A limited liability partnership is a body corporate that has a legal identity separate from its partners. This status of a separate legal entity is attained only upon its official incorporation. Once registered, an LLP can own, acquire, or dispose of any type of asset, tangible or intangible. It can also sue others or be sued in its name. This concept brings flexibility to partners while offering limited liability, a core benefit distinguishing LLPs from traditional partnerships.
The incorporation process involves meeting specific requirements laid down under relevant laws. This includes securing a registered office, obtaining digital signatures, reserving a name, and fulfilling other procedural steps. The provisions for registration, name approval, changes in the registered office, and compliance with regulatory updates are essential parts of the LLP incorporation journey.
Pre-Requisites for Incorporating a Limited Liability Partnership
To incorporate a new LLP in India, certain mandatory requirements must be fulfilled. At least two partners are required, who can be individuals or bodies corporate. Among them, there must be a minimum of two designated partners, and at least one of these must be a resident in India.
A digital signature certificate is mandatory for signing forms electronically. An appropriate LLP name must be proposed and reserveaccording toby legal naming guidelines. The partners must draft and execute an LLP agreement defining mutual rights and duties. The LLP must also have a registered office address, which can later be changed subject to legal compliance.
Legal Framework and Key Comparisons
Limited liability partnerships are governed under the Limited Liability Partnership Act. They offer a hybrid structure combining features of both partnerships and companies. Compared to private limited companies, LLPs offer operational flexibility, fewer compliance obligations, and tax benefits in some cases. However, they are also subject to rigorous registration norms and need proper legal documentation for formation.
Changes Introduced in LLP Incorporation Rules
Significant procedural changes were introduced with the Limited Liability Partnership (Second Amendment) Rules, 2018. As per the notification issued on 18th September 2018 by the Ministry of Corporate Affairs, a revised incorporation procedure became effective from 2nd October 2018. This revamped framework aimed to streamline and digitize the LLP formation process, aligning it with company incorporation mechanisms.
One of the notable changes was the introduction of the RUN-LLP service for name reservation. This service mirrors the RUN feature used in company registrations. Along with this, a new form named FiLLiP was introduced as the central application for LLP incorporation. FiLLiP replaced the older LLP Form 2 and now integrates several processes, including name reservation and DIN allotment, into a single application form.
LLP Incorporation Procedure in Detail
The incorporation of an LLP is carried out in a structured sequence. Each step must be carefully followed to ensure smooth registration and legal compliance.
Procuring Digital Signature Certificate
All LLP-related applications are submitted online through the Ministry of Corporate Affairs portal. These applications must be digitally signed by the designated partners. Therefore, the first step is to obtain a digital signature certificate valid for at least two years. The DSC is linked to the applicant’s PAN card and requires a passport-size photograph and proof of address. The designated partners of the LLP must possess valid digital signatures before proceeding with form submissions.
Reserving the Name of the LLP
The next step is name reservation, which is done using the web-based RUN-LLP form. This form allows the applicant to propose two names in the order of preference, along with their significance. The chosen names must comply with existing naming guidelines, and the Ministry may reject names that do not meet legal standards. If neither of the proposed names is approved, the applicant may be allowed to resubmit another set of names.
The government charges a fee for processing the RUN application. Digital signature and DIN are not required at this stage, but creating an account on the MCA portal is mandatory. Once approved, the name is reserved for 90 days.
Document Preparation for Incorporation
Following name approval, the applicant must gather and prepare several documents for incorporation. These include proof of the office address, such as a lease deed or rent agreement with recent rent receipts, a no-objection certificate from the property owner, and utility bills not older than two months.
Additionally, the partners must submit a subscription sheet, consent to act as partners, and identity and address proofs if DIN is not yet allotted. The digital signature certificates of all designated partners must be included. If the name requires prior approval from the central government, the relevant approval must also be attached.
Filing FiLLiP and DIN Application
The key step in LLP incorporation is the filing of Form FiLLiP. This consolidated form replaces the earlier LLP Form 2 and facilitates DIN allotment for up to two designated partners. If more than two designated partners are involved, additional DINs must be obtained separately post-incorporation.
