How a LLP is Formed : Formation of Limited Liability Partnership.

Formation of Limited Liability Partnership

Limited Liability partnership is a corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.[1] In a LLP, the rights of the partners are limited and one partner is not liable for the misconduct or negligence or debt of another partner preventing joint liability. It contains the characteristics of both partnership and companies. They are governed by the Limited Liability Partnership Act, 2008. The LLP agreement or in the absence of the contrary the rights and liabilities are governed by this Act. The Indian Partnership Act, 1932 is not applicable to LLP’s however for the purpose of taxation it is treated like any other partnership firm. LLP’s are separate legal entities from the partners. The LLP will continue even on the death, bankruptcy, insanity, change in membership which means it has perpetual succession. There is should be at least two people, one of whom must be an Indian to form a LLP but there is no restriction on the upper limit of partners in a LLP. Every LLP should use the words “Limited Liability partnership” or “LLP” at the last of their name. There is no minimum capital requirement to start a LLP.

How to form LLP?

The steps for formation can be explained in the pictorial diagram-

The procedure is similar to that of private limited company. The partners are to be decided where a limited company or NRI or Karta of Hindu Undivided family or a minor or another LLP can a partner. All the partners must first obtain a Digital Signature Certificate by filling the DSC form. The DSC is valid for one or two years and is necessary for obtaining the Designated Partner Identification Number (DPIN). This eight digit pin can be used to identify the partners individually.  Then the Director Identification Pin (DIN) is allotted which is required for taxation purpose or filing of any documents with the Minister of Corporate Affairs. The DPIN and DIN are the equivalent and can be used interchangeably [2]. All these forms are to be filled electronically. Then the partners have to decide a name for their LLP to incorporate with the registrar keeping in view the LLP Naming Guidelines. They have to fill a form to check the availability of the name. The name should not be undesirable in the opinion of the Central Government or resemble any other existing LLP or partnership firm or corporate body or any trade mark pending or registered under the Trade Marks Act, 1999 [3]. The application made for the name of LLP with the Ministry of Corporate Affairs is approved by the Registrar of Companies. The time period for adoption of name after approval is given as 3 months. Then comes the part for the drafting of LLP agreement which is like the memorandum of association between the partners which shall contain-

  1. Name of the LLP
  2. Name of Partners & Designated Partners
  3. Manner of contribution
  4. Profit/Loss Sharing ratio between partners
  5. Rights & Duties and obligations of Partners
  6. Proposed Business of LLP
  7. Rules for governing the conduct of operations of LLP[4]

If the partners do not enter into an agreement it will be presumed that they are under the norms provided in Schedule 1 of the Limited Liability Partnership Act, 2008 providing the rights and liabilities of the partners. Once the agreement or right and duties are determined, the next step is incorporation of the LLP. The documents required are copy of authorization of the other partner if it is a LLP or company outside India or another LLP, the names and signatures of the partners, proof of registered office, subscriber sheet or any other document as required such as NOC from the landlord. The subscriber sheet has to be witnessed by any chartered Accountant or Company Secretary or Advocate in practice.

Once all the documents are filled and formalities are completed the Registrar if satisfied issues the Certificate of Incorporation within 14 days followed with the allotment of LLP Identification Pin. Finally, the LLP deed which is considered as the articles of association has to be filed within 30 days from the incorporation of the LLP.



By: Snigdha Panigrahi

University Law College, Bhubaneswar.