INCORPORATION OF LIMITED LIABILITY PARTNERSHIP- PART-I - (Incorporation Document)

[Dr. Sanjiv Agarwal]

Chapter 3 of LLP Act, 2008 covers Section 11 to Section 21 of the LLP Act. Sections 11 and 12 prescribes that an LLP can be incorporated by filing an incorporation document with the Registrar  and that in normal case, Registrar is to issue a certificate of incorporation within 14 days of such filing. Section 14 provides that after registration, an LLP is capable of entering into contracts, capable of suing or being sued and of holding property etc. Section 13 provides that an LLP is required to have a registered office to which all communications to LLP are to be sent. Sections 14 to 21 deal with the name of the LLP. Section 14 prescribes that every registered LLP would use suffix LLP at the end of its name, Sections 16, 17 and 19 prescribes how an LLP can reserve a name for itself and how and in what circumstances name of an LLP can be changed. Section 18 gives a right to an entity having a similar name to that of an LLP to apply for change of name of such LLP within 24 months of the date of registration of such LLP with that name. Section 20 prescribes the penalty for improper use of the words 'LLP' by a non-LLP and Section 21 stipulates the requirement of publication of prescribed particulars like name, address and the fact of limited liability on the letterhead and other communications by an LLP and also prescribes penalty for the contravention of this provision.

Incorporation document

Section 11 provides that an LLP can be incorporated by two or more persons to carry on a lawful business with a view to earn profit and prescribes the procedure for such incorporation. The Section is to be read with Rules 11 to 14 of the LLP Rules for understanding the complete incorporation procedure.

Two or more persons associated for carrying on a lawful business with a view to profit. There must be at least two persons to incorporate an LLP. It is obvious that a single person cannot form a partnership. As per the General Clauses Act, 1897, "Person" shall include any company or association or body of individuals, whether incorporated or not. For the purposes of forming an LLP, a person should be competent to enter into a contract. 

An LLP can be formed only to carry on a lawful business with a view to earn profit. The expression 'business' as defined under Section 2(1)(e) states that 'business' includes every trade, profession, service and occupation.

 Incorporating a LLP - Steps Involved

Step I- Deciding about the Partners and Designated Partners

A LLP can be incorporated with a minimum of atleast two partners who can be Individuals or Body Corporate through their nominees. Further for incorporating an LLP, of the total number of partners, atleast two shall be Designated Partners, of which atleast one must be an Indian Resident.

A person 'Resident in India' means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one year.

Step II- Obtaining DPIN & Digital Signature Certificate for Partners

Section 7 (6) of LLP Act 2008, provides that every Designated Partner to obtain a DPIN from the Central Government. DPIN is an eight digit numeric number allotted by the Central Government in order to identify a particular partner and can be obtained by making an online application in e-Form 7 to Central Government and submitting the physical application along with necessary identity and Address proof of the person applying with prescribed fees.

 As all the documents and forms required for incorporating an LLP in India to be filed electronically and under the signatures of Designated Partners, thus at least one Designated Partner to obtain the digital signature certificates from government recognized DSA's. The signatures shall also be required for signing and filing of all relevant forms and documents to be filed, annually or event based after incorporation of the LLP, asking for approvals or as intimation.

Like the manual signatures, digital signature certificates are individual specific and no partner needs to obtain more than one.

Step III Register DPIN and DSC with LLP

Anyone intending to incorporate an LLP has to evaluate his proposed name under the prescribed parameters and make an application in Form 1of Rule 18(5) of the Limited Liability Partnership Act 2008, for reservation of the desired name.

The name of the limited liability partnership shall not be similar or identical with Company or LLP already registered in India and it should not contains words prohibited under the 'Emblems and Names (Prevention of improper use) Act, 1950'or which are also not 'Undesirable' in the opinion of Central Government or which satisfies the conditions prescribed under rule 18(2). In case any Body Corporate is partner, copy of Board resolution authorizing the incorporation of LLP shall be attached .

