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Discussion > Income Tax > Tax planning >

FORMATION OF LIMITED LIABILITY PARTNERSHIP

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PBN-KOL-PUNE-CHENNAI ("A PHILOSOPHER")


[ Scorecard : 25435]
Posted On 01 February 2010 at 15:00 Report Abuse

NOTE ON FORMATION OF LIMITED LIABILITY PARTNERSHIP

 

 

LEGAL FRAMEWORK:-

 

The Limited Liability Partnership (LLP) is governed by Limited Liability Partnership (LLP) Act, 2008 and Limited Liability Partnership Rules, 2009. The LLP Rules, 2009 contains administrative provisions for formation, management, reconstruction and winding up of LLPs. Central Government can make applicable any provision of Companies Act to LLP with suitable modifications by issuing a notification. The Indian Partnership Act, 1932 shall not be applicable to LLPs.

 

Key features of LLP Act are as follows:

 

- LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession; like a corporation;

- There shall not be any upper limit on number of partners in an LLP unlike an ordinary partnership firm where the maximum number of partners can not exceed 20 (10 in case of banking);

- While the LLP will be a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution to the LLP. Further, no partner would be liable on account of independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct;

-  The framework of LLP is not restricted to professional services alone. Several business activities can be undertaken using the LLP structure;

 

Registration Fee:-

Prescribed registration fee as per the slab given in Annexure A of the LLP Rules, 2009, based on the total monetary value of contribution of partners in the proposed LLP shall be paid online.

(a)

Limited Liability Partnership whose contribution does not exceed Rs. 1 lakh

Rs. 500/-

 

(b)

Limited Liability Partnership whose contribution exceeds Rs. 1 lakh but does not exceed Rs. 5 lakhs

Rs. 2000/-

 

(c)

Limited Liability Partnership whose contribution exceeds Rs. 5 lakhs but does not exceed Rs. 10 lakhs

Rs.4000/-

 

(d)

Limited Liability Partnership whose contribution exceeds Rs. 10 lakh

Rs. 5000/-

 

 

For filing, registering or recording any document, form, statement, notice, Statement of Accounts and Solvency, annual return and an application alongwith the Statement for conversion of a firm or a private company or an unlisted public company into LLP by this Act or by these rules required or authorized to be filed, registered or recorded:

(a)

Limited Liability Partnership whose contribution does not exceed Rs. 1 lakh

Rs. 50/-

 

(b)

Limited Liability Partnership whose contribution exceeds Rs. 1 lakh but does not exceed Rs. 5 lakhs

Rs. 100/-

 

(c)

Limited Liability Partnership whose contribution exceeds Rs. 5 lakhs but does not exceed Rs. 10 lakhs

Rs. 150/-

 

(d)

Limited Liability Partnership whose contribution exceeds Rs. 10 lakh

Rs. 200/-

 

 

 

Pre-requisites for registering an LLP

  1. Minimum 2 Partners  (Individual or body corporate)
  2. Minimum 2 Designated Partners who are individuals and at least one of them should be resident in India.
  3. Digital Signature Certificate
  4. LLP Name
  5. LLP Agreement
  6. Registered Office

 

Procedure for formation of an LLP

 

Step I:- Deciding the Partners and Designated Partners 

A LLP can be incorporated with a minimum of atleast two partners who can be Individuals or Body Corporate through their nominees. Further for incorporating an LLP, of the total number no. of partners, atleast two shall be Designated Partners, of which atleast one must be an Indian Resident.

                              Parameters for deciding the Partners and Designated Partners:

Partners of LLP

An LLP should have minimum 2 partners. In case any Body Corporate is a partner, then it will be required to nominate any person (natural) as its nominee for the purpose of the LLP.

Partner of LLP can be consisted of

  • Companies incorporated in and outside India
  • LLP incorporated in and outside India
  • Individuals Resident in and outside India

Designated Partner

  • Every LLP should have minimum 2 designated partners who are individuals and at least one of them should be resident in India.
  • A person or nominee of a body corporate, intending to be appointed as who is appointed as designated partner of LLP should hold a Designated Partner Identification Number (DPIN) allotted by the Ministry of Corporate Affairs.
  • DPIN can be obtained by submitting application along with address proof and identity proof of the individuals.

 

      Step II:- Obtaining DPIN No. & Digital Signature 

 

Designated Partner Identification Number (DPIN):

·        Section 7 (6) of LLP Act 2008, provides that every Designated Partner to obtain a DPIN from the Central Government.

·        DPIN is an eight digit numeric number allotted by the Central Government in order to identify a particular partner and can be obtained by making an online application in eForm 7 to Central Government and submitting the physical application along with necessary identity and Address proof of the person applying with filing fee of Rs.100.  prescribed fees.