Applicants may also opt to include name reservation in FiLLiP instead of submitting a separate RUN application. The form must be digitally signed by the partners and certified by a practicing professional such as a chartered accountant, company secretary, or cost accountant.
The Central Registration Centre processes the form. If additional information or clarification is needed, the application may be sent back for resubmission within 15 days. A second chance may be given, but the total time for resubmission should not exceed 20 days. Once approved, the Registrar issues a Certificate of Incorporation in Form 16 along with DINs for the designated partners. This certificate also includes the unique LLP Identification Number.
Application for PAN and TAN
Unlike companies, LLPs previously had to apply separately for PAN and TAN through the Income Tax Department using Forms 49A and 49B. However, changes in the incorporation process now allow PAN and TAN to be included in the FiLLiP application itself. This integration simplifies the process and reduces compliance burdens, streamlining business commencement activities.
Drafting and Filing the LLP Agreement
An LLP agreement is a legal document that defines the mutual rights, duties, and obligations of partners. It must be drafted with care, reflecting the specific needs of the business and its partners. Common clauses include profit-sharing ratios, contribution of capital, admission and retirement of partners, business scope, and governing rules.
The agreement must be executed on a stamp paper of appropriate value based on the location of the LLP’s registered office, as prescribed under the relevant State Stamp Act. After signature by partners and attestation by witnesses, the agreement becomes legally valid.
The LLP agreement must be filed with the Ministry of Corporate Affairs within 30 days of incorporation using Form 3. Failure to do so incurs a penalty of 100 rupees per day until the date of actual filing. The approval of this form is managed by the respective State Registrar of Companies.
Conclusive Evidence of Incorporation
The Certificate of Incorporation issued by the Registrar is conclusive evidence that the LLP has been duly registered. The certificate includes the name of the LLP, its unique LLP Identification Number, and the date of incorporation. This marks the beginning of its legal existence and authorizes it to commence business activities in its name.
Incorporation Document and Legal Declarations
Under Section 11 of the LLP Act, a declaration must accompany the incorporation document. This declaration is made by a practicing professional such as a chartered accountant, company secretary, or advocate involved in the LLP formation. It affirms that all legal requirements of the Act have been complied with.
Submitting a false declaration knowingly or without belief in its truth is a punishable offense under Section 11(3). The penalty includes a fine ranging from ten thousand to five lakh rupees and may also include imprisonment for up to two years.
Filing of Incorporation Documents
Once the name is approved by the Ministry of Corporate Affairs (MCA), the next step involves filing the incorporation documents in Form FiLLiP (Form for incorporation of Limited Liability Partnership) with the Registrar of Companies. This form includes details such as the proposed name, address of the registered office, business activities, and particulars of partners and designated partners. The following documents must be attached along with the form: Proof of address of the registered office, subscriber’s sheet including consent from partners, identity and address proof of partners and designated partners, and a copy of the utility bill for the office premises not older than two months. If any of the partners are foreign nationals or non-resident Indians, additional documents such as notarized and apostilled passport copies must be submitted. The applicant must also sign the declaration in the form stating that all the requirements of the LLP Act and the rules have been complied with. A practicing professional such as a Company Secretary, Chartered Accountant, or Cost Accountant must digitally certify the form. The form is submitted online using the MCA portal with the applicable government fees based on the contribution of the LLP. After submission, the Registrar verifies the documents and may request additional information or corrections if necessary.
Issuance of Certificate of Incorporation
Once the Registrar of Companies is satisfied with the application and the documents filed in Form FiLLiP, the Certificate of Incorporation (COI) is issued. This certificate serves as conclusive proof of the existence of the LLP. The COI contains the LLP Identification Number (LLPIN), the name of the LLP, and the date of incorporation. This document is generated electronically and can be downloaded from the MCA portal by the applicant. With the COI, the LLP becomes a legally recognized entity in India, capable of undertaking business activities, entering into contracts, and acquiring assets. The LLP must then ensure to mention the LLPIN on all official correspondence, business documents, and invoices as per the legal requirements. The issuance of the COI completes the legal process of incorporation. However, there are a few post-incorporation compliances and registrations that must be fulfilled before the LLP can commence its operations.
