All About Forming A Limited Liability Partnership (LLP)

Recently, one of my readers asked me a query whether an existing partnership firm can be converted into an LLP.

So, here is a post that covers the advantages of forming of an LLP, the steps and answers that question too.

Read on.

WHAT IS AN LLP?

Limited Liability Partnership is another form of a business entity. As the name suggests, LLP is a partnership firm with the advantages of a company.

The basic advantages of an LLP over a partnership firm are:

• It is a body corporate
• It is a legal entity separate from its partners
• Liability of the partners is limited to the contribution they make in an LLP

Now you know why a lot of partnership firms, especially CA firms, are converting into LLP.

REQUIREMENTS FOR AN LLP

An LLP is governed by the Limited Liability Partnership Act, 2008 and Limited Liability Partnership Rules 2009. The provisions of Indian Partnership Act, 1932 do not apply to LLP.

The following points should be taken care of before starting the incorporation process of LLP.

#1 Partners and Designated Partners (DP):

• At least two partners are required.
• An individual or a body corporate can become a partner. (Body corporate includes a company, LLP registered in or outside India but does not include a sole corporation, a cooperative society and HUF).
• At least two “designated partners” are required, out of whom one should be an Indian resident.
• In case of body corporate being a partner, the nominee of body corporate will be a designated partner.
• There is no limit on maximum partners.
• DPs should give their written consent to act as designated partners in prescribed format.
• The designated partner shall be liable and responsible for all acts, matters and things of LLP. So, the DP is like the CEO of a company.

#2 Registered Office

LLP should have a registered office. LLP can have an address, other than the registered office, for service of documents.

#3 Incorporation Document:

An LLP should have an Incorporation document as per format specified.

#4 LLP Agreement:

An LLP agreement governs the working of an LLP. It should also specify all the rights and duties of the partners. In absence of any clause in the LLP agreement, the provisions of first schedule of the LLP Act, 2008 will apply.

To know more about the clauses to be included in an LLP agreement, click here.

#5 Name of LLP:

Every LLP should have either the words “limited liability partnership” or the acronym “LLP” as the last words of its name.

#6 Contribution by a partner:

The obligation of a partner to contribute to LLP will be as mentioned in the LLP agreement.

Contribution by a partner can be in the form of tangible or intangible assets or movable or immovable property or other benefits including money, other agreements to contribute cash or provide or perform any service.

#7 Objects of LLP

An LLP can carry on any activity which is legal and profit making. Currently, LLPs  do not come under the perview of RBI. However, it is not clear whether LLP can carry on activities of an NBFC. Also if the proposed activity is of banking, insurance, venture capital, mutual fund, stock exchange and asset management, in-principle approval of the regulatory authority is required to be obtaining and attached with Form 2.

 

STEPS TO FORM AN LLP

1. All designated partners need to have Designated Partner Identification Number (DPIN). Form DIR-3 needs to be filed for application of DPIN by a practicing professional. In case the partner already has a Directors Identification Number (DIN), application for DPIN need not be filed.
2. At least one of the partners needs to have a digital signature (DSC). Once the DIN / DPIN and DSC are acquired, the DSC needs to be registered on the MCA portal for that partner.
3. Decide on the name of the LLP. Apply for the name of the LLP to be registered by filing Form 1. The name will be reserved by ROC for a period of 3 months from the date of intimation by ROC.
4. After getting the name approval, file Incorporation document and Subscriber’s statement in Form 2.
5. Form 4 needs to be filed for consent of DPs and details of partners and DPs. The consent of a partner to act as a designated partner should be in format specified as Form 9.
6. After receiving approval from ROC for incorporation of LLP, an LLP agreement needs to be filed in Form 3 within 30 days of approval.
7. 7In case the LLP has an office other than the registered office, an intimation of the same needs to be filed in Form 12.

Annual compliances

1. Statement and Account and Solvency to be filed in Form 8 within 30 days from the end of six months of the financial year
2. Every LLP would be required to file annual return in Form 11 with ROC within 60 days of closure of financial year.

CONVERSION OF A PARTNERSHIP FIRM INTO AN LLP

As you are already aware by now that an existing partnership can be converted into an LLP and enjoy the advantages of an LLP.

However, there is a condition that a firm can be converted into an LLP if and only if all the partners of the firm are partners of LLP and no one else.

The conversion process is governed by the second schedule of the LLP Act, 2008.

1. The application of conversion of firm into LLP needs to be filed is Form 17 along with other forms.
2. The form should also be accompanied by a statement of partners in the format prescribed in Part B of Form 17.
3. Once the approval is received from the ROC, intimation needs to be sent to Registrar of Firms (ROF) in Form 14 in physical form, within 15 days of approval.

Effects of conversion:

Once the firm gets registered as LLP:

1. All tangible and intangible property, all assets and liabilities, etc. relating to the firm and shall be transferred to the LLP without further act or deed.
2. The firm will be dissolved and removed from records maintained under the Indian Partnership Act, 1932.
3. All the pending proceedings by and against the firm shall continue in the same manner in the name of LLP.
4. All rulings, orders and judgements against the firm shall be now against the LLP.
5. All existing agreements and contracts, including contract of employment shall continue with LLP.

However, every partner of the firm will continue to be personally liable to obligations and liabilities of the firm that incurred before the conversion of firm into LLP.

Compliance after conversion

The LLP should, in all its official correspondence, mention the fact that it was converted into a LLP, the effective date and the registration number of the firm. The LLP shall comply with this requirement for a period of 12 months after the date of registration.

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If you have any queries related to LLP formation or want professional help in formation of LLP and ongoing compliance, write to me at kruti@cskruti.com