Digital Signature Certificate:

  • Partner/Designated partner of LLP/proposed LLP, whose signatures are to be affixed on the e-forms has to obtain class 2 or class 3 Digital Signature Certificate (DSC) from any authorized certifying agency.
  •  As all the documents and forms required for incorporating an LLP in India to be filed electronically and under the signatures of Designated Partners, thus atleast one Designated Partner to obtain the digital signature certificates from government recognized DSA’s

 

 

      Step III:- 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 eForm 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
  • 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).
  • Select name of the proposed LLP (upto 6 choices can be indicated).
  • Any partner or designated partner in the proposed LLP may submit eForm-1. 
  • File eForm-1 alongwith a filing fee of Rs 200/-.
  • Details of minimum two designated partners of the proposed LLP, one of them must be a resident of India, is required to be filled in the application for reservation of name.

 

      Step IV:- 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:

  • 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

Note:-

1)      In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable.

2)       It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details of the same needs to filed 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.

 

      Step V:- 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.

Documents Required:

  • eForm 1-Name Availability Application
  • eForm 2-Incorporation Document
  • eForm 3- Details of LLP Agreement
  • eForm 4-Consent of Partners
  • eForm 7-Application for Designated Partners Identification Number
  • Subscripttion Sheet
  • LLP Agreement duly stamped as per relevant Stamp Act of the State.
  • Proof of Address of Registered Office
  • Consent of Partners and Designated Partners

 

eForm 2: Incorporation Document

  • Once the name is reserved by the Registrar, fill up Form-2 Incorporation Document and Statement.  Pay the prescribed registration fee as per the slab given in the LLP Rules, 2009, based on the total monetary value of contribution of partners in the proposed LLP.
  • Statement in the e-form is to be digitally signed by a person named in the incorporation document as a designated partner having permanent DPIN and also to be digitally signed by an advocate/company secretary/chartered accountant/cost accountant in practice and engaged in the formation of LLP.
  • 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.

 

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 along with their address and identity proof to be filed with the Registrar of Companies.

 

Note:

eForm 3 & 4 are required to filed within 30 days of the incorporation.

 

Subscripttion Sheet: Just like in case of Company formation, the partners are required to subscribe their names along with signatures to the subscripttion sheet, which shall be witnessed by any chartered Accountant/Company Secretary/Advocate in practice. In case the subscripttion sheet is executed outside India, than it must be notarized and consularized.

 

Note:-

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.

 

      Step VI:- 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 of filing of Form-2 and will issue a certificate of incorporation in Form-16.The Certificate of Incorporation issued shall be the conclusive evidence of formation of the LLP.

 



Total thanks : 13 times

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Hemant.k.thakkar
Senoir Article


[ Scorecard : 39]
Posted On 01 February 2010 at 15:55

Ayush, Good Post Dear. But I have a doubt that if their r Four Partners in for LLP. Can I have only one DPIN (DSC) to Desginated Partner to completed all Formailties & Procedures. Pls Give Ur Advice........ Thanxs




CA AYUSH AGRAWAL
PBN-KOL-PUNE-CHENNAI ("A PHILOSOPHER")


[ Scorecard : 25435]
Posted On 02 February 2010 at 12:23

Yes.........


Total thanks : 3 times



Aditya Maheshwari
CA in Practice


[ Scorecard : 34868]
Posted On 02 February 2010 at 12:52

Would LLP be considered as a body corporate i. e. a private limited company, or a firm, for the purpose of Section 295 of the Companies Act or not. And also if a limited company becomes a partner of the LLP then whether for the purpose of giving loans to the LLP where there is common partner of LLP and director of LLP be provisions of Section 295 of Companies Act be attracted.



Amir
Learner


[ Scorecard : 3956]
Posted On 02 February 2010 at 13:21

Dear Aditya,

LLP has been given a status of Body Corporate but is remains a "PARTNERSHIP" ONLY,

For the purpose of Sec 295, I think it wil get covered...




Hemant.k.thakkar
Senoir Article


[ Scorecard : 39]
Posted On 02 February 2010 at 16:52

Thanxs




Hemant.k.thakkar
Senoir Article


[ Scorecard : 39]
Posted On 02 February 2010 at 16:53

Thanxs




Aditya Maheshwari
CA in Practice


[ Scorecard : 34868]
Posted On 03 February 2010 at 14:59

Originally posted by : Amir


Dear Aditya,
LLP has been given a status of Body Corporate but is remains a "PARTNERSHIP" ONLY,
For the purpose of Sec 295, I think it wil get covered...

So if a limited company becomes a partner in a LLP and then gives funds to the company it will taken as partners contribution and the provisions of Section 295 be not attracted in the said case. So is my understanding correct?




Amir
Learner


[ Scorecard : 3956]
Posted On 03 February 2010 at 15:53

Dear Aditya,

Sec 295 applies in case of Loans to Directors & concerns in which Director is having interest, but in the present case I think the company is having interest & not the Director of the company, therefore Sec 295 will not apply here........




Prosad Sen
Student


[ Scorecard : 21]
Posted On 23 August 2010 at 13:24

Thanks a lot Ayush for the post. Can you pls enumerate the differences between a partnership firm and an LLP.



There are 23 Replies to this message






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