Filing of LLP Agreement
The LLP Agreement is a crucial document that governs the mutual rights, duties, and obligations of the partners. It defines the scope of business, profit-sharing ratios, contribution details, management structure, admission or removal of partners, dispute resolution mechanisms, and other operational clauses. Although the LLP Act provides default provisions, it is advisable to execute a tailored LLP Agreement that suits the needs of the partners. The agreement must be executed on a non-judicial stamp paper of appropriate value as per the state-specific Stamp Act. The LLP Agreement must be filed with the Registrar in Form 3 within 30 days of incorporation. Failure to file the agreement within the stipulated time attracts a penalty of ₹100 per day. Form 3 must be digitally signed by a designated partner and certified by a practicing professional. The agreement should be signed by all the partners and notarized. Once submitted, the form and the agreement are reviewed by the Registrar, and if found in order, it is recorded in the registry. The LLP is expected to operate by the terms specified in the LLP Agreement.
Application for PAN and TAN
After incorporation and filing of the LLP Agreement, the LLP must apply for a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN) with the Income Tax Department. PAN is required for income tax compliance, filing of tax returns, and financial transactions. TAN is necessary if the LLP is liable to deduct tax at source under the provisions of the Income Tax Act. Earlier, PAN and TAN had to be applied separately using Forms 49A and 49,,B respectively. However, with the integration of MCA and the Income Tax Department systems, PAN and TAN are now auto-generated through Form FiLLiP. After the Certificate of Incorporation is issued, the PAN and TAN are allotted and dispatched by the Income Tax Department in a separate communication. The PAN card is sent by post, and the details can also be downloaded online. In case the PAN and TAN are not auto-generated, the LLP can apply manually through the NSDL or UTIITSL portals.
Opening a Bank Account
Once the LLP has obtained its Certificate of Incorporation, PAN, and LLP Agreement, it can proceed to open a current bank account in its name. This bank account is essential for all business-related financial transactions and maintaining statutory compliance. To open a bank account, the LLP must provide the bank with documents such as the Certificate of Incorporation, PAN card, LLP Agreement, proof of registered office address, and KYC documents of the designated partners. Some banks may also require a board resolution authorizing the designated partners to operate the account. It is important to ensure that the account is opened in the name of the LLP as mentioned in the Certificate of Incorporation. Most banks now offer online account opening facilities, subject to KYC verification. The LLP must also comply with anti-money laundering (AML) norms and furnish declarations as per the bank’s internal policies. Once the account is opened, all contributions by partners must be deposited into this account, and any revenue or expenses must be routed through it. Maintaining proper records of bank transactions is essential for audit and compliance purposes.
Registration Under Other Laws
Depending on the nature of business and turnover thresholds, the LLP may need to obtain registrations under various other laws and statutes to operate legally and efficiently. These include registration under the Goods and Services Tax (GST) Act, Professional Tax (PT) registration, Shops and Establishment Act registration, Import Export Code (IEC) for cross-border trade, and registration under the Employees’ Provident Fund Organisation (EPFO) and Employees’ State Insurance Corporation (ESIC) if employing personnel. GST registration is mandatory if the aggregate turnover exceeds the prescribed threshold or if the LLP is engaged in interstate supply of goods or services. Shops and Establishments registration is generally required under state laws for businesses operating from a commercial establishment. Professional Tax is levied by certain state governments and requires registration for compliance. If the LLP plans to export or import goods, an IEC must be obtained from the Directorate General of Foreign Trade. If the LLP employs more than the statutory limit of employees, registration under PF and ESI laws becomes compulsory. Timely compliance with these registrations ensures that the LLP avoids penalties and legal issues.
