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Sunday, September 23, 2018

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Limited Liability Partnerships
 
Limited Liability Partnerships (LLP) Formation
MEANING OF LIMITED LIABILITY PARTNERSHIP
Limited Liability Partnership entities, the world wide recognized form of business organization has been introduced in India by way of Limited Liability Partnership Act, 2008. A Limited Liability Partnership, popularly known as LLP combines the advantages of both the Company and Partnership into a single form of organization. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence; this is an important difference from that of a unlimited partnership. In an LLP, all partners have a form of limited liability for each individual's protection within the partnership, similar to that of the shareholders of a corporation. However, unlike corporate shareholders, the partners have the right to manage the business directly. An LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the LLP's employees or other agents.
Limited Liability Partnership is managed as per the LLP Agreement, however in the absence of such agreement the LLP would be governed by the framework provided in Schedule 1 of Limited Liability Partnership Act, 2008 which describes the matters relating to mutual rights and duties of partners of the LLP and of the limited liability partnership and its partners.
LLP has a separate legal entity, liable to the full extent of its assets; the liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or un-authorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
Limited Liability Partnership Act, 2008 came into effect by way of notification dated 31st March 2009.
Advantages
bullet Renowned and accepted form of business worldwide in comparison to Company.
bullet Low cost of Formation.
bullet Easy to establish.
bullet Easy to manage & run.
bullet No requirement of any minimum capital contribution.
bullet No restrictions as to maximum number of partners.
bullet LLP & its partners are distinct from each other.
bullet Partners are not liable for Act of partners.
bullet Less Compliance level.
bullet No exposure to personal assets of the partners except in case of fraud.
bullet Less requirement as to maintenance of statutory records.
bullet Less Government Intervention.
bullet Easy to dissolve or wind-up.
bullet Professionals can form Multi-disciplinary Professional LLP, which was not allowed earlier.
bullet Audit requirement only in case of contributions exceeding Rs. 25 lakh or turnover exceeding Rs. 40 lakh.
Disadvantages
bullet Any act of the partner without the other partner, may bind the LLP.
bullet Under some cases, liability may extend to personal assets of partners.
bullet Cannot raise money from Public.
WHY LIMITED LIABILITY PARTNERSHIP
Following reasons can help you decide, why you should go for an LLP:
bullet Renowned form of business: Though the concept of Limited Liability Partnership has been recently introduced in India but it is very known concept in other countries of the world especially in service sector.
bullet Easy to Form: It is very easy to form LLP, as the process is very simple as compared to Companies and does not involve much formality. Moreover, in terms of cost the minimum fees of incorporation is as low as Rs 800 and maximum is Rs 5600.
bullet Body Corporate: Just like a Company, LLP is also body corporate , which means it has its own existence as compared to partnership. LLP and its Partners are distinct entity in the eyes of law. LLP will know by its own name and not the name of its partners.
 
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We are the exclusive member in India of the Association of International Tax Consultants, an association of independent professional firms represented throughout Europe, US, Canada, South Africa, Australia and Asia.
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bullet Liability: A LLP exists as a separate legal entity from your personal life. Both LLP and person, who own it, are separate entities and both functions separately. Liability for repayment of debts and lawsuits incurred by the LLP lies on it and not the owner. Any business with potential for lawsuits should consider incorporation; it will offer an added layer of protection.
bullet Perpetual Succession: An incorporated LLP has perpetual succession. Notwithstanding any changes in the partners of the LLP, the LLP will be a same entity with the same privileges, immunities, estates and possessions. The LLP shall continue to exist till its wound up in accordance with the provisions of the relevant law.
bullet Flexible to Manage: LLP Act 2008 gives LLP the at most freedom to manage its own affairs. Partner can decide the way they want to run and manage the LLP, in form of LLP Agreement. The LLP Act does not regulated the LLP to large extent rather than allows partners the liberty to manage it as per their will and fancies..
bullet Easy Transferable Ownership: It is easy to become a Partner or leave the LLP or otherwise it is easier to transfer the ownership in accordance with the terms of the LLP Agreement.
bullet Separate Property: A LLP as legal entity is capable of owning its funds and other properties. The LLP is the real person in which all the property is vested and by which it is controlled, managed and disposed off. The property of LLP is not the property of its partners. Therefore partners cannot make any claim on the property in case of any dispute among themselves.
