affairs mandates that partners obtain these DPINs. A DPIN never expires and one person can have only one DPIN. In case a person already has a Director Identification Number (DIN), the same can be used as a DPIN. After the DPIN, a Digital Signature Certificate needs to be acquired and registered with the Ministry of Corporate Affairs Portal. For the purpose of authenticity and security of documents signed and submitted electronically, the Information Technology Act, 2000 requires the usage of Digital Signature Certificates (DSC). All filings done by an LLP are required to be signed by a person authorized to sign the required documents.

A licensed Certifying Authority (CA) issues the digital signature. Certification Agencies are appointed by the officer of the Controller of Certifying Agencies (CCA) under the provisions of the IT Act, 2000. There is a total of 7 Certifying Agencies who are authorized to issue certificates to LLPs.

The Ministry of Corporate Affairs issues a class-II category certificate for e-filings under LLP. If a person possesses the specified DSC already, a fresh DSC need not be obtained. These come with a validity of one or two years and are renewable on the expiry of the initial issue. After this, the LLP has to be registered. A minimum of one and maximum of 6 names can be suggested. The Ministry of Corporate Affairs will approve of a name after which, the process can move ahead further. This name registration happens by filing the Form 1 (Application for reservation or change of name) for the same. After the proposed LLP name, Form 2 (Incorporation document and Subscriber’s Statement) for the incorporation of LLP needs to be filled. Once the concerned authorities from the Ministry of Corporate Affairs approve the Form2, the status of our Form will change to ‘Approved’. After the LLP has been incorporated, an initial LLP agreement has to be filed within 30 days of incorporation of LLP. The registered user who filed for the DSC has to file the information in Form3 (Information with regard to Limited Liability Partnership Agreement and changes, if any, made therein).

Any Foreign LLP can start its business in India by filling Form 27- Registration of particulars by Foreign Limited Liability Partnership (FLLP). The e-Form must be digitally signed by the authorized representatives of the FLLP.  It’s not mandatory that Partners of an FLLP apply for a DPIN on DIN, but a Digital Signature Certificate has to be mandatorily obtained.

We at LegalRaasta are here to help you with the formation of an LLP, or with any other query that you may have regarding it. Contact our team members and let us make this task much easier for you.