The concept of Limited Liability Partnership (LLP) was introduced in India through the Limited Liability Partnership Act, 2008. An LLP combines the benefits of both a partnership and a company, offering operational flexibility and limited liability protection to its partners.
What is an LLP?
A Limited Liability Partnership (LLP) is a separate legal entity formed by at least two persons who agree to carry on a lawful business. The liability of partners is limited to their agreed contribution, and no partner is liable for the independent acts of other partners.
Key Features of LLP
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Separate legal entity: It can own property, enter into contracts, and sue or be sued in its own name.
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Limited liability: Partners are liable only to the extent of their contribution.
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Perpetual succession: The LLP continues to exist regardless of changes in partners.
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Flexible structure: Internal management is based on mutual agreement.
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No minimum capital requirement: An LLP can be formed without any fixed minimum capital.
Structure of an LLP
a. Partners
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Minimum: 2 partners
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No maximum limit
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At least one partner must be a resident in India (i.e., stayed in India for at least 120 days in the previous financial year).
b. Designated Partners
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At least 2 designated partners are required, who are responsible for regulatory and legal compliances.
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Must obtain Designated Partner Identification Number (DPIN).
c. LLP Agreement
An LLP Agreement governs:
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Profit-sharing ratio
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Rights and duties of partners
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Management procedures
If no agreement is made, First Schedule of the LLP Act applies by default.
d. Name of LLP
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Must end with the words “Limited Liability Partnership” or “LLP”.
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Should not be identical or too similar to existing entities.
Procedure of Formation of LLP in India
Step 1: Obtain Digital Signature Certificate (DSC)
All designated partners must obtain a DSC to sign documents electronically.
Step 2: Apply for Designated Partner Identification Number (DPIN)
Use Form DIR-3 on the MCA portal to obtain a DPIN for the designated partners.
Step 3: Name Reservation (Form RUN-LLP)
File RUN-LLP (Reserve Unique Name – LLP) to reserve the proposed name.
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The name must not violate the Emblems and Names Act, 1950.
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Approved name is valid for 3 months.
Step 4: Incorporation of LLP (Form FiLLiP)
File Form FiLLiP (Form for Incorporation of LLP) with the following details:
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Name of LLP
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Registered office address
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Details of partners and designated partners
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Consent letters
Attachments include:
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Subscriber’s sheet (signed by partners)
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Proof of address
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Identity and address proof of partners
Step 5: File LLP Agreement (Form 3)
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Must be filed within 30 days of incorporation.
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Specifies mutual rights, duties, and obligations.
Post-Incorporation Compliance
After formation, the LLP must:
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Apply for PAN and TAN
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Open a bank account in the LLP’s name
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Maintain proper books of accounts
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File annual returns and statement of accounts
Example
Let’s say Ramesh and Suresh want to start a consultancy firm as an LLP.
They:
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Obtain DSCs and DPINs
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Reserve the name “RS Consultants LLP”
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File FiLLiP and submit supporting documents
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Sign an LLP agreement outlining their 60:40 profit-sharing ratio
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File Form 3 to register the agreement
Once registered, their LLP becomes a legal entity separate from them.
Conclusion
The Limited Liability Partnership structure in India offers a flexible and legally secure form of business with limited liability for its partners. The process of formation, though regulated, is streamlined through online filing via the MCA portal.