How Does Limited Liability Partnership Registration Work

 

Limited Liability Partnership Registration has emerged as one of the most chosen forms of business entity. It is due to the simplicity in the formation and easy maintenance. One of the biggest merits of LLP registration is that it helps the owners to limit their liabilities to a great extent. This blog on LLP registration will give you a fair idea about the concept and the procedures.

LLP registration is called a hybrid between a company and a partnership firm. It has the benefits of a private limited company and the flexibility of a partnership firm. In this form of a business, no partner is held liable on account of the unauthorized actions of other partners. Hence individual partners are shielded from joint liability due to the misconduct created by other partners. LLP form of organization is generally preferred by professionals, micro, and small entrepreneurs.

For LLP to get registered there have to be at least two designated partners of which one of them has to be a resident of India. An agreement governed between the LLP and partners has to be done which states the rights and the duties of the partners. This agreement is known as the “LLP Agreement”.

It was in the year 2006 when the LLP registration bill was introduced in Parliament. Since then it has become one of the most well-known forms of business entity. In this business, all the partners have limited liabilities based on their consent. Another major aspect of this kind of business is it safeguards the interest of the personal liability of each partner.

Now let us discuss the benefits of LLP registration.

LLP registration has far more advantages than a partnership or a proprietorship firm. Some of the benefits are listed below:

• Easy Transfer

LLP can be easily transferred by introducing new partners. Being a separate legal entity, changing of partners will not affect its existence.

• Auditing Not Required

Auditing is not mandatory in the case of LLP. It is required only when the turnover of the company exceeds Rs. 40 lakhs and where the contribution exceeds Rs. 25 lakhs.

• Enjoys A Separate Legal Entity

One of the distinguishing features of LLP is that it enjoys the benefits of a separate legal entity in the eyes of law. The assets and the liabilities are not of the partners.

• Profits can be withdrawn

In LLP, the profits can be withdrawn by the partners easily without paying any taxes.

• Multiple Relationships

An individual in LLP can be a partner, an employee, or a creditor. A person can have different contracts in different capacities in  LLP.

Going forward if you are planning to go ahead with LLP registration, then you need to submit certain important documents that are mandatory. The documents form an important criterion without which one cannot commence LLP business. Let’s have a quick checklist of the documents required.

Photo of the partners, PAN Card, ID proof (driving license, Voter Card, passport, Aadhaar Card), and electricity bill. For the purpose of LLP registration, it must have a registered office in India. Documents like a bank statement or any utility bills are mandatory. They should not be older than 2 months. Along with the utility bills, a copy of the rental agreement and a No Objection Letter (NOC) is required in case of rented premises. For self-owned a copy of a sale deed or a latest tax paid receipt is sufficient.

You may wonder whether to personally visit the government office for submitting the documents. You may think that the entire process is cumbersome.

Relax! Not to worry. One can get the LLP registration done online from the comfort of your home.

All about E-Filing For LLP

To undertake e-filing on LLP, you have the facility to download the e-form and fill in the details. Every form has the facility to fill the data available in the LLP system. Once the e-form is filled you have to validate the e-form using a pre-scrutiny button. You then have to affix the relevant digital signature and save the form. You have to get connected to the internet for this. The filled-up e-form has to be uploaded to the portal. On successful upload, a service request number will be generated. Further, you will be directed to make the required payment. Once the payment has been made the current status of your payment and the filing status can be tracked on the LLP portal by using the ‘Track Your Payment Status’ and ‘Track Your Transaction Status’ links respectively.

Simple and Hassle-Free. Isn’t It. This will save you valuable time and money.

Is there any difference between LLP registration and Partnership firm registration?

Under a Partnership firm, every partner is jointly liable with all the other partners for all the damages caused to other partners or third parties. Whereas under LLP structure, the liability of the partner is limited to his/her agreed contribution. Moreover, no partner is individually liable for unauthorized acts of other partners. Hence partners in LLP are protected from wrongful acts or misconduct created by another partner.

Difference between LLP and a Company

Having explained the prime difference between LLP and a Partnership, let us now find out how LLP differs from a company.

The basic difference between LLP and a Company is that in a company the internal governance structure is regulated by statute (ie, Companies Act, 2013) whereas for LLP it would be by a contractual agreement among the partners. The management-ownership divide present in a company is not available in LLP. LLP will have more flexibility as compared to a company. When it comes to compliances and regulations, LLP has lesser compliance as compared to a company.

Is the LLP Agreement compulsory for all LLPs?

