A Limited Liability Partnership (LLP), a combination of a corporation and a partnership, is becoming more and more well-liked among investors. Numerous benefits have increased its favourability among businesspeople. An LLP is a substitute for the typical partnership arrangement used in business, according to the MCA (Ministry of Corporate Affairs).The Partnership has been improved with the Limited Liability Partnership. The Limited Liability Partnership Act 2008 was announced to take effect on March 31, 2009, and it was published in the Indian government’s official gazette on January 7, 2009. Because there are numerous partners in the business, no one is responsible or liable for the conduct of others. Everyone is accountable for their own choices. LLP is typically the first choice of small Indian enterprises because of its reasonable registration costs and simple maintenance requirements. In this article, we will go through all the details before Starting an LLP.
What exactly does an LLP stand for?
A body corporate established and incorporated in accordance with the LLP Act’s requirements is known as an LLP. An LLP is essentially a different legal entity from its partners. There will be an endless succession. This means that the existence, rights, or duties of an LLP will not alter if its partners change or retire.
The Prerequisites for Starting an LLP
Following are some prerequisites to be fulfilled for starting an LLP:
- Multiple partners (Individual or body corporate).
- A minimum of two recognized individuals must be partners, at least one of them must be an Indian national.
- LLP Agreement
- LLP Name certification certificate for digital signatures
- A registered business
Forms required before Starting an LLP
Following are the few forms required that must be fulfilled before Starting an LLP;
- To create a name for the LLP, use RUN – LLP (reserve unique name-limited liability partnership), which serves as a replacement for Form 1.
- FiLLiP: This serves as the LLP’s Form 3 replacement.
- Form 5: In order to rename an LLP, use this form.
- Form DIR 3: To sign up as a brand-new user on the MCA portal, this form can be used.
- Form 17: For transforming a current partnership into an LLP, Form 17 is to be used.
- Form 18: To become an LLP when a private corporation is converted, Form 18 is required to be filled.
What things must you take before Starting an LLP?
Following are the few things that must be taken care of before Starting an LLP;
Types of Businesses
- A “business” is defined as an activity that includes a trade, profession, service, or occupation in Section 2(1)(e) of the LLP Act.The MCA published an Office Memorandum (“OM”) in 2019 that stated LLPs were not permitted to engage in manufacturing or related operations because its primary purpose was for professional services, not manufacturing.
- This OM further explained that the fundamental reason for such exclusion was that, in accordance with the MCA, LLP’s structure and mission are largely suitable for carrying out business activities relating to the service sector rather than manufacturing activities.The OM further stated that a manufacturing business should not be permitted to change its organizational form to an LLP.
- The MCA said that this prohibition on LLPs addressing manufacturing and related operations has been lifted with immediate effect after it received strong criticism from industry experts. There is currently no restriction on the industry or type of business that an LLP may engage in.
LLPs with designated partners
- There should be a minimum of two chosen partners in every LLP. There must be an Indian resident among the designated partners. According to the LLP Act, these authorized partners are responsible for the LLP’s compliance with all applicable laws and regulations. Please take note that this will be in addition to the partners’ existing obligations under the LLP agreement as partners in the relevant LLP.
- Each designated partner must additionally receive a Designated Partner Identification Number (DPIN), which is similar to a company’s directors’ Directors Identification Number (DIN).
- The LLP Act also enables a body corporate the freedom to join an LLP in accordance with its rules and become a partner. In this case, the body corporate’s candidate will serve as the designated partner.
- If someone is selected to be a designated partner, it must be decided whether or not that person is qualified to join an LLP as a partner. For instance, if a court of competent jurisdiction has determined that a person is not of sound mind and that determination is still valid, that person shall not be eligible to join an LLP as a partner.
- According to the LLP Act’s regulations, an LLP agreement is any written agreement between the LLP’s partners or between the LLP and its partners. The main purpose of this agreement is to specify the obligations and rights that each partner has to the other and to the LLP.
- It should be highlighted that this is a crucial stage since the LLP will need to submit the information of each person who has given their approval to serve as a designated partner to the appropriate authority within 30 days of their appointment. Similar to this, an LLP agreement may specify the circumstances under which a partner may stop being a designated partner.
Starting an LLP is a risk-free approach to doing business, as should be obvious. A Limited Liability Partnership, as its name suggests, is the least expensive and most secure sort of business. The ideal option for a business aspirant to enter the cutthroat corporate market is through the formation of a limited liability partnership.
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