IPLF: Getting your LLP Registered

With the rise in entrepreneurship and start-ups, multiple forms of organization are being preferred by entrepreneurs. Out of all, Limited Liability Partnership has become more preferred due to its nature of incorporating both partnership firm and company in a single form. Introduced in 2008, the Limited Liability Partnership Act, 2008 regulates the LLP, wherein a minimum of two partners are required to incorporate an LLP, with no upper limit on the maximum number of partners of an LLP. Among them, two designated partners must be there where at least one of them must be a resident of India, whose rights and duties are governed by LLP agreement. The responsibility of compliance with all the provisions of the LLP Act lies over them.

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In short, LLP is an alternative form of a corporate business model that provides immense benefits. It is like an amalgamation of having the limited liability of a company and the flexibility of a partnership. The LLP is a separate legal entity and is liable to the full extent of its assets. However, the liability of the partners is limited to their agreed contribution in the LLP. Moreover, the LLP can continue its existence irrespective of changes in partners and is capable of entering into contracts and holding property under its name. Furthermore, no partner is liable on account of the independent or unauthorized actions of other partners. Thus, LLP provides safeguards to individual partners from joint liability that arises out of another partner’s wrongful business decisions, misconduct, or negligence. The structure of governing a Limited Liability Partnership is flexible and similar to any other partnership firm, attributable to the fact that LLP is governed by a contractual agreement between parties.

Features and Advantage

There are multiple features and advantages for the same. The major features are its separate legal entity which is just like companies. Creating liability of each partner, which will be limited to the contribution made by the partner, gives the feature of the partnership firm. The cost is much low than starting a company with less compliance and regulations having no minimum capital contribution. It also comes up with multiple advantages. Like-

LLP provides a separate legal entity just like companies and on the other hand, it is distinct from its partner. In this case, the LLP can sue or can be sued in its name. Since LLP provides a separate legal entity characteristic, the contract and agreements are signed in the name of LLP which increases the trust and confidence of the stakeholders in the business. The partners have limited liability which is equal to the contribution being made by them. In case of any dispute, they will be liable to pay the amount of contribution being made by them and not compared to the total loss. In case, LLP becomes insolvent at the time of winding up, only the LLP assets are liable for clearing its debts. The partners have no personal liabilities, and thus they are free to operate as credible businessmen.

Moreover, as we compare it to the cost and compliance with that of companies, it is much less to register the LLP. The cost of incorporating the public and a private limited company is more than that of registering an LLP.  The compliance to be followed by the LLP is also low. The LLP needs to file only two statements annually, i.e. Annual Return and