Accounting and Bookkeeping
After incorporation, the LLP must establish a proper system for accounting and bookkeeping to ensure transparency, legal compliance, and financial control. The LLP must maintain its books of account on either a cash basis or an accrual basis, using the double-entry system of accounting. These records should be maintained at the registered office and be available for inspection by the partners or regulators. The books must include records of all financial transactions, contributions by partners, disbursements, assets, liabilities, and income and expenditure statements. LLPs with a turnover exceeding ₹40 lakh or a contribution exceeding ₹25 lakh in a financial year are required to get their accounts audited by a Chartered Accountant. It is also advisable for small LLPs to maintain updated books even if an audit is not mandatory, to facilitate compliance, funding, and operational efficiency. Software tools or professional accounting services may be used depending on the size and complexity of operations. Proper accounting helps in the preparation of annual returns, income tax returns, and other statutory filings. It also provides valuable insights into the business’s financial performance and growth prospects.
Obtaining PAN and TAN of LLP
Once the LLP is incorporated, the next step is to obtain its Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department. These are required for financial and tax-related transactions. Applications for PAN and TAN can be submitted online through the NSDL website or physically through facilitation centers. Once the PAN is received, it must be linked to the bank account of the LLP. A TAN is mandatory if the LLP is required to deduct or collect tax at source under the Income Tax Act.
LLP Agreement and Filing with ROC
An essential step after incorporation is the execution and filing of the LLP agreement. The LLP agreement is a written agreement between the partners of the LLP, defining their rights, duties, and obligations. It must be executed on non-judicial stamp paper of a value as per the state’s stamp act and must be filed with the Registrar within 30 days of incorporation in Form 3. If the LLP fails to file the agreement within the prescribed time, it may attract penalties, and the partners may be bound by the default provisions of the LLP Act.
Contents of LLP Agreement
The LLP agreement typically includes the name of the LLP, names and addresses of partners, nature of business, capital contribution by each partner, profit-sharing ratio, rights and duties of partners, rules for admission and cessation of partners, dispute resolution mechanisms, and provisions for meetings and decision-making. The agreement also outlines the mutual rights and duties of the partners and between the LLP and its partners. It may include clauses regarding indemnity, confidentiality, and other operational aspects, ensuring smooth governance of the LLP.
Opening a Bank Account
After incorporation and PAN allotment, the LLP should open a current bank account in its name. Most banks require a copy of the incorporation certificate, LLP agreement, PAN card, and address proof. A resolution passed by the partners authorizing the opening of a bank account and designating the authorized signatories is also needed. A properly maintained bank account is crucial for tracking business transactions, ensuring compliance, and avoiding the commingling of personal and business funds.
Registrar’s Certificate of Incorporation
Upon successful submission and verification of the incorporation documents, the Registrar of Companies (ROC) issues a Certificate of Incorporation. This certificate serves as conclusive evidence of the formation of the LLP. It includes details such as the name of the LLP, LLPIN (Limited Liability Partnership Identification Number), and the date of incorporation. The certificate is required for various post-incorporation formalities such as PAN application, opening bank accounts, and statutory registrations.
Other Post-Incorporation Compliances
After incorporation, the LLP must comply with several post-incorporation requirements. These include registration under the Goods and Services Tax (GST) Act, Professional Tax (if applicable), Shops and Establishment Act (if required by the state), and acquiring licenses specific to the nature of business, such as FSSAI license, import-export code, etc. Complying with these requirements ensures the LLP can operate its business legally and avoid penalties. The LLP must also maintain proper books of accounts and file annual returns and statements of accounts and solvency with the ROC.
Designated Partner Identification Number (DPIN)
All designated partners must have a Designated Partner Identification Number (DPIN). It is a unique number issued by the Ministry of Corporate Affairs (MCA) to identify partners of LLPs. In most cases, DPIN is obtained at the time of incorporation through the SPICe+ form. However, for designated partners added later, DPIN must be obtained separately. Having a DPIN allows the government to track the participation of individuals in different LLPs and ensures compliance with legal obligations.
Statutory Registers and Records
LLPs are required to maintain statutory registers and records such as the register of partners, minutes of meetings, and books of account at their registered office. These registers must be kept updated and made available for inspection by authorized officers. Maintaining proper documentation is essential for transparency, regulatory compliance, and efficient management of the LLP’s affairs. Failure to maintain statutory records can attract penalties under the LLP Act and related laws.
