The LLP is a separate legal body and body corporate from its partners. It enjoys the benefits of perpetual succession. But how much capital is required to commence business as an LLP? Let’s find out.
Overview
An LLP is a type of alternative corporate business structure that combines the benefits of a company’s limited liability with the flexibility of a partnership. An LLP can continue to exist even if the partners decide to exit. It can enter into contracts and hold property in its name. Now, let’s see the minimum capital required for starting an LLP.
What is a Limited Liability Partnership or LLP?
An LLP is a separate legal entity that is liable to the full extent of its assets, but the partners’ liability is limited to their agreed contribution to the LLP. Furthermore, no partner is accountable for the autonomous or unauthorized activities of other partners, therefore individual partners are protected from joint responsibility resulting from another partner’s unlawful business choices or wrongdoing.
The mutual rights and obligations of the partners in an LLP are controlled by an agreement between the partners or, between the partners and the LLP. However, the LLP, on the other hand, is not exempt from accountability from its obligations and duties as a distinct business. Because an LLP incorporates features of both a corporate structure and a partnership firm structure, it is referred to as a ‘hybrid’ between a corporation and a partnership.
Is LLP Registration Mandatory in India?
The Limited Liability Partnership Act of 2008 categorises an LLP as an entity brought into existence under its provisions. Hence, for LLP businesses operating in India, the process of incorporation or registration is obligatory. The Registrar of Companies (ROC) is the governing authority overseeing the incorporation of LLPs, utilising an online application-driven procedure. However, before initiating the incorporation process, it is imperative to fulfil all the prerequisites for LLP Registration, encompassing minimum eligibility criteria and documentation.
The mandatory registration requirement bestows a unique legal identity upon an LLP, setting it apart from a conventional partnership firm. Unlike an LLP, which must undergo registration, a traditional partnership firm may or may not choose to register. The establishment of a partnership firm allows for optional registration with the State’s Registrar of Firms. However, the legal identity of the firm is established through the partnership deed, a foundational document that defines and substantiates its existence.
Minimum Requirement of Capital for Starting an LLP
The essential prerequisite for establishing any commercial structure for trade is the requirement of capital, the importance of this cannot be neglected. Usually, the laws regulating various business vehicles require a particular level of initial capital contribution at the time of incorporation or establishment.
The phrase ‘minimum capital’ refers to the amount of financial contribution needed from the founders during the incorporation of an LLP or from persons during their admission as a partner in an already existing LLP.
There is no mandate that the partners must contribute a minimum amount of capital, and everything connected to the capital contribution aspect of a Limited Liability Partnership will be established solely by the LLP agreement’s terms. The legislature’s intention in enacting the Limited Liability Partnership Act of 2008 was simply to give the LLP agreement entered into by the parties paramount importance, and thus the basic requirement in all business structures, notably capital contribution, has indeed been left to the discretion of the stakeholders, and nothing in the Limited Liability Partnership Act of 2008 has been earmarked as minimum paid-up capital or minimum capital requirement.
Hence, it can be concluded that there is no concept of share capital in a limited liability partnership like there is in a corporation, but there must be some investment from partners, known as partner’s capital, to create an LLP. in fact, the contribution of a partner might be in the form of tangible, moveable, immovable, and/or intangible property, as well as any other benefit to the LLP.
What is the Process of LLP Registration in India?
The (Limited Liability Partnership) LLP registration process in India involves several steps, to ensure compliance with the regulatory framework. Here’s a detailed, step-by-step guide:
Obtain Digital Signature Certificates (DSC) and Director Identification Number (DIN)
The designated partners need to acquire DSCs, as they are required to file the LLP registration documents online. Additionally, partners must obtain DIN, a unique identification number for designated partners, which can be obtained by filing Form DIR-3.
Choose and Approve LLP Name
Partners need to decide on a suitable name for the LLP and check its availability on the Ministry of Corporate Affairs (MCA) portal. The selected name should comply with the LLP naming guidelines. Once approved, it is valid for 20 days.
Draft LLP Agreement
Partners must draft the LLP Agreement, which outlines the rights, duties, and responsibilities of each partner. The agreement also includes details about the LLP’s operation, profit-sharing, and decision-making processes.
File Incorporation Documents
Partners need to file the company registration documents with the MCA through Form FiLLiP (Form for Incorporation of Limited Liability Partnership). Along with the form, submit the subscription sheet and details about the partners’ contributions.
Payment of Fees
Pay the prescribed registration fees based on the LLP’s authorized capital. The fees vary depending on the contribution made by the partners.
Verification of Documents
The MCA reviews the filed documents for accuracy and compliance with regulations. If any discrepancies are found, partners may need to rectify and re-submit the documents.
Issuance of Certificate of Incorporation
Upon successful verification, the MCA issues the Certificate of Incorporation. This certificate marks the legal existence of the LLP, confirming its registration.
LLP Agreement Submission
After receiving the Certificate of Incorporation, partners must submit the LLP Agreement within 30 days from the date of incorporation. Form 3 needs to be filed for this purpose.
PAN and TAN Application
Apply for the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for the newly registered LLP.
Compliance and Annual Filings
Once registered, LLPs are required to comply with annual filing requirements, including the filing of the Annual Return (Form 11) and Statement of Accounts and Solvency (Form 8).
Minimum Documents Required for LLP Registration
The following documents are required for LLP registration in India:
- PAN Card/ID Proof of Partners
- Address Proof of Partners
- Residence Proof of Partners
- Passport-size Photograph
- Foreign nationals and NRIs intending to partner in an Indian LLP should submit their passport. Proof of Registered Office Address
- Digital Signature Certificate (DSC)
- KYC Documents of Partners
- Proof of Registered Office Address
- No Objection Certificate
- LLP Agreement
Conclusion
Complying with the Minimum Requirements for LLP Registration forms the cornerstone of establishing a Limited Liability Partnership (LLP) in India. These prerequisites encompass minimum partner and designated partner counts, a distinctive LLP name, and essential documentation such as DPINs and DSCs for all partners. By ensuring adherence to these foundational criteria, businesses can expedite the LLP incorporation process swiftly and seamlessly. Registration guarantees the LLP’s legal identity, extends limited liability protection to partners, and enables the LLP to enjoy perpetual existence. Vakilsearch offers a 3 step easy process for registering your LLP in India. The whole process is streamlined and can be completed with expert support. We also provide post-registration support and annual compliances on request. Consult our professionals today for quick assistance.
Frequently Asked Questions
What are the minimum requirements for LLP Registration?
The minimum requirements for LLP registration typically includes at least two designated partners, a registered office address, and adherence to the prescribed form and fee requirements set by the regulatory authority.
How much money is required to open an LLP?
The amount of money required to open an LLP varies depending on factors such as registration fees, professional service charges, and initial capital infusion. Typically, it can range from a few thousand to several lakhs depending on the scale and nature of the business.
Can LLP be started with a zero amount of capital money?
Yes, LLP can be started with zero capital as there is no mandatory requirement for minimum capital contribution during registration. However, it's advisable to infuse capital later to support the business operations and demonstrate financial viability.
Does an LLP have to have capital?
Unlike a private limited company, LLPs do not have a mandatory requirement for capital. Partners can decide the capital contribution based on the business needs and agreements outlined in the LLP agreement.
What is the maximum capital in LLP?
There is no upper limit on the capital that an LLP can have. Partners have the flexibility to determine the capital structure based on their business objectives and financial requirements.
Can I register an LLP with only one designated partner?
Yes, an LLP can be registered with only one designated partner. However, there must be a minimum of two partners in total, including at least one designated partner who is an Indian resident.
Is LLP better than Pvt Ltd?
The choice between LLP and Pvt Ltd depends on various factors such as business objectives, scalability, liability, and regulatory requirements. While LLP offers flexibility in management and taxation, Pvt Ltd provides limited liability protection and easier access to funding, often preferred for larger enterprises.