bullet Taxation: Another main benefit of incorporation is the taxation of a LLP. LLP are taxed at a lower rate as compared to Company. Moreover, LLP are also not subject to Dividend Distribution Tax as compared to company, so there will not be any tax while you distribute profit to your partners.
bullet Raising Money: Financing a small business like sole proprietorship or partnership can be difficult at times. A LLP being a regulated entity like company can attract finance from PE Investors, financial institutions etc.
bullet Capacity to sue: As a juristic legal person, a LLP can sue in its name and be sued by others. The partners are not liable to be sued for dues against the LLP.
bullet No Mandatory Audit Requirement: Under LLP, only in case of business, where the annual turnover/contribution exceeds Rs 40 Lacs/Rs 25 Lacs are required to get their account audited annually by a chartered accountant. This provides great relief to small businessmen.
bullet Partners are not agent of other Partners: In LLP, Partners unlike partnership are not agents of the partners and therefore they are not liable for the individual act of other partners in LLP, which protects the interest of individual partners.
bullet Compliances: As compared to a private company, the number of compliances are on lesser side in case of LLP.
KEY INCORPORATION REQUIREMENT
1. PARTNER
At least 2 persons (natural or artificial) are required to form a LLP. In case any Body Corporate is a partner, than he will be required to nominate any person (natural) as its nominee for the purpose of the LLP.
Following can become a partner in the LLP
bullet Company incorporated in and outside India
bullet LLP incorporated in & outside India
bullet Individuals resident in & outside India
2. CONTRIBUTION
In case of LLP, there is no concept of any share capital but every partner is required to contribute towards the LLP in some manner. The said contribution can be tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, and other agreements to contribute cash or property, and contracts for services performed or to be performed.
In case the contribution is in intangible form , the value of the same shall be certified by a practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained by the Central Government. The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed.
The LLP Agreement must specify the contribution intended to be paid by all the members and the form in which it will be paid.
3. DESIGNATED PARTNERS
Designated Partner’ means a partner who is designated as such in the incorporation documents or who become a designated partner by and in accordance with the Limited Liability Partnership Agreement.
Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India
Provided that in case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partner¬ship or nominees of such bodies corporate shall act as designated partners.
Designated Partner shall be:
bullet Responsible for the doing of all acts, matters and things as are required to be done by the limited liability part¬nership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnership agreement; and
bullet Liable to all penalties imposed on the limited liabili¬ty partnership for any contravention of those provisions.
Explanation.—for the purposes of this section, the term “resi¬dent in India” means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one year.
4. DIRECTOR IDENTIFICATON NUMBER
Every Designated Partner is required to obtain a DIN from the Central Government. If a person already has a DIN, the same can be used for forming LLP. The Direction Identification Number would be used as Unique Identification for the Designated Partner also. The DIN can be applied online at (http://www.mca.gov.in/MCA21/Din.html).
5. DIGITAL SIGNATURE CERTIFICATE
All the forms like eForm 1, eForm 2, eForm 3 etc which are required for the purpose of incorporating the LLP are filed electronically through the medium of Internet. Since all these forms are required to be signed by the partner of the proposed LLP and as all these forms are to be filed electronically, it is not possible to sign them manually. Therefore, for the purpose of signing these forms, all the Designated Partner of the proposed LLP needs to have a Digital Signature Certificate (DSC).
The Digital Signature Certificate once obtained will be useful in filing various forms which are required to be filed during the course of existence of the LLP with the Registrar of LLP.
6. LLP NAME
Selection of the name for the proposed LLP to be incorporated is one of the important process of the entire incorporation process, ideally the name of the LLP should be such which represents the business or activity intended to be carried on by the LLP. Before selecting the name of the LLP, it is necessary to evaluate the proposed name under the following given criteria:
bullet LLP with Similar Name: The proposed name of the LLP should not be similar to the name of the Company or LLP , which is already registered in India.
bullet Prohibited Word: The Ministry of Corporate Affairs of India has prescribed certain words, which should not form part of the name of LLP intended to be incorporated in India, such words are prohibited under The Emblems and Names (Prevention of improper use) Act, 1950.
bullet Words Based on Approval: Various government regulatory authorities operating in India like Securities & Exchange Board of India, Reserve Bank of India, has prescribed certain words, which if forms part of the name of the proposed LLP to be incorporated, requires there first hand approval.
bullet Names reserved for Foreign LLP/Companies: In case Foreign LLP/Companies have reserved their name under rule 18 of the LLP Rules 2009, than that name will not be applicable for forming of LLP to persons other than the Foreign LLP/Company
7. LLP AGREEMENT
For the purpose of forming a LLP, there should be agreement between the partners interested in forming the LLP to be known as LLP Agreement. The said Agreement forms the basis of the formation of LLP and lays down its founding structure. The LLP agreement is an agreement between the Partners and between the LLP & its partners.
