Limited Liability Partnerships (LLPs) have become an increasingly popular business structure in India over the past decade. Compared to traditional partnerships and proprietorships, LLPs offer the benefits of limited liability while also providing operational flexibility to partners. However, the process of actually incorporating an LLP can seem daunting, especially when it comes to drafting and filing the required documents. Proper documentation is crucial for smooth sailing through LLP registration and to ensure full compliance with regulations. This comprehensive guide will walk you through the key documents needed for LLP incorporation in India and provide tips for efficient drafting.
What is an LLP?
A Limited Liability Partnership is a business structure that combines aspects of partnerships and companies into a single organizational form. As per the Limited Liability Partnership Act 2008, an LLP is defined as a separate legal entity, liable to the full extent of its assets but limiting the liability of the partners to their agreed contribution in the LLP. The key characteristics of an LLP include:
- Separate legal entity status
- Limited liability for partners
- Flexibility without imposition of detailed legal and procedural requirements
- Separate ownership from management – LLP can be run by non-partners as well
Compared to a traditional partnership firm, LLPs have multiple advantages that make them an attractive option for entrepreneurs and businesses in India:
- Limited liability for partners safeguards personal assets
- Lower compliance requirements than a company
- Flexibility in organizational design and processes
- No restrictions on limit of partners unlike in a partnership firm
- Less dissolvement risk compared to a partnership firm if a partner exits
Given these benefits, the number of LLPs being registered in India has gone up from about 2,000 in 2008-09 to over 1.2 lakh LLPs until 2021. For businesses looking for a structured form of partnership, LLPs can be an ideal choice.
Overview of the LLP Incorporation Process
The procedure for LLP registration and incorporation involves multiple steps that require careful documentation and filing of forms over time. The key stages are:
- Obtaining Digital Signature Certificate (DSC)
- Applying for Designated Partner Identification Number (DPIN)
- Reserving a unique name for the LLP
- Filing incorporation documents with the registrar (through FiLLiP e-form)
- Drafting the LLP Agreement
At every stage, specific documents and forms have to be prepared and submitted in line with the laid out process. The entire registration can take 15-20 days subject to furnishing complete details and documents verified by authorized professionals. Missing or incorrect information can lead to delays and rejection of the application.
Proper documentation is crucial not just for swift registration but also to ensure the LLP is structured and operated as per legal provisions after incorporation. The LLP Agreement in particular lays out the ground rules for management, partner roles and responsibilities, accounting and record-keeping among other aspects. Hence, every document must be drafted carefully.
Key Documents Required for LLP Incorporation
A. Digital Signature Certificate (DSC)
To kickstart the LLP incorporation procedure, the first requirement is obtaining a Class 2 Digital Signature Certificate. A DSC is mandatory for individuals authorized to sign and file e-forms with MCA authorities on behalf of the proposed LLP. This provides identity authentication and security for online filings. To obtain a DSC:
- Apply through a licensed certification authority like NIC, TCS, MTNL etc.
- Submit identity and address proof documents
- Make payment for Class 2 DSC (costs around Rs. 1500-2000)
- Receive DSC token through courier after verification
- Download and install DSC software on your computer
Having a DSC is a prerequisite for all subsequent steps in LLP registration including name approval, incorporation application and filing mandatory documents.
B. Designated Partner Identification Number (DPIN)
The Designated Partners (DPs) are individuals appointed to be responsible for compliance requirements of the LLP such as filing returns, accounts etc. Minimum 2 DPs are required for incorporation. To be a DP, you must:
- Have a DSC
- Obtain DPIN by filing Form 7 on the MCA portal
- Submit proof of identity and address documents
The DPIN application involves no payment and approval is generally quick if details are accurate. The same DPIN applies if you are designated partner in multiple LLPs.
C. Name Approval Application
To choose the right name for your LLP, certain rules have to be followed:
- Must end with ‘Limited Liability Partnership’ or ‘LLP’ as suffix
- No identical or too similar names to any existing company/LLP
- No names indicating links to government bodies
- Maximum 6 words excluding LLP suffix (can apply for exemptions)
The proposed name can be checked on the MCA portal for availability before applying for formal approval through Form 1 (LLP-RUN). Up to 6 unique names can be applied to maximize chances of approval. The application fee is Rs. 1000.
D. Incorporation Application (FiLLiP Form)
Once name approval is obtained, the next step is fiing Form 2 – Statement for Incorporation of LLP or FiLLiP. This comprehensive e-form captures all key details about the proposed LLP’s partners, registered office address, nature of business, designated partners etc. that must be filled carefully and accurately.
Documents to be attached with the FiLLiP form are:
- Scanned consent of partners with proposed DPIN allotted
- Address proof of registered office
- NOC from owner of premises to be registered office
- Subscriber’s sheet duly filled by DPs
- Optional attachment – LLP agreement if available
There is a government fee of Rs. 500 for FiLLiP that can be paid online.
