Limited Liability Partnership (LLP) in India: A Comprehensive Guide

Introduction to LLP

An LLP is a popular form of partnership where limited liability partners enjoy protection of personal assets from debts, liabilities, and damages. Registered under the LLP Act, 2008, an LLP is a corporate body and legal entity separate from its partners, offering perpetual succession across states.

Key Features of LLP

1. Body of Corporate

An LLP, established under the LLP Act 2008, is a distinct legal entity, separate from its partners, providing a corporate structure.

2. Perpetual Succession

Unlike traditional partnerships, LLPs benefit from perpetual succession. Even with partner changes, the LLP can continue operations seamlessly.

3. Separate Legal Entity

Recognized as a separate legal entity, an LLP holds full liability for its assets and obligations, shielding individual partners from personal liability.

4. LLP Agreement

Partners define their rights and duties through an LLP Agreement, providing flexibility in governance. In the absence of an agreement, the Act governs their rights and duties.

5. Artificial Legal Person

For legal purposes, an LLP is considered an artificial legal person, created through a legal process with real, tangible existence.

6. Common Seal (Optional)

While having a common seal is optional, if used, it requires custody by a responsible official and can only be affixed by at least two designated partners.

7. Limited Liability

Under Section 26 of the Act, each partner's liability is limited to their agreed contribution to the LLP, offering personal liability protection.

8. Minimum and Maximum Number of Partners

Every LLP must have a minimum of two partners, with at least two designated partners, and there is no maximum limit on the number of partners.

9. Business Management and Structure

Partners have authority to manage the business, with designated partners responsible for ensuring legal compliance.

10. Business for Profit Only

LLPs are specifically formed for lawful, profit-oriented business activities, distinguishing them from non-profit entities.

11. Investigation

The Central Government holds the power to investigate LLP affairs, appointing a competent authority if needed.

12. Mutual Agency

Actions of one partner in an LLP don't make other partners liable, establishing a clear distinction from traditional partnership firms.

Pre-requisites for Incorporating an LLP

• Minimum two partners allowed (Individual or body corporate)
• At least two designated partners required, with one being an Indian resident
• Digital signature certificate needed
• Mandatory to have an LLP name
• An LLP agreement is essential
• A registered office must be established.

Stages of Incorporation of LLP

1. Procure Digital Signature Certificate

Partners and applicants need a Digital Signature Certificate (DSC) with a validity of 2 years for online filings.

2. Reserve LLP Name

Use the web form 'RUN-LLP' to reserve a unique name. The name is reserved for 90 days from approval.

3. LLP Incorporation and DIN Application

Use Form FiLLiP for LLP incorporation, integrating DIN Allotment Application. It streamlines the process and provides the LLP Identification Number (LLPIN).

4. Apply for PAN and TAN

LLPs must apply for PAN and TAN using forms 49A and 49B, respectively, with the Certificate of Incorporation as supporting proof.

5. Drafting and Filing LLP Agreement

Carefully craft the LLP Agreement outlining key aspects like name, partners' details, business objectives, contribution, profit-sharing, rights and duties, governance rules, and more.

6. Execution of the LLP Agreement

Pay stamp duty, sign the agreement, and attest it with witness signatures. This formalizes the LLP Agreement and sets the foundation for the LLP's operation.

7. Effect of Registration (Section 14)

Upon registration, the LLP becomes a distinct legal entity, gaining rights like legal representation, property ownership, and a common seal (optional).

LLP Agreement Format

LIMITED LIABILITY PARTNERSHIP AGREEMENT

Name of Partner 1 (the 'First Partner'):

• Address: [Address]
• Capital Contribution: [Amount or Description]
• Profit-Sharing Ratio: [Percentage]

Name of Partner 2 (the 'Second Partner'):

• Address: [Address]
• Capital Contribution: [Amount or Description]
• Profit-Sharing Ratio: [Percentage]

[Add more partner sections if there are additional partners]

1. NAME AND ADDRESS OF THE LLP:

   • The name of this Limited Liability Partnership shall be [LLP Name], and its registered office address shall be [Address].

2. NATURE OF BUSINESS:

   • The LLP shall engage in the business of [Describe the nature of the business activities].

3. DURATION OF THE LLP:

   • This LLP shall exist indefinitely unless dissolved by the mutual agreement of the partners or as otherwise provided by law.

4. CAPITAL CONTRIBUTIONS:

   • Each partner's initial capital contribution and any additional contributions shall be as specified above. Capital contributions shall be made in cash or as otherwise agreed upon by the partners.

5. PROFIT AND LOSS SHARING:

   • Profits and losses of the LLP shall be allocated among the partners based on their profit-sharing ratios as specified above.

6. MANAGEMENT AND DECISION-MAKING:

   • The management of the LLP shall be vested in the partners. Major decisions shall require a unanimous vote of all partners, except as otherwise specified in this Agreement.

7. MEETINGS AND VOTING:

   • Regular meetings of the partners shall be held [Specify frequency]. Notice of meetings shall be provided [Specify notice period]. Voting shall be based on the profit-sharing ratios unless otherwise agreed.

8. WITHDRAWAL OR RESIGNATION:

   • A partner may withdraw or resign from the LLP by providing [Specify notice period] written notice to the other partners

. The treatment of the withdrawing partner's capital shall be determined as per the agreement.

9. ADMISSION OF NEW PARTNERS:

   • New partners may be admitted with the unanimous consent of the existing partners, subject to negotiation of their capital contribution and profit-sharing ratio.

10. DISSOLUTION AND WINDING UP:

• The LLP may be dissolved by a unanimous vote of the partners or as otherwise provided by law. Upon dissolution, the winding-up of affairs shall be conducted in accordance with applicable legal requirements.

11. GOVERNING LAW:

• This Agreement shall be governed by and construed in accordance with the laws of [Jurisdiction].

12. AMENDMENT OF THE AGREEMENT:

• This Agreement may be amended by written agreement of all partners.

IN WITNESS WHEREOF, the partners hereto have executed this Agreement as of the date first above written.

LLP Name Structure

The name of an LLP must comply with the following requirements:

• It must contain the words 'Limited Liability Partnership' or the abbreviation 'LLP'.
• It must not be identical or deceptively similar to the name of any other existing company or LLP.
• It must not contain any words or expressions that are obscene, offensive, or misleading.

Advantages of Limited Liability Partnership

1. Limited Liability:

   • Partners' personal assets are protected if the LLP faces insolvency.

2. Pass-through Taxation:

   • LLPs are taxed as pass-through entities, avoiding double taxation.

3. Flexibility:

   • LLPs offer flexibility in management and ownership structure.

LLP Registration Fees

Details of Fee:

Contribution Amount	Fee (in INR)
₹ 1 to ₹ 1,00,000	₹ 500
₹ 1,00,001 to ₹ 5,00,000	₹ 2,000
₹ 5,00,001 to ₹ 10,00,000	₹ 4,000
₹ 10,00,001 and above	₹ 5,000

(Subject to change as per state requirements, additional professional fees incurred)

Important Forms in LLP Registration

• Form 1: Application for reservation or change of name
• Form 2: Incorporation document and subscriber’s statement
• Form 2A: Details in respect of designated partners and partners of Limited Liability Partnership
• Form 3: Information with regard to limited liability partnership agreement and changes, if any, made therein
• Form 4: Notice of appointment, cessation, change in name/address/designation of a designated partner or partner, and consent to become a partner/designated partner
• Form 5: Notice for change of name
• Form 11: Annual Return of Limited Liability Partnership (LLP)
• Form 17: Notice for change of place of registered office
• Form 18: Application and Statement for conversion of a private company/unlisted public company into limited liability partnership (LLP)
• Form 23: Application for direction to Limited Liability Partnership (LLP) to change its name to the Registrar
• Form 25: Application for reservation/renewal of name by a Foreign Limited Liability Partnership (FLLP) or Foreign Company
• Form 28: Return of alteration in the incorporation document or other instrument constituting or defining the constitution; or the registered or principal office; or the partner or designated partner of limited liability partnership incorporated or registered outside India
• Form 31: Application for compounding of an offence under the Act
• Form 32: Form for filing addendum for rectification of defects or incompleteness

Recent Amendments

LLP (Amendment) Rules, 2023 – Revised LLP Form No.3

The LLP (Amendment) Rules, 2023, introduced additional disclosure requirements in Form 3, including nominee details, provisions for conversion into a company, and winding-up details.

New Web-Based Forms for LLP Formation

LLP incorporation now exclusively uses web-based forms, similar to SPICe Plus Forms for companies. This enhances efficiency and ensures consistent data retrieval.

No Separate PAN and TAN Application Required

The Certificate of Incorporation now includes PAN and TAN issued by the Income Tax Department. This streamlines the process, eliminating the need for separate applications.

Five Designated Partners without DIN

LLP Amendments, 2022, permit up to five individuals to apply for DPIN in Form FiLLiP during incorporation, offering more flexibility.

Statement of Solvency and Certificate of Truthfulness

• The Statement of Account and Solvency must be signed by specific professionals.
• LLPs with specific financial criteria must file a Certificate of Truthfulness and Correctness of Annual Returns.
• Form 8 now includes specific reporting for contingent liabilities.

Other Changes in LLP (Amendments) Rules, 2022

• Form 9 is now an online web-based form for filing Consent of Partners.
• All Designated Partners must provide their Digital Signatures at the time of LLP incorporation.
• Form 28 and 29 have been combined, and Form 28 should be filed with specific notices.
• Modifications to the LLP Deed must be recorded in detail in Form 3.
• Form 11 (Annual Return) should now include information about penalties and compounding of offences.
• Special courts are to be established for speedy trials on criminal offences like fraud.

Difference between Partnership and LLP

Basis	Partnership	LLP
Governing Law	Partnership Act, 1932	Limited Liability Partnership Act, 2008
Registration	Not compulsory. Unregistered firms cannot be sued.	Compulsory registration with the Registrar of Companies (ROC).
Liability	Partners jointly liable for acts of other partners or firm	Limited liability; partners' liability is limited as per their share of contribution
Legal entity	No separate legal entity	Separate legal entity
ITR	No returns filed with Registrar of Firms	Annual statement

of accounts and annual return filed with ROC | | Enforcement | Different provisions in various states | Central enforcement through ROC | | Can Minor become Partner | Yes | No |

Conclusion

The Limited Liability Partnership (LLP) structure provides entrepreneurs like you with the advantages of limited liability, pass-through taxation, and flexibility in management. The recent amendments have streamlined the registration process and introduced web-based forms for increased efficiency. Understanding the nuances of LLP agreements, registration fees, and the latest regulatory changes is crucial for successfully establishing and operating an LLP. If you have any specific questions or need further guidance on LLP matters, feel free to contact US.