How to Incorporate an LLP Get Expert Guidance with YouTax
Limited Liability Partnership (LLP) is an alternate hybrid corporate business form, designed to provide limited liabilities to partners while offering the flexibility of a partnership. It combines the benefits of limited liability like a company with the operational flexibility of a partnership.
The LLP Act of 2008 governs LLPs in India. This structure has proven to be more flexible and efficient for entrepreneurs and professionals, allowing them to create partnership structures tailored to their needs.
Once incorporated, an LLP becomes a separate legal entity with the rights to sue or be sued, sign contracts, and own property in its own name. It is cheaper and easier to operate than a private limited company due to fewer compliance requirements.
Unless otherwise agreed in a formal LLP agreement, LLPs are governed by Schedule One of the LLP Act.
Key benefits of LLP incorporation:
- A separate legal entity
- Flexibility to draft rules and duties regarding partnership agreement
- No requirement for minimum capital contribution
- Fewer compliances and fewer regulations
- Easier and cheaper to operate
- Easier to dissolve
- Limited liability
What is an LLP agreement?
An LLP agreement must be filed within 30 days of incorporation with the Ministry of Corporate Affairs. It defines the rights and duties of the partners towards each other and the LLP, covering changes in partner roles, addition or removal of partners, and ensuring smooth functioning of the business. Without such an agreement, the LLP will be governed by Schedule One of the LLP Act.
Key contents required in an LLP agreement:
- Name of the LLP
- Date of the agreement
- Parties to the agreement
- Contribution of the partners (capital contribution and profit ratios)
- Admission of new partners and dissociation of partners
- Place of business
- Business activity
- Books of accounts and audits
- Allocation and distribution of profits
The agreement may also contain other provisions as per the partners’ requirements.
How to get LLP incorporated?
The incorporation of an LLP basically means registering it with the Ministry of Corporate Affairs (MCA). The process is simple yet can be time-consuming and tricky. A minimum of two partners are required to incorporate an LLP, and at least one partner must be a citizen of India. If an LLP agreement is made, the rights and duties of the partners are determined by it. The LLP agreement is directly responsible for compliance with all provisions of the LLP Act, 2009.
Procedure to incorporate an LLP:
- Obtain a DSC (Digital Signature Certificate)
- Apply for DIN (Director Identification Number)
- RUN-LLP (Reserve Unique Name) approval
- Incorporation of LLP
- File for LLP agreement
The procedure must be followed precisely step by step. Moreover, various documentation of partners and the LLP is also a prerequisite while incorporating an LLP. It takes approximately 15 days to successfully register an LLP, subject to the availability of all required documents.