Limited Liability Partnership- Procedure for Incorporation

Limited Liability Partnership (LLP) is a body corporate and is a separate legal Entity. It is a special type of partnership wherein liabilit...

Limited Liability Partnership (LLP) is a body corporate and is a separate legal Entity. It is a special type of partnership wherein liabilities of partners are limited. It has the feature of perpetual succession where the change in partners does not affect the existence of Partnership.

It differs from the traditional partnership from the fact that the liability of partners is limited to the amount of agreed contributions. In other words, no partner is liable for the misconduct or unauthorized acts of other partners. 

Incorporation Procedure

Incorporation procedure of LLP is similar to that of Company. The following is the procedure for incorporation of LLP:

Name of LLP

The name of LLP must end with the word “Limited Liability Partnership” or LLP.The Name applied for, should not resemble the name of existing LLP or it should not be prohibited under Emblems and Names (Prevention of improper use) Act, 1950. If the proposed name contains the words Company Secretary/ Cost Accountant/ Chartered Accountant / advocates or similar words, the same should be allowed only after obtaining approval from the Council governing institute or such other authority specified by the government. Section 16 of the LLP Act, 2008, specifies that the application for reservation of the name should be made in Form No.1 to the Registrar having Jurisdiction over the registered office of the LLP. The Form No.1 can also be filed electronically to the Registrar using a digital signature of the applicant. The

Foreign LLP/Firm/ Company by applying in Form No. 25 and on payment of the prescribed fee can reserve its existing name in India. In Both cases, the reservation of the name is valid for 3 months within which person incorporating the LLP must file all relevant documents with Registrar for incorporation. However, the reservation can be renewed on making a fresh application after paying the prescribed fee. If the Registrar is satisfied, then the reservation of the name is communicated within 7 days of application for reservation.

Registered office of LLP 

The Registered office of LLP need not be the same place where the business is conducted. LLP may give another address for service of documents within the jurisdiction in which registered office is situated. The LLP must comply with the procedures laid down in the agreement. If the agreement is silent, then the consent of partners should be obtained. Form No.12 should be submitted within 30 days for intimating the above address.

Explanation of Term Partner and Designated Partner

Partner means any person who is a partner in accordance with LLP agreement. Every LLP must have Minimum of two partners. Body Corporates / Individuals can become Partners.The following persons are disqualified from becoming partners:

1. Person of Unsound mind 
2. Person who has applied to be adjudicated as insolvent and his application is pending.
3. Undischarged Insolvent

Section 6(2), provides that if the number of partners in LLP is less than two and LLP continues to carry on business for more than six months, then the person who is a partner during the period and who has knowledge of the above fact is personally liable for the obligations of LLP during that period. After the period of six months, LLP may have wound up by the tribunal.

Designated Partner means any partner designated as such in section no.7. According to Section 7(1) every LLP must have two designated partners who are individuals. Out of two designated partners, one of them must be resident in India. 

Resident means any person who stays in India for a period of 182 days or more during the immediately preceding one year. In case LLP has all partners who are body corporates or one or more partners are the

body corporate then at least two partners who are individual or nominees of the body corporate shall act as

designated partners.

If LLP contravenes the provision of section 7(1), then LLP and its every partner shall be punishable with a fine, which is not less than Rs 10000 but not more than Rs 500000. Section 7(2) specifies that at the time of filing of incorporation document, LLP must state the person who is designated partners and should also state

that each of partners from time to time of LLP is to be designated partners and hence every partner shall be designated partner. 

Section 7(3), specifies that the designated partner must file his consent in Form No.9 as prescribed under LLP rules, 2009. According to section 7(4), every LLP must file with the Registrar the particulars of partner and designated partner and changes therein within 30 days in Form No. 4 as prescribed under LLP rules,

2009. If the LLP fails to comply with the above provision, then LLP and its every partner is liable with a fine of not less than Rs 10000 but not exceeding Rs 1 lacs. Every Designated Partner must obtain DPIN (Designated partner Identification Number) from the Central Government. The application for DPIN

should be made in Form No 7 electronically.

The following persons are disqualified from becoming Designated Partners: 

1. Every person who is adjudicating as an insolvent in immediately preceding 5years 
2. Every person who suspends payment to creditors or has made a composition with them immediately preceding 5years 
3. Every person who is convicted of an offence involving moral turpitude and sentenced to imprisonment for the period not less than six Months 
4. Every person who is convicted by the court for an offence involving under section 30 of the Act.

LLP Agreement

LLP agreement must be filed in Form No.3 and Notice of appointment of Partner and designated partner in Form No.4 should be filed at the time of Filing Form No. 2 or within 30 days of incorporation. 

Capital Contribution

Partners in LLP must agree to contribute in accordance to LLP agreement. There is no provision in LLP Act, 2008 regarding the minimum level of contribution by partners. In case of no agreement, then the contribution should be made as agreed by partners. Contribution can be in the form of Cash/ Intangible/ Tangible/Movable and immovable assets and any other benefits like promissory notes, contracts to be executed etc. If any Immovable /tangible/ Intangible/ movable assets or any other benefit is brought as the contribution, then the

same has to be valued by Practicing Chartered Accountant/ Cost Accountant or by approved valuer of central government. Contribution can also be given in installments. At the time of Incorporation, partner must indicate the full amount of contribution. However, partner is liable for the agreed amount, which is unpaid. LLP agreement must specify the amount of interest on capital to be paid on their contributions. Profits and losses must be distributed to partners in the ratio of their capital contribution. It can also be distributed on some other basis, which is mutually agreed by way of LLP agreement. In case there is any increase or decrease in the capital contribution,the LLP is required to submit Form No. 3 for filing particulars of amendment in the LLP.

Other Requirements

If any corporate is a partner, then the board should authorize a person by way of resolution for signing

various documents for and on behalf of the company. As per Rule 11(1) of LLP Act, 2008, incorporation

document should be filed with the Registrar in Form No. 2. Chartered Accountant/Company secretary/ Cost accountant/ Advocate who is engaged in formation of LLP must certify that all the requirements of the LLP Act, 2008 has been complied in Part B of Form No.2. If any wrong / false statement is made, then the person is punishable with imprisonment for a term which may extend to two years and with a fine which is not less than Rs 10000 but not more than Rs 5 Lacs. Proof of the address of registered office should be enclosed. If the LLP declares residence of partners or office premises as the registered office, then authorization/ consent letter of Partner, rent agreement and proof of address must be enclosed. Section 12 specifies that if the requirement of LLP has been complied, then the Registrar within 14days of filing Form No. 2 shall register the same and issue certificate in the form. No.16 stating that the LLP is incorporated. The Certificate issued by Registrar serves as conclusive evidence that LLP has been incorporated.

B.Parvathavarthani(The author is a student of ICAI (Reg.No. SRO 0210818)