What is LLP ? How to incorporate LLP?

LLP is governed by Limited Liability Partnership Act- 2008 which came in to force on 1st day of April 2008. This Act was introduced with the idea of promoting MSME Sector (Micro Small Medium Enterprise) with the advantage of self-governance and less compliance.

LLP Act, 2008 constitute 81 Sections and 4 schedules. So far LLP Rules 2009 has prescribed many forms to be filed with MCA.

LLP is an alternate corporate body, comprising the benefit of both Company and Partnership.

  • It contains the benefit of Limited liability to partner and Flexibility of Partnership.
  • LLP is a corporate body and granted the legal status same as that of company.
  • Unlike the partnership in LLP the liability of the partner is limited up to the contribution made by them.

BENEFITS OF LLP AS COMPARED TO CORPORATE FORM:

COMPARATIVE ANALYSIS

ParticularsLLPPrivate Company
MembersMinimum 2 PartnerMinimum 2 Member,Maximum 200 Members
LiabilityLimited, Except in case of Fraud and wrongful ActLimited Liability
Forms to be filledRegular-E-form-8 & Eform-11Regular-AOC-4 & MGT-7
Transfer/ Inheritance of SharesTransfer, But transferee may not have management rightBy court order once the company have been wound up
Easy to Form, Run and manageNo Minimum Capital requirement for IncorporationNo Minimum Capital requirement for Incorporation
Requirement as to maintenance of Statutory RecordsNO such Requirement.It is must to maintain statutory records as per Companies Act-2013.
Audit of AccountsRequire only if Turn over above 40 lacs or Contribution more than 25 lacs.Audit is Compulsory.
Management throughLLP agreement.Memorandum of Association and Article of Association of company.

MINIMUM COMPLIANCE LEVEL & COST SAVING:

After commencement of Companies Act, 2013 cost of compliance has increased many fold in the case of Companies, while a LLP has to comply with a very few compliances.

The comparative chart of compliances to be made by a company and LLP is given below.

ParticularsLLPPrivate Company
Maintenance of Statutory RecordsNo such Registers are required to maintainMany Registers are Required to Maintain Under Company as per Companies Act- 2013
Addition or Deletion of DirectorsRequire to amend LLP Agreement and File e-form- 3 & e-form-4.Require to Pass Resolution in General Meeting, File e-form-DIR-12 and require many documents from the person who is appointed as Director. (As per Section-152 of Companies Act-2013.)
Change in Registered OfficeRequire to amend LLP Agreement and File e-form Form-15There is Complete lengthy process for change in registered office of company as Per Section-13 of Companies Act-2013
Increase in CapitalOnly require to amend LLP Agreement and File e-form Form-3.Require to Pass Ordinary resolution in General Meeting and file form SH-7.
Annually form filling requirementOnly Two annual formE-form- 8,E-form-11There are much formsE-form-23AC, 23ACAE-form- 20B, E-form- MGT-14E-form-ADT-1
Disclosure of InterestNo such requirementRequire to Take disclosure from director under Section-184(1) and to file form- MGT-14.
Convening of MeetingsNo such requirementRequire to hold Meetings as per Section- 173. (At least Two Board Meeting and one Annual General Meeting for Small Company and At least four Board Meeting and One Annual General Meeting for other then Small company).
Audit of AccountsRequire only if Turn over above 40 lacs or Contribution more than 25 lacs.Audit is Compulsory.
Loans & borrowingsAs per LLP Agreement. No other requirementsThere is Cap for Loans and Borrowings as per section 179 & 180, Require to hold Board Meeting and file form with ROC.
DepositsNo such condition.Loan from other then director is cover under deposit as per Definition of Deposit under Companies Act-2013.
Related Party TransactionsNo RestrictionsTransaction to be at arm’s length price only and as per provisions of Secton-188 of Companies Act-2013.

Contents of Agreement are:

  • Name of LLP
  • Name of Partners & Designated Partners
  • Form of contribution
  • Profit Sharing ratio
  • Rights & Duties of Partners
  • Proposed Business
  • Rules for governing the LLP

Minimum Requirements for LLP

  1. Minimum 2 Designated Partners (DP)
  2. Atleast 1 of the DP shall be Indian resident
  3. If a body corporate is DP then it has to nominate a natural person
  4. Director Identification No.(DIN) has to be obtained by 2 partners
  5. Digital Signature

Process of Registration as LLP

Step 1: Obtain DSC

Before initiating the process of registration, you must apply for the digital signature of the designated partners of the proposed LLP. This is because all the documents for LLP are filed online and are required to be digitally signed.

So, the designated partner must obtain their digital signature certificates from government recognized certifying agencies. Here is a list of such certified agencies. The cost of obtaining DSC varies depending upon the certifying agency. Also, you should obtain either class 2 or class 3 category of DSC.

Step 2: Apply for DIN/DPIN

The incorporation form FiLLiP also provides for applying for allotment (Maximum 2 DPIN) of DPIN. If the LLP have more than 2 Designed partner the application for allotment of DIN has to be made in Form DIR-3. You have to attach the scanned copy of documents (usually Aadhaar and PAN) to the form. The form shall be signed by a Company Secretary in full- time employment of the company or by the Managing Director/Director/CEO/CFO of the existing company in which the applicant shall be appointed as a director.

Step 3: Reservation of Name

LLP-RUN (Limited Liability Partnership-Reserve Unique Name) is filed for the reservation of name of proposed LLP which shall be processed by the Central Registration Centre under Non-STP. But before quoting the name in the form, it is recommended that you use the free name search facility on MCA portal. The system will provide the list of closely resembling names of existing companies/LLPs based on the search criteria filled up. This will help you in choosing names not similar to already existing names.

The registrar will approve the name only if the name is not undesirable in the opinion of the Central Government and does not resemble any existing partnership firm or an LLP or a body corporate or a trademark.

The form RUN-LLP has to be accompanied with fees Rs.200.

A re-submission of the form shall be allowed to be made within 15 days for rectifying the defects. There is a provision to provide for 2 proposed names of the LLP.

Step 4: Drafting of LLP deed                      

LLP agreement governs the mutual rights and duties amongst the partners and also between the LLP and its partners.

Step 5: Incorporation of LLP

  1. The form used for incorporation is FiLLiP (Form for incorporation of Limited Liability Partnership) and Form Addendum to FiLLiP (if partners exceeds 200) which shall be filed with the Registrar who has a jurisdiction over the state in which the registered office of the LLP is situated. The form will be an integrated form.
  2. This form also provides for applying for allotment (Maximum 2 DPIN) of DPIN, if an individual who is to be appointed as a designated partner does not have a DPIN or DIN.
  3. The application for allotment shall be allowed to be made by two individuals only.
  4. The application for reservation may be made through FiLLiP too.
  5. If the name that is applied for is approved, then this approved and reserved name shall be filled as the proposed name of the LLP
  6. Payment of Fees
  7. Once approved LLP Incorporation Certificate and PAN and TAN

Step 6: File LLP Agreement in form

LLP agreement governs the mutual rights and duties amongst the partners and also between the LLP and its partners.

LLP agreement must be filed in form 3 online on MCA Portal.

Form 3 for LLP agreement has to be filed within 30 days of the date of incorporation.

The LLP Agreement has to be printed on Stamp Paper. The value of Stamp Paper is different for every state.

Annual Filings

LLP will have to file 2 types of MCA annual return each financial year, namely Form 8 & Form 11.

Form 8

Form 8 must be filed within 30 days from the end of 6 months of the financial year along with some prescribed fee. This must be digitally signed by 2 designated partners and it must be certified by a chartered accountant/company secretary/cost accountant. Form 8 has two parts:

Part A – Statement of Solvency

Part B – Statement of Accounts, Statement of Income & Expenditure

The penalty for not filing this form would be Rs. 100 per day until it is compiled.

Form 11

Form 11 contains details of the number of partners, total number of partners, total contribution received by all partners, details of body corporate as partners and summary of partners. All LLPs should file this form within 60 days from the closure of the financial year with the prescribed fee. Hence, the due date for filing LLP Form 11 is 30th of May each year.

LLP Tax Audit

LLPs are separate legal entities. Therefore, it is the responsibility of the Designated Partners to maintain proper book of accounts and file annual return with the MCA each financial year. LLPs are not required to audit its accounts unless the annual turnover exceeds Rs.40 lakhs or if the contribution exceeds Rs.25 lakhs.

Income Tax Return Filing

LLPs must file income tax return using Form ITR 5. Form ITR 5 can be filed online through the income tax website using the digital signature of the designated partner. The deadline for LLP tax filing in India is July 31st if tax audit is not required. LLP whose turnover exceeded Rs. 40 Lakh or whose contribution exceeded Rs. 25 Lakh are required to get their accounts audited by a practising Chartered Accountant. The deadline for tax filing for LLP required to obtain audit is September 30th.

Event Based Compliance by LLP:

ComplianceSectione-formTime Limit
Filing of Consent of Designated Partners7(3)Form 4Within 30 days of incorporation or subsequent appointments
Filing of Change in Partners25(2)Form 3 and   Form 4Within 30 days of Change
LLP Agreement & Changes therein23(2)Form 3Within 30 days of incorporation or Changes in LLP Agreement
Shifting of Registered Office13(3)Form 15Within 30 days of Compliance
Change of Name19Form 5Within 30 days of Compliance.