E. LLP Agreement
The LLP Agreement is arguably the most important legal document for smooth functioning and management of the LLP. It must be comprehensive and drafted by legal experts to avoid any loopholes or inconsistencies. Some key aspects that an LLP agreement must cover are:
- Names of partners and value of capital contribution made by each
- Profit and loss sharing ratio between partners
- Rights, duties, responsibilities and obligations of partners
- Accounting and auditing procedures
- Salaries, remuneration and reimbursements for partners
- Procedure for admitting new partners
- Rules for transfer of partnership interests
- Grounds and process for expulsion of partners
- Circumstances under which the LLP can be dissolved
- Dispute resolution mechanisms among partners
- Notarization and stamp duty to make legally binding
Although not mandatory at the time of incorporation, it is advisable to draft a detailed LLP agreement right away and file it subsequently. This lays the foundation for the LLP’s operations as per partners’ consent.
Post-Incorporation Formalities
A. Filing the LLP Agreement
Within 30 days of incorporation, it is mandatory to file the LLP agreement. The e-form 3 is filed along with attachments like certified copy of the agreement, amendments, list of partners etc. Due stamping of the agreement as per state laws has to be completed before filing.
B. Obtaining PAN and TAN
The Permanent Account Number and Tax Deduction Account Number are important to comply with income tax provisions. Application has to be made in Form 49A for PAN and Form 49B for TAN within 30 days of LLP incorporation.
C. Opening a Bank Account
A current account in the name of the LLP has to be opened with a bank to manage financial transactions. This requires copies of LLP agreement, address proof, ID proof of partners, registration certificate and Form 2 filing receipt.
Tips for Efficient Document Drafting
Drafting watertight documents for LLP incorporation is vital for every new business and some aspects to focus on are:
- Use clear, unambiguous language and avoid legal jargon
- Ensure all facts and figures mentioned are accurate
- Read regulations carefully to customize documents and include all mandatory information
- Verify that names, addresses and numbers fill in correctly at each instance
- Ensure compliance not just at incorporation stage but even post-registration based on documents filed
- Engage specialized legal professionals to vet agreements, deeds etc.
- Be thorough while reviewing final documents before submission
- Update existing legal documents periodically as regulations change over time
Following these tips and best practices can help avoid errors or omissions in documentation that may derail your LLP registration and compliance requirements.
Common Mistakes to Avoid
Some of the most common but avoidable mistakes in LLP documentation include:
- Only copying generic templates without customizing for specific LLP
- Not verifying registered office address and documents beforehand
- Incorrect sequence or missing mandatory annexures for e-forms
- Assuming oral agreements among partners are sufficient without documentation
- Not accounting for changes in authorized signatories, partners etc. through updated records
- Delay in filing post-incorporation documents beyond stipulated timelines
- Grammatical errors or illegible documents that can lead to rejection
- Ambiguity in LLP agreement clauses leading to future disputes
- Inadequate stamp duty payment making documents non-enforceable
By being vigilant and avoiding these lapses, entrepreneurs can ensure seamless LLP incorporation and compliance.
Conclusion
For any business, proper documentation forms the very foundation of operations and compliance. This is certainly true in case of LLPs which involve multiple procedures and filings with authorities. Right from obtaining DSCs and DPINs to drafting comprehensive LLP agreements, every document must be prepared meticulously for the LLP incorporation to sail through. Ensuring completeness in paperwork and adhering to timelines also helps avoid procedural delays. While the process may seem complex, getting step-wise guidance and assistance from qualified professionals can make documentation efficient. Meticulous planning and diligent drafting are key to compliant LLP formation.
Frequently Asked Questions
Q: Is a registered office mandatory for LLP incorporation?
Yes, providing details of the registered office address in India supported by proof documents is mandatory for LLP incorporation.
Q: Can one use DSC of a Director for incorporating an LLP?
No, only a specifically authorized DSC obtained by a designated partner of the LLP should be used for incorporation e-filings.
Q: Can we apply for company name approval and LLP name approval simultaneously?
Yes, you can file applications for reserving both LLP and company names through respective e-forms if they meet all guidelines.
Q: Should the LLP Agreement be in a printed format?
The LLP Agreement only needs to be adequately stamped as per state laws. It can be printed or handwritten as long as it is legible and duly signed.
Q: Is an address proof for LLP agreement witness mandatory?
No, there is no requirement for witnesses of LLP agreements to submit KYC documents. Their signatures confirming execution is sufficient.
Q: Can I make changes to LLP agreement after filing?
Yes, any amendments or changes to the original LLP agreement have to be filed in Form 3 within 30 days of the changes being made.
