Giving a legal structure to your business can be one of the most tiresome process. Adequate knowledge and proper evaluation of every type of business formation, is the first & foremost requisite. The law provide ample options to kick-start a commercial enterprise, namely sole proprietorship, partnership and a company. Amongst all these myriad choices, one is Limited Liability Partnership too. It is not very long ago when Act governing LLP was passed by the Parliament of India in consortium with Ministry of corporate affairs in 2008, segregating the said arrangement of business away from others and conferring entrepreneurs with one more alternative to choose from. The Limited Liability Partnership Act 2008 sets out an entire procedure to incorporate an LLP and other provision as to running and winding up an LLP.
Meaning: An LLP is essentially a mix or a hybrid of a partnership and a company. It takes into its ambit the characteristic of a partnership firms as well as a company.
Identity: Like a company, an LLP is also a body corporate, has an identity separate from designated partners running the affairs, have a perpetual succession, own business assets in its own name, can sue and be sued.
Partnership: A minimum of two partners are required to from an LLP and a body corporate may also may be a partner, unlike in case of a company.
Accountability: Like a partnership firm, each partners (referred to as designated partner) has a say and stake in business affairs & management; stands independent and accountable for their deeds.
Constitution: An LLP is put to legality by entering into an agreement among the designated partners at terms and conditions mutually agreed between them.
Liability: The liability of the partners in LLP is limited to the extent of their contribution in business and except in cases of embezzlement and fraud, the personal assets of the partners remain safe with zero exposure.
No minimum capital requirement: Unlike in a company, there is no cap (maximum or minimum) to form an LLP. Also the capital contribution may tangible or intangible.
Agreement: Perhaps themost important part of forming an LLP is Agreement between the designated partners. This agreement is a clear substitute of MOA & AOA in case of Company and forms the basal foundation of an LLP. It serves as a constitution containing the covenants pertaining to running the business, duly agreed between all the partners.
The process of Incorporation:
Formation of an LLP is much easier and hassle free than any other form of business. Also since there is no mandatory requirement on capital contribution, an LLP is less expensive procedure. The following steps should be followed to incorporate an LLP.
Step 1: Obtaining DIN for all the partners, if they already haven’t.
Step 2: Obtaining DSC from any certifying agency, for at least one partners whose signatures would be affixed on all the filings and returns.
Step 3: Uploading the DSC of the partner on MCA’s website, also known as ROLE CHECK.
Step 4: Searching suitable name(s) for the business to be run and applying for same in e-Form LLP-1 (latest version), which seeks information as to:
Step 5: Drafting the Agreement: As mentioned earlier too, LLP resists on Partnership Agreement charting out the following aspects. The Agreement should be done on a stamp paper in accordance with Stamp Act.
Step 6: Incorporation of LLP: After the name has been approved, e-form 2 needs to be file for incorporating the LLP along with attaching proof of address, subscriber’s sheet and details of company(s)/LLP(s) where partner(s) is a director/partners.
Step 7: Filing the Agreement: After the LLP has been incorporate and certificate to this effect has been granted by the registrar of companies, the draft agreement duly signed, stamped and notarized is required to be submitted to MCA in e-Form – 3 within 30 days of incorporation, post which an LLP may commence its business.
LLP has opened up a deck of opportunities for budding entrepreneurs and start-ups, given its low cost establishment and an equal standing to a company legally. The minimal compliance part accentuates it adoption manifold. For a closely held business, professionals too assertively advise option an LLP set up to business houses.