Some of the primary advantages of an LLP are low registration costs,
minimal capital requirement and no restrictions on business owners.
Usually, Non-resident Indians or NRIs and foreign nationals who wish to start or do investment in India mainly go for a private limited company. This is because private limited companies allow for 100% Foreign Direct Investment (FDI) under the automatic route for many of the sectors. Though the cost for incorporation of a private limited company is relatively low compared to limited liability partnership (LLP) companies, the effort required to maintain compliance was an inhibiting factor. In order to allow NRIs and foreign nationals to freely invest in businesses in India and improve foreign investment, the Government has allowed 100% FDI in LLP under the automatic route.
Limited Liability Partnership (LLP) is one of the business entities that was introduced in 2008 in India through the Limited Liability Partnership Act, 2008. Since then,LLP registration have started becoming popular amongst small businesses, owing to the reasons for less registration cost and lesser compliance requirements when compared to a private limited company.
Upon changes made to FDI regulations on 10th, November 2015, 100% FDI in LLP is permitted under the automatic route where there are no FDI-linked performance conditions. In addition, LLPs will also be allowed to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route. Therefore, FDI in LLP is now allowed and NRIs or Foreign Nationals can start or invest in an LLP.
A minimum of two people are required to register an LLP in India. It is recommended that at least one of the partners be both an Indian citizen and Indian resident – similar to the requirement for registration of a company in India. The procedure for LLP registration involves five major steps namely: Digital Signature, Designated Partner Identification Number, Name Approval, Incorporation and LLP Agreement Filing.
Digital signature certificate (DSC) must be obtained for the proposed Partners of the LLP as it is essential for obtaining the Designated Partner Identification Number (DPIN). To obtain DSC, the NRI or Foreign National must submit the duly signed DSC application along with a notarized copy of passport and address proof (driver’s license, residence card and more).
Partners in an LLP require Designated Partner Identification Number (DPIN) and it can be obtained once DSC is obtained for the Partner. DPIN can be used with the Director Identification Number (DIN) used in the incorporation of a company.
Once two DPINs are available, an application for reservation of name of LLP can be made to the Ministry of Corporate Affairs (MCA). The application for name can contain upto six names that are acceptable as per the LLP Act, 2008. The name must be unique, as per norm of the LLP Act and must not be similar to an existing company or LLP name. If any one of the name is approved, then incorporation application can be filed within 60 days to complete the incorporation.
Based on the name approval provided by the government, the partners of the LLP can submit an application for incorporation of LLP to the government along with the necessary documents, including the subscribers’ sheet. If the application is acceptable, MCA would provide an incorporation certificate for the LLP and business can commence.
On incorporation of the LLP, LLP agreement must be signed and filed by the Partners within 30 days. Failure to file LLP agreement on-time could result in a heavy penalty that accrues on a daily basis. Hence, it is important to quickly file the LLP agreement and complete the LLP incorporation process.f
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