The basic contents of Agreement are:
bullet Name of LLP
bullet Name of Partners & Designated Partners
bullet Form of contribution
bullet Profit Sharing ratio
bullet Rights & Duties of Partners
In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable. It is possible to amend the LLP Agreement but every change made in the said agreement must be intimated to the Registrar of LLP.
8. REGISTERED OFFICE
The Registered office of the LLP is the place where all correspondence related with the LLP would take place, though the LLP can also prescribe any other for the same. A registered office is required for maintaining the statutory records and books of Account of LLP.
At the time of incorporation, it is necessary to submit proof of ownership or right to use the office as its registered office with the Registrar of LLP.
INCORPORATION FLOWCHARTS
LLP
INCORPORATION PROCEDURE
LLP
Step 1 : Deciding the partners and designated partners
A LLP can be incorporated with a minimum of at least two partners who can be Individuals or Body Corporate through their nominees. Further for incorporating an LLP, of the total number no. of partners, at least two shall be Designated Partners, of which at least one must be an Indian Resident.
Parameters for deciding the Partners and Designated Partners:
bullet At least Two Partners; Individuals or Body Corporate through individual nominees.
bullet Minimum of Two Individuals as Designated Partners, of total no. of Partners.
bullet At least One Designated Partner to be Resident Indian.
A person ‘Resident in India’ means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one year. (Explanation to Section-7())
‘Designated Partner’ means a partner who is designated as such in the incorporation documents or who become a designated partner by and in accordance with the Limited Liability Partnership Agreement.
Step 2 : Obtaining DPIN No. & digital signature
Director Identification Number: Every Designated Partner is required to obtain a DIN from the Central Government. If a person already has a DIN, the same can be used for forming LLP. The DIN can be applied online at (http://www.mca.gov.in/MCA21/Din.html).
Digital Signature Certificate: All the forms like eForm 1, eForm 2, eForm 3 etc which are required for the purpose of incorporating the LLP are filed electronically through the medium of Internet; it is not possible to sign them manually. Therefore, for the purpose of signing these forms, the Designated Partner of the proposed LLP needs to obtain a Digital Signature Certificate (DSC) from government recognized DSA’s. The signatures shall also be required for signing and filing of all relevant forms and documents to be filed, annually or event based after incorporation of the LLP, asking for approvals or as intimation.
Likewise the manual signatures, digital signature certificates are individual specific and no partner needs to obtain more than one.
Step 3 : Checking the name availability
The next step is to decide the name for the proposed LLP to be incorporated, anyone intending to incorporate an LLP has to evaluate his proposed name under the prescribed parameters and make an application in Form 1of Rule 18(5) of the Limited Liability Partnership Act 2008, for reservation of the desired name.
The name of the limited liability partnership shall not be similar or identical with Company or LLP already registered in India and it should not contains words prohibited under the ‘Emblems and Names (Prevention of improper use) Act, 1950’or which are also not ‘Undesirable’ in the opinion of Central Government or which satisfies the conditions prescribed under rule 18(2). For more information check Name Availability Guidelines.
In case any Body Corporate is partner, copy of Board resolution authorizing the incorporation of LLP shall be attached
Undesirable Names- Connote: If in the opinion of the department, the name by which a Company is registered gives so misleading an indication of the nature of its activities as to be likely to cause harm to the public, the department may direct it to change its name. A Company registered under the Companies Act, is not entitled to carry on its business in such a way or under such a name, as to represent that its business is the business of any other company or firm or person; and the absence of fraud is immaterial. In such cases, the old company or firm can apply to the court for an injunction, and in such cases the principles that apply to individuals trading under identical or similar names would become applicable.
Step 4 : drafting of LLP agreement
The next pertinent step is drafting of Limited Liability Partnership Agreement governing the mutual rights and duties among the partners and among the LLP and its partners.
The basic contents of Agreement are:
bullet Name of LLP
bullet Name of Partners & Designated Partners
bullet Form of contribution
bullet Profit Sharing ratio
bullet Rights & Duties of Partners
bullet Proposed Business
bullet Rules for governing the LLP
In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable
It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details of the same needs to field in eform 3 within 30 days of incorporation but in order to avoid any dispute between the partners as to the terms & conditions of the agreement after the formation of LLP, it is always beneficial to have the LLP Agreement drafted and executed before the incorporation of the LLP.
