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LLP

Doubts You Should Get Clarified About LLP Registration

LLPs offer a wide range of benefits to entrepreneurs and professionals. Although it is a relatively simplified corporate entity, an LLP does have its own set of checklists to be ticked off. Complying with the same would ensure that the LLP is registered with ease and with no hassles.

Limited liability partnerships are the recent favourites among startups for a multitude of reasons. An entrepreneur can reap a bunch of benefits when he incorporates an LLP compared to a private company. For this very reason, it is beneficial for entrepreneurs and business owners to be aware of the various procedures to be followed and the possible legal issues involved in LLP registration. Get Clarified About LLP Registration before starting your business.

An LLP is best-liked in the corporate world as it is flexible enough to accommodate the benefits of both a partnership firm and a private company while unloading the burden of absolute liability from the partners’ shoulders. The tax benefits that LLPs flaunt are incomparable with other corporate entities.  LLPs have a relatively lower rate of taxes in contrast to private companies. Moreover, LLPs are not liable to pay Dividend Distribution Tax. This enables the distribution of profits among the partners without having to pay taxes.

Although incorporating an LLP looks all easy-peasy, it does have a series of steps to be adhered to. Below are 10 quick pointers that could guide anyone to take their first steps in incorporating an LLP.

Steps in LLP Registration

The steps in LLP Registration include the following.

1. Separate Legal Entity

An LLP is considered as a hybrid between a corporate company and a partnership firm. The liability of each partner in an LLP depends on their contribution to the organisation. The added advantage an LLP offers is that it is comparatively economical to establish one as compared to a private company.

2. Conditions for Partners

An LLP must have a minimum of two partners (either individuals or a corporate body). There must be two designated partners appointed for doing all the groundwork needed for an LLP. At the minimum, at least one partner must be a resident of India and must possess a Designated Partner Identification Number (DPIN) as prescribed by the Ministry of Corporate Affairs (MCA).

3. Digital Signature

The incorporation of LLP mandates having a Digital Signature (DSC) as all the documents need to be digitally signed before uploading them online on the MCA portal. A partner of the LLP should ideally apply for a Digital Signature (DSC). A Digital Signature might be acquired from recognised certifying agencies. After obtaining the DSC, an application is to be made in form DIR-3 to get the Designated Partner Identification Number (DPIN). Along with form DIR-3, identity and residence proofs are to be attached.

4. Name of the LLP

The name of any organisation must be unique to avoid copyright and trademark issues. The applicant must get a name registered for the new LLP or for any private company that is converted into an LLP by applying on the MCA portal. The previous method to reserve or change the name (Form 1) is now replaced by a new web service called Reserve Unique Name- Limited Liability Partnership (RUN-LLP), which makes the online name reservation process more feasible. The name applied for is checked and approved by the Central Registration Centre (CRC). The reservation is unblocked and the name is made available for other applicants if the LLP isn’t incorporated within 90 days of reservation.

The RUN-LLP process replaced the previous name reservation process, with respect to registering the name of an LLP. The advantage it offers over the earlier system is that it is far simplified and requires fewer inputs compared to the former one.   

5. Form of Incorporation of LLP (FiLLiP)

The second amendment of the Limited Liability Partnership Act of 2018 eliminated the Form of incorporation and subscriber’s statement (Form 2) and combined the three processes of name reservation, allotment of the Designated Partner Identification Number (DPIN/DIN), and the incorporation of the LLP into a single one. The applicant is required to file an LLP Integrated Incorporation form (FiLLiP) in the MCA portal after the name of LLP is approved under the RUN-LLP service.

Just like every other application form, FiLLiP also has a prescribed set of documents to be produced along with it. They are listed below:

  • The subscribers’ sheet 
  • The consent forms
  • Details of LLP or the company in which the designated partner is a member
  • PAN and Aadhar cards of partners or the directors 
  • Proof of registered offices like a sale or rental deed
  • Along with any utility bill electricity, gas, etc
  • Also, a NOC from the registered office’s owner.

The FiLLiP is also used as an application for reservation besides being used as an application for DPIN. Apart from FiLLiP and the RUN-LLP, forms like Form 5, Form 17, and Form 18 still exist with minor modifications. These Forms are also processed and verified by the CRC.

Central Registration Centre (CRC)

For the purpose of checking and consolidating the LLP documents, a web-service portal directs all documents like the RUN-LLP, FiLLiP, Form 17, Form 18, and Form 5 to a Centralised place by the Registrar of Central Registration Centre (CRC) on behalf of the jurisdictional registrar. This alternative reduces the time taken for processing the documents thereby acting as a catalyst to the growth of Indian businesses.

6. Conversion of Company into LLP

Given the wide range of benefits, LLPs have to offer, it is only natural that private companies have the urge to get converted into LLPs. However, there are a few prerequisites for the same which have to be satisfied:

  • Every member present in the company should agree to the conversion
  • All the members have to become the partners of the LLP
  • The creditors must also give assent to the conversion
  • The latest copy of the IT filing must be furnished along with the required forms with the RoC
  • There must be no prosecutions against the company under the Companies Act
  • The company should possess a share capital
  • The Company that is intending to be converted to a Limited Liability Partnership must not have any outstanding charges.

 7. LLP Agreement

On having the name of the LLP approved, the LLP agreement needs to be drafted. The agreement essentially delineates the various rights and duties of the partners with respect to each other and also between themselves and the LLP. The agreement must be made within 30 days of incorporation of the LLP and must be made on a stamp paper (of the appropriate value prescribed by the respective state).

When an LLP agreement is not drafted, the First Schedule of the Limited Liability Partnership Act, 2008 will be applicable.

8. Cost of Registration

Although an LLP can operate with minimum capital, the process of getting it registered does involve a stipulated amount of fee at various stages as prescribed by the government. For instance, obtaining a DSC costs around ₹1500-2000 for a partner approximately.  Getting a DIN, costs around ₹1000 for two partners and it takes around ₹200 for registration, etc.

9. Time involved

With the introduction of online web services for expedited processing, the entire process right from obtaining DSC to filing Form 3 for an LLP agreement takes approximately 15 days, provided all the required documents are duly submitted.

10. Dissolution of an LLP Registration

An LLP can be dissolved by the following methods:

  •   By declaring the LLP as defunct

If an LLP has never commenced its business after registration or hasn’t carried out any business activity for more than one financial year, then it is considered defunct. The company naturally becomes eligible to apply for dissolution. The registrar also can send a notice to a defunct company.

  •   Winding up the LLP

An LLP can be wound voluntarily or by a tribunal if it is in debt or if the number of partners has reduced by more than two. The tribunal can dissolve an LLP if it is involved in any illicit activity. The partners also can voluntarily wind up their partnership on mutual terms.  

Limitations of LLP Registration

Although LLP Registration is most preferred by several business entities, it does have its own limitations:

check here to more about: https://www.mca.gov.in/mcafoportal/showCheckLLPName.do

  •   Mandating a minimum of two partners. If one of them leaves, the LLP should be dissolved
  •   LLPs face many challenges in raising capital from banks and other such institutions
  •   Lack of transparency among the partners 
  •   Limited Tax benefits for partners
  •   Mandates to have at least one Indian partner
  •   Does not have the option of equity investment.

Visit Vakilsearch for LLP Registration

With LLP Registration, an organisation gets the combined structure of a joint-stock company and the flexibility of management like that of a partnership firm. Therefore, an LLP registration can get the best of both worlds for a business entity. If the minor challenges are handled well, an LLP could be very advantageous to any business setup.

Visit Vakilsearch to get more legal assistance.

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