Display of Name and LLPIN
Every LLP must ensure that its name, along with the LLPIN, is displayed conspicuously at its registered office and every place of business. Additionally, all official documents, invoices, publications, and correspondences must mention the LLP’s name and LLPIN. This requirement helps in clearly identifying the LLP and establishing its credibility and legal identity in all business transactions. Non-compliance with this provision may lead to penalties under the LLP Act.
Intimation to Other Regulatory Authorities
Depending on the nature of the business and location, the LLP may be required to inform or register with other authorities such as the Central Board of Indirect Taxes and Customs (CBIC), local municipal authorities, labor departments, or industry-specific regulators. These registrations enable the LLP to carry out its operations without legal hindrance. It is advisable to consult a legal professional to determine which additional registrations or intimation obligations apply to a specific LLP.
Post-Incorporation Compliances for LLP
Once the LLP is incorporated, certain post-incorporation compliances must be followed to ensure legal and regulatory adherence. These include obtaining the LLP Agreement, filing the agreement with the MCA, applying for PAN and TAN, opening a bank account, and registering under applicable tax and labour laws.
Filing of LLP Agreement
The LLP Agreement must be filed with the Registrar within 30 days of incorporation using Form 3. This agreement outlines the rights and duties of the partners, profit-sharing ratio, contribution, management structure, and dispute resolution mechanism. If the agreement is not filed within this period, the LLP will be governed by the default provisions of the First Schedule to the LLP Act, 2008.
Contents of the LLP Agreement
The LLP Agreement typically contains the following: name of LLP and registered office address; business activities to be undertaken; names and contributions of partners and designated partners; profit-sharing ratios; rights and duties of partners; rules for meetings and decision-making; procedure for addition or removal of partners; dispute resolution mechanism; indemnity clauses and confidentiality terms; duration and termination clauses.
PAN and TAN Application
After incorporation, the LLP must apply for a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN) from the Income Tax Department. These are required for opening a bank account, deducting TDS, and filing tax returns.
Opening a Bank Account
An LLP must open a current bank account in its name to carry out financial transactions. The bank typically requires a copy of the Certificate of Incorporation, LLP Agreement, PAN card, address proof, and KYC documents of the designated partners.
Other Statutory Registrations
Depending on the nature and scale of the business, the LLP may need to obtain other registrations such as GST Registration if turnover exceeds the prescribed limit or if engaged in inter-state supply, Professional Tax registration, Shops and Establishment registration, Import Export Code (IEC) for export or import of goods and services, FSSAI License for food-related businesses, and registrations under labour laws like EPF and ESI if employing a specified number of workers.
Annual Compliance Requirements for LLP
LLPs are required to comply with annual filing requirements irrespective of their turnover. These include filing of Statement of Account and Solvency (Form 8) within 30 days from the end of six months of the financial year, and Annual Return (Form 11) within 60 days of the closure of the financial year. Non-compliance attracts penalties.
Maintenance of Books and Audit
LLPs must maintain proper books of accounts at the registered office. If the annual turnover exceeds Rs. 40 lakhs or the contribution exceeds Rs. 25 lakhs, the accounts must be audited by a Chartered Accountant. The books must reflect a true and fair view of the financial position of the LLP.
Taxation of LLP
LLPs are taxed as partnership firms under the Income Tax Act. The income of LLP is taxed at a flat rate of 30 percent plus applicable surcharge and cess. The share of profit is exempt in the hands of partners, but remuneration and interest received by partners are taxed as per applicable slabs.
Conclusion
Forming an LLP in India involves a structured procedure starting from obtaining digital signatures and name reservation to filing incorporation forms and post-registration compliances. The LLP structure offers numerous benefits like limited liability, operational flexibility, and minimal regulatory burden, making it a popular choice among startups and professionals. However, it is crucial to understand and comply with the legal and regulatory framework to enjoy these benefits fully. Seeking professional assistance can help ensure that the incorporation process and subsequent compliance are handled efficiently and promptly.