Incorporation of LLP - section 11-13 of LLP act, 2008

By Tania Maria Joy

Introduction

Limited Liability Partnerships have gotten quite popular in the last few years. In this article, we will focus on the process and steps along with the elements essential for the incorporation of an LLP (limited liability partnership).  The guidelines are provided by the Limited Liability Partnership Act (LLP Act), 2008.

LLP stands for Limited Liability Partnership. Limited liability partnership definition is an alternative corporate business form that offers the benefits of limited liability to the partners at low compliance costs. It also allows the partners to organize their internal structure like a traditional partnership. A limited liability partnership is a legal body, liable for the full extent of its assets. The liability of the partners, however, is limited. Hence, LLP is a hybrid between a company and a partnership. It is not the same as a limited liability company LLC.

Salient Features of Limited Liability Partnership

LLP is a body corporate

According to Section 3 of the Limited Liability Partnership Act 2008 (LLP Act), an LLP is a body corporate, formed and incorporated under the Act. It is a legal entity separate from its partners.

Perpetual Succession

Unlike a general partnership firm, a limited liability partnership can continue its existence even after the retirement, insanity, insolvency or even death of one or more partners. Further, it can enter into contracts and hold property in its name.

Separate Legal Entity

Just like a corporation or a company, it is a separate legal body. Further, it is completely liable for its assets. Also, the liability of the partners has certain limitations in their contribution to the LLP. Hence, the creditors of the LLP are not the creditors of individual partners.

Mutual Agency

Another difference between an LLP and a partnership firm is that independent or unauthorized actions of one partner do not make the other partners liable. All partners are agents of the LLP and the actions of one partner do not bind the others.

LLP Agreement

An agreement between all partners governs the rights and duties of all the partners. Also, the partners can devise the agreement as per their choice. If such an agreement is not made, then the Act governs all partners’ mutual rights and duties.

Artificial Legal Person

For all legal purposes, LLP is an artificial legal person. A legal process creates it and has all the rights of an individual. It is invisible, intangible, and immortal but not fictitious since it exists.

Common Seal

The LLP can have a common seal [Section 14(c)]. It is not mandatory though. However, if it decides to have a seal, then the seal must remain under the custody of a responsible official. Further, the common seal can be affixed only in the presence of at least two designated partners of the LLP.

Limited Liability

According to Section 26 of the Act, every partner is an agent of the LLP for the business of the entity. However, he is not an agent of other partners. Further, the liability of each partner has limitations to his agreed contribution to the LLP. It provides personal liability protection to its partners.

Minimum and Maximum Number of Partners in an LLP

Every Limited Liability Partnerships must have at least two partners and at least two individuals as designated partners. At any time, at least one designated partner should be resident in India. There is no maximum limit on the number of maximum partners in the entity.

Business Management and Business Structure

The partners of the LLP can manage their business. However, only the designated partners are responsible for legal compliances.

Business for Profit Only

Limited Liability Partnerships cannot be formed for charitable or non-profit purposes. The entity must be formed to carry on a lawful business to earn a profit.

Investigation

The power to investigate the affairs of an LLP resides with the Central Government. Further, they can appoint a competent authority for the same.

Compromise or Arrangement

Any compromise or arrangement like a merger or amalgamation needs to be following the Act.

Conversion into LLP

A private company, firm, or an unlisted public company or a small business can convert into an LLP following the provisions of the Act.

E-Filing of Documents

If the entity is required to file any form/application/document, then it needs to be filed in an electronic form on the website www.mca.gov.in. Further, a partner or designated partner has to authenticate the same using an electronic or digital signature.

Elements Essential for the Incorporation of an LLP

According to the LLP Act, 2008, the following elements are essential for the incorporation of an LLP in India:

• Complete and submit the Incorporation document in the prescribed form, with the Registrar electronically.
• Have at least two partners, either individual or body corporate
• Have a registered office in India for sending and receiving communication
• Appoint at least two individuals as designated partners. They will be responsible for doing all acts, matters, and things as required to be done by the LLP. Also, the designated partners should be residents in India.
• Each designated partner should hold a Designated Partner Identification Number (DPIN) allotted by the Ministry of Corporate Affairs (MCA).
• Execute the agreement between the partners or between the LLP and its partners. Further, if an agreement is not present, the provisions in the First Schedule of the LLP Act, 2008 are applied.
• Name of the LLP. It is important to note that the name should be distinct. The LLP cannot have a name that another LLP or Partnership firm or Company is currently using.

Process for the Incorporation of an LLP

The following things need to be ensured for the incorporation of LLP:

• Appoint/nominate partners and designated partners.
• Obtain the DPINs and Digital Signature Certificates (DSCs)
• Register a unique LLP name (applicant can indicate up to 6 choices)
• Draft the LLP Agreement
• File the required documents, electronically
• Apply for the Certificate of Incorporation along with LLPIN (Limited Liability Partnership Identification Number)

The contents of an LLP agreement

• Name of the LLP
• Names and addresses of the partners and designated partners
• The form of contribution and interest on contribution
• Profit sharing ratio
• Remuneration of partners
• Rights and duties of partners
• The proposed business
• Rules for governing the LLP

Steps for the Incorporation of an LLP

• Reserve the name of the LLP. Applicant files e-Form 1 to ascertain the availability and register the name of the LLP. Once the Ministry approves the name, it reserves it for the applicant for 90 days. Also, if the LLP is not incorporated within that time frame, the reservation is removed and the name is made available to other applicants.
• Incorporation of a new LLP. Applicant files e-Form 2 which contains the details of the proposed LLP along with details of the partners and designated partners
• Consent of the partners and designated partners to act in the said role.
• File the LLP Agreement with the Registrar within 30 days of incorporation of the LLP. Applicant files e-Form 3. According to Section 23 of the LLP Act, 2008, execution of LLP Agreement is mandatory.
• On obtaining approval of the LLP Agreement, the process of Incorporation of LLP is complete.