In case the Agreement is executed outside India, than it must be notarized and consularized, for more information check “Incorporation of LLP” under FAQ’s
Step 5 : Filing of incorporation documents
Next is the filing of Incorporation documents, consent of Partners and declaration electronically through the medium of e-forms prescribed with the Registrar of LLP for incorporation of the LLP on payment of prescribed fees based on the total monetary value of contribution of partners in the proposed LLP.
eForm 2: Incorporation Document
This is an informative document setting down the details of LLP, its Partners including designated partners along with their amount of contribution and consent for forming a Limited Liability Partnership to carry on a lawful business with profit motive along with declaration stating that all the requirements of Limited Liability Partnership Act, 2008 regarding incorporation of LLP in India have been complied with.
Subscription Sheet
Just like in case of Company formation, the partners are required to subscribe their names along with signatures to the subscription sheet, which shall be witnessed by any chartered Accountant/Company Secretary/Advocate in practice.
In case the subscription sheet is executed outside India, than it must be notarized and consularized, for more information check “Incorporation of LLP” under FAQ’s
eForm 3: Details of LLP Agreement
This form provides for the necessary information in respect to the LLP Agreement entered into between the partners.
eForm 4: Consent of Partners
Consent of each partner to become a partner of Limited Liability Partnership to be filed with the Registrar of LLP.
eForm 3 & 4 are required to filed within 30 days of the incorporation.
All the eforms will be digitally signed by any Designated partner and shall be certified by an advocate/company secretary/chartered accountant/cost accountant in practice engaged in the formation of LLP.
Key points:
bullet Filling will be done on www.llp.gov.in
bullet With All the Designated Partners need to be register as Business User.
bullet Digital Signature is required only for the Designated Partner who would be signing all the e Forms.
Step 6 : Certificate of incorporation
After the Registrar is satisfied that all the formalities with respect to the incorporation has been complied , he will issue a Certificate of Incorporation as to formation of the LLP within maximum of 14 days from date of filing of documents . The Certificate of Incorporation issued shall be the conclusive evidence of formation of the LLP.
DOCUMENTS REQUIRED FOR REGISTRATION
bullet ID proof of the proposed Partners: PAN Card, Passport, Election Id, Driving License - anyone (Income-tax PAN is a mandatory requirement as proof of identity for Indian Designated Partners and passport is a mandatory requirement as proof of identity for foreign nationals/Partners.)
bullet Address proof of the proposed Partners: Passport, election (voter identity) card, ration card, driving license, electricity bill, telephone bill or bank account statement – anyone.
bullet Passport size photographs of the Designated Partners.
bullet Proof of Registered office address.
LLP VS OTHER
COMPARISON BETWEEN EXISTING BUSINESS FORMS AND LLP RESULT
LLP
LLP
LLP
LLP
LLP
LLP
LLP
What Rajput Consultancy Services Private Limited Offers
Rajput Consultancy Services Private Limited offer LLP registration services which are highly renowned as a one-window-solution provider for LLP registration services in Delhi/NCR. We offer professional assistance in getting your LLP Registration at competitive rates and in a short span of time. Details of the services offered are mention here under:
bullet NAME RESERVATION SERVICE: - LLP Act 2008 provides special provisions for the Intellectual Property for Foreign Companies/LLP. Foreign Companies/LLP interested in establishing LLP in India can reserve its existing name by which it is registered in the country of its regulation or incorporation for forming an LLP in future on payment of fees. No LLP will be formed with the reserved name during the course of reservation. The reservation is for a period of three years and can be renewed on fresh application with fees.
bullet LLP AGREEMENT DRAFTING SERVICE: - LLP is governed by LLP Act, 2008 and the LLP agreement. Our experienced team of legal professionals can help you to draft LLp Agreement taking into account of requirements and applicable law. A well drafted agreement will help smooth running of your LLP.
bullet ANNUAL FILING SERVICES :-Under LLP act, it is mandatory to file accounts and annual return with Registrar of LLP. Companies Inn can help you in filing returns in time and thus avoid penalty.
bullet INDUCTION OF NEW PARTNERS AND CHANGES THEREOF:-In terms of LLP law, induction of partners and changes there of has to be intimated to Registrar by filing specified returns. Our LLP law experts can assist you in inducting new partners and effect the changes in partners.
 
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