As per the provision of the LLP Act, the mutual rights and the liabilities shall be provided under Schedule 1 of the act in the absence of the LLP agreement. LLP Agreement is mandatory in case any LLP proposes to exclude the provisions/ requirements of Schedule 1 of the act.

Here is good news for NRIs. As per the LLP Act of 2008 foreign nationals and foreign companies can incorporate LLP in India provided, at least one designated partner is a resident of India. However, the rule says that they have to comply with the laws, rules, and guidelines.

What are the Provisions of the Act concerning the names of LLPs?

Every LLP must have either the words “limited liability partnership” or the term “LLP” as the last words of its name. As per the Central Government notification LLPs would not be given names stating as undesirable. It is the Registrar that follows the rules which would be framed by the Central Government concerning allotting names to LLPs. There is also a provision concerning ‘rectification of name’ in case two LLPs have registered with the same name negligently.

Our readers would like to know for what duration a name can be reserved by Registrar.

The name can be reserved by the Registrar of Companies (ROC) on approval of Form-1 for a period of 3 months from the date of intimation. However, foreign LLPs have an option to reserve their existing names, under which they are operating outside India for a period of 3 years in India, which can be renewed further to the Registrar in Form-25.

Steps To Register LLP

To get LLP registered one needs to apply for a Designated Partner Identification Number (DPIN) which can be done by filing an e-form for acquiring the DIN or DPIN. Further one needs to get the Digital Signature Certificate (DSC) and register on the website. Thereafter, one needs to get the LLP name approved by the Ministry of Corporate Affairs.

 

Step 1: To Apply for Director Identification Number

All the designated partners who are planning to start LLP must obtain Designated Partner Identification Number. For this one needs to obtain Director Identification Number and fill an e-form in DIR-3.

Step 2: Register for Digital Signature Certificate (DSC)

The IT Act 2000 applies for the use of digital signatures on the documents submitted in an electronic form. This is to ensure the authenticity and the security of the documents filed. Hence, all the filings done by the LLPs are required to be filed with the use of digital signatures by the authorized persons to sign the documents.

The digital signature will be issued by the licensed Certifying Authority (CA). Certifying Authority is a governed body that has the permission to grant a license to issue a digital signature certificate under Sec-24 of the Indian IT Act 2000.

Step 3: New User Registration

If you are a new user, then you are required to register in the LLP portal. To register click on the new user registration user category to file an e-form.

Step 4: Incorporation of LLP

By filing Form-1 apply for the name of the LLP to be registered. The next procedure is to file the required registration in Form-2 depending upon the proposed LLP. On approval from the concerned officials, one will get an e-mail regarding the status of the form.

Step 5: To File LLP Agreement

After registering, the LLP agreement has to be filed initially within 30 days of incorporation of LLP. All the information has to be filed by the user in Form -3. (Information concerning LLP Agreement and changes, if any, made therein).

What is the process to close down LLP?

Any LLP can wind up their business by following any of the two ways:

A). By declaring as defunct

LLP can close down where their business operation is not being carried for more than one year. It can file an application to the Registrar declaring it as defunct and subsequently remove its name from Registrar.

E-Form-24 is required to be filed for deleting the name of LLP under clause (b) of sub-rule 1 of Rule 37 of LLP rules 2008. In the same way, Registrar also has the power to strike off any LLP that is defunct after the reasonable cause. For this Registrar has to send a notice to the LLP of their intention and request to send their representation within a month from the date of the notice. The Registrar will further publish such notices of the application on its portal for a period of 1 month where the general public will be informed. In case no reply is received within the specified period, the Registrar has all the rights to strike off the name of the LLP.

B). Winding Up

Section 63, 64, and 65 of the LLP Act 2008 states the procedure for winding up of LLP. It is a process where all the assets of the business are disposed to meet the liabilities and are distributed among the partners.

Winding up of LLP can be of two types:

• Voluntary winding up
• Compulsory winding up

Under voluntary winding up, the partners may decide among themselves to stop and wind up the business operations upon mutual consent among the partners.

LLP can be compulsorily wound up under the following situations:

• If the number of partners in LLP is reduced below 2 for a period of more than six months.
• If the LLP is unable to pay its debts.
• If the LLP has acted against the interests of the sovereignty and integrity of India.
• If the LLP has made a default in filing with the Registrar or has failed to file its annual returns for any five consecutive financial years.

You might have got a fair understanding after reading this blog on LLP registration. Hope this will help make a decision in case you are looking for LLP registration.

One of the first reasons for which you should select Aavana is because it has cemented its position as an emerging market leader in providing various financial and business services. In case you have any plans of converting from private limited company registration to LLP registration, Aavana can help you proceed with the process.