If in the opinion of the department, the name by which a Company is registered gives so misleading an indication of the nature of its activities as to be likely to cause harm to the public, the department may direct it to change its name. A Company registered under the Companies Act, is not entitled to carry on its business in such a way or under such a name, as to represent that its business is the business of any other company or firm or person; and the absence of fraud is immaterial. In such cases, the old company or firm can apply to the court for an injunction, and in such cases the principles that apply to individuals trading under identical or similar names would become applicable.

Step IV - Register DPIN and DSC with LLP

After obtaining DPIN and DSC , the same should be registered with the limited liability partnership.

Step V Drafting of LLP Agreement

Drafting of Limited Liability Partnership Agreement is to be drafted which governs the mutual rights and duties among the partners and among the LLP and its partners.

The basic contents of Agreement are:

     * Name of LLP

     * Name of Partners & Designated Partners

     * Form of contribution

     * Profit Sharing ratio

     * Rights & Duties of Partners

     * Proposed Business

     * Rules for governing the LLP

In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable. It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details of the same needs to field in eform 3 within 30 days of incorporation but in order to avoid any dispute between the partners as to the terms & conditions of the agreement after the formation of LLP, it is always beneficial to have the LLP Agreement drafted and executed before the incorporation of the LLP.

Step VI - Downloading of the LLP Forms

All the relevant forms under LLP Rules viz, Form Nos. 1,2,3,5,12,15,16,23,25 can be downloaded from the www.llp.gov.in.

Step VII - E-Filing of Incorporation Documents etc and E-Payment of Fees

Promoters of LLP are registered to file Incorporation documents, consent of Partners and declaration electronically through the medium of e-forms prescribed with the Registrar of LLP for incorporation of the LLP on payment of prescribed fees based on the total monetary value of contribution of partners in the proposed LLP.

Documents Required:

     * e-Form 1-Name Availability Application

     * eForm 2-Incorporation Document

     * eForm 3- Details of LLP Agreement

     * eForm 4-Consent of Partners

     * eForm 7-Application for Designated Partners Identification Number

     * Subscription Sheet

     * LLP Agreement duly stamped as per relevant Stamp Act of the State.

     * Proof of Address of Registered Office

     * Consent of Partners and Designated Partners.

Step VII Status Tracking for LLP registration on MCA/LLP website

One has to confirm that all the formalities are duly complied with the ROC and status of LLP registration should be tracked.  In case of any mistake/ inconsistent same has to be rectified.

Step IX - Issuance Certificate of Incorporation

After the Registrar is satisfied that all the formalities with respect to the incorporation has been complied, he will issue a Certificate of Incorporation as to formation of the LLP within maximum of 14 days from date of filing of documents . The Certificate of Incorporation issued shall be the conclusive evidence of formation of the LLP.

Step X- LLP Incorporated

After the certificate of incorporation is issued by the registrar, LLP is incorporated and partners can start their business.

Process to Start LLP

(Source- MCA website)

Guidelines to draft an LLP Agreement

An Agreement is recommended setting out the powers of the LLP and the rules regulating the actions of the members of the LLP. The agreement is not mandatory and not required to be filed to the Registrar.

     * The Agreement should contain at least the following :-

     * the name of the company;

     * whether the registered office is to be situated;

     * the activities of the LLP;

     * the method for appointing new partners;

     * the system for removing problem partners;

     * the system for dealing with deceased partners

     * how the capital cost is reimbursed when a member dies or leaves the LLP;

     * when and how profits are divided;

     * how much is contributed to the debts of the LLP on winding up;

     * names of partners on incorporation;

     * minimum and maximum number of partners;

     * date of commencement of the agreement;

     * outline of the duties of partners;

     * restrictions on partners in respect of competition and confidentiality;

     * detailed provisions for outgoing partners and restrictions in respect of anti competitive behaviour;

     * insurance and pensions;

     * notice provisions to partners;

     * procedure at meetings;

     * votes of partners;

Without such an Agreement set in writing default provisions apply which may not be suitable. Without a written Agreement partners may fall into disagreement.