Meaning and Concept of LLP
Partnerships are one of the oldest form of business. It is evolved much before company form of business is evolved. Partnerships are formed under Partnership Act, 1932, under which registration of partnerships are optional. According to the act the partners have unlimited liability and no perpetual succession. Unless otherwise expressly provided, the partnership will come to an end the moment a partner leaves or dies.
These problems have become major bottle necks in the growth of partnerships. But for more capital to be infused to the system and to make more people become entrepreneurs, it is necessary to remove these bottle necks.
In the light of the above a new enactment was introduced in the name of Limited Liability Partnership Act, 2008 by the Parliament and received the approval of President of India.
LLP which stands for Limited liability Partnership, is an alternate corporate business form which offers the benefits of a company and partnership in one form. It means limited liability and other benefits of a company with the features of partnership. So we can say that LLP is a hybrid between partnership and company.
Features of LLP
Section 26 of Limited Liability Partnership act says that the position of partner in an LLP is that of an agent of the entity but not of other partners. The liability of each partner is limited to the agreed contribution in the partnership.
2. Body corporate:
Section 3 of the LLP act says, LLP is a body corporate formed and incorporated under LLP Act. It have all benefits of a company form of business.
3. Separate legal entity:
As a company, LLP is separate legal entity entirely distinct from the partners constituting it. LLP is the sole owner of its assets and liabilities, can sue and be sued. LLP can own properties in its own name and can enter into contracts in its name.
4. Perpetual succession:
Even the death, insanity, insolvency, retirement of all partners will not make the LLP wind up. It is very important to note that the actions of one partner will not make the others responsible.
5. Mutual agency:
If we look on LLP and Partnership, LLP is independent from its partners, but the partnership is not. All partners are agents of the LLP and actions of one partner do not bind the others.
6. Artificial legal person:
As the LLP is created under LLP act, it is an artificial legal person according to LLP act as like a company having all rights and liabilities like sue and be sued, enter into contract, own assets and liabilities.
LLP is formed by an agreement prepared by the partners and if not formally prepared, the act have provisions to govern.
As per Section 14(c) LLP is eligible to have common seal, but not mandatory.
To legally constitute a LLP there should be a minimum of two partners and at least one partner should be resident in India. The does not fix the upper limit for the number of partners. Designated partners are responsible for legal compliances, but partners other than designated partners can manage its business.
The purpose of the LLP should be to undertake to do a lawful business to earn profit and not for charitable or non profit business.
A private company, firm or an unlisted public company can convert into an LLP in accordance with the provisions of the Act.
Steps to form LLP:
Digital Signature Certificate (DSC): The digital signature of the designed partners of the proposed LLP must be applied before initiating the process of registration. This is because all the documents for LLP are filled online and are required to be digitally signed.
Director Identification Number (DIN) : All the designed partners or those intending to be designed partner of the proposed LLP, you have to apply for DIN.
Reservation of Name: LLP – RUN ( Limited Liability Partnership – Reserve Unique Name) is filed for the reservation of name of proposed LLP which shall be processed by the Central Registration Centre under Non – STP. It is recommended that before quoting the name in the form to use free name search facility on MCA Portal. Based on the criteria filled up, the system will provide the list of closely resembling names of existing companies/ LLP
Incorporation of LLP : The form used for incorporation is FiLLiP ( Form for Incorporation of Limited Liability Partnership) which will be filed with the Registrar who has authority over the state in which the registered office of the LLP is located. The form will be an integrated form.
As per Annexure A fees shall be paid.
This form also provides for applying for allotment of DPIN, if an individual who is to be appointed as a designated partner does not have a DPIN or DIN.
There should be minimum of two persons to apply.
Through FiLLiP the application for reservation of name may be made.
If the name that is applied for is approved, then this approved and reserved name shall be filled as the proposed name of the LLP.
File Limited Liability Partnership Agreement: The mutual rights and duties amongst the partners and LLP and its partners is governed by the LLP agreement.
Online on MCA portal, Form 3 must be filled for LLP agreement.
Within 30 days of the incorporation Form 3 for LLP agreement has to be filled.
On stamp paper, the LLP agreement has to be printed. The value of stamp paper is different for every state.