Introduction to Limited Liability Partnership (LLP)

A Limited Liability Partnership (LLP) is a unique business structure that blends the characteristics of a traditional partnership and a corporation. It offers its members limited liability, protecting personal assets from business debts and liabilities. Unlike a general partnership, where each partner is personally responsible for the business's debts, an LLP provides a shield to its partners.

Key Features

• Limited Liability: Partners enjoy protection of personal assets from business debts, liabilities, and damages.
• Corporate Body: LLP is a corporate body and a legal entity separate from its partners.
• Perpetual Succession: The LLP continues to exist irrespective of changes in its partners, ensuring continuity.

Characteristics of Limited Liability Partnership

Corporate Body

According to Section 3 of the Limited Liability Partnership Act 2008, an LLP is recognized as a corporate body, distinct from its partners. This characteristic grants the LLP certain legal rights and obligations.

Perpetual Succession

Unlike traditional partnerships, an LLP has the advantage of perpetual succession. The death, insolvency, or retirement of a partner doesn't affect the LLP's existence. It can enter contracts and own property in its name.

Separate Legal Entity

Similar to corporations, an LLP is a separate legal entity. It can enter into contracts, own property, and be a party to legal proceedings in its name. This separation limits the individual partners' liabilities to their contributions.

LLP Agreement

The LLP Agreement is a crucial document that outlines the rights and duties of partners. While the Act governs mutual rights and duties in the absence of an agreement, having one provides clarity on the internal workings of the LLP.

Advantages of Limited Liability Partnership

Limited Liability

The hallmark advantage of an LLP is limited liability. Partners are shielded from personal liability for business debts. Their liability is restricted to their contributions to the LLP, safeguarding personal assets.

Pass-through Taxation

LLPs enjoy pass-through taxation, meaning the income is taxed directly in the hands of the partners. This avoids the issue of double taxation, common in companies where profits are taxed at both corporate and individual levels.

Flexibility

LLPs offer flexibility in management structure and ownership. Partners can define their roles and responsibilities according to mutual agreement. There are no stringent restrictions on transferring ownership interests.

Features of Limited Liability Partnership

Minimum and Maximum Number of Partners

Every LLP must have a minimum of two partners, with at least two designated partners. There is no maximum limit on the number of partners, providing flexibility in scaling the business.

Business Management and Structure

Partners have the authority to manage the business, but designated partners are specifically responsible for ensuring legal compliance. This dual structure balances operational control.

Business for Profit Only

LLPs are established for conducting lawful business activities with the primary objective of earning a profit. They cannot be formed for charitable or non-profit purposes.

Investigation

The Central Government holds the power to investigate an LLP's affairs, appointing a competent authority if necessary. This regulatory oversight ensures compliance with legal standards.

Pre-requisites for Incorporating an LLP

Minimum Partners Allowed

An LLP must have a minimum of two partners. Partners can be individuals or body corporates.

Designated Partners

At least two designated partners are required, with one being a resident of India. Designated partners bear additional responsibilities, including legal compliance.

Digital Signature Certificate (DSC)

Partners and applicants need a Digital Signature Certificate for filing online forms with the Ministry of Corporate Affairs (MCA).

Mandatory LLP Agreement

An LLP must have an LLP Agreement, a key document outlining the internal workings of the LLP. It's a requirement under the LLP Act.

Registered Office

An LLP must establish a registered office, and it doesn't have to be a commercial space; even a rented home can serve as the registered office.

Stages of Incorporation of LLP

Procure Digital Signature Certificate (DSC)

Before initiating the LLP incorporation process, partners need a Digital Signature Certificate (DSC) with a validity of two years. This certificate is crucial for filing online forms with the Ministry of Corporate Affairs (MCA).

Reserve LLP Name

New Process - RUN-LLP

• The reservation of a unique name for an LLP is now done through the web form 'RUN-LLP' (Reserve Unique Name - Limited Liability Partnership)

Details Required

• Basic details
• Significance of the desired name
• Up to 2 name choices

Approval Duration

• The approved name is reserved for 90 days.
• If none of the provided names is approved, there's an opportunity for two more name submissions.

LLP Incorporation and DIN Application

Introduction of FiLLiP

• The LLP incorporation application process now integrates the DIN Allotment Application with the incorporation application through Form FiLLiP.

Key Points

• Up to 2 Designated Partners (DPs) can apply for DPIN/DIN.
• Additional DPs without DIN can be added later.
• Optional name reservation through LLP-RUN or FiLLiP.
• Document submission, attestation, and certification by a practising professional.

Certificate of Incorporation

• The Registrar of Companies (RoC) issues the Certificate of Incorporation (CoI) upon approval.
• The CoI includes the LLP Identification Number (LLPIN) and marks the official date of LLP incorporation.
• The CoI includes the LLP Identification Number (LLPIN) and marks the official date of LLP incorporation.

Apply for PAN and TAN

• LLPs must separately apply for PAN and TAN through offline or online mode with the Income Tax Department.
• The Certificate of Incorporation serves as supporting proof for these applications.

Drafting and Filing LLP Agreement

• The LLP Agreement is a foundational document outlining various aspects, including capital contributions, profit-sharing ratios, management, and decision-making processes.
• Payment of stamp duty is mandatory, and the agreement requires signatures from all partners.

Execution of the LLP Agreement

• After thorough review and agreement among partners, the LLP Agreement moves to the execution stage.
• Partners pay the necessary stamp duty and sign the agreement, with attestation by witnesses

Effect of Registration (Section 14)

• The LLP attains the status of a body corporate upon receiving the certificate of registration.
• The LLP gains legal representation, property rights, and the capacity to undertake lawful acts.

LLP Agreement Format

LIMITED LIABILITY PARTNERSHIP AGREEMENT

Name of Partner 1 (the 'First Partner')

• Address
• Capital Contribution
• Profit-Sharing Ratio

Name of Partner 2

• Address
• Capital Contribution
• Profit-Sharing Ratio

[Add more partner sections if there are additional partners]

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].

NATURE OF BUSINESS

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

DURATION OF THE LLP

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

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.

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.

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.

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.

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.

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.

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 following applicable legal requirements.

GOVERNING LAW

This Agreement shall be governed by and construed by the laws of [Jurisdiction]

AMENDMENT OF THE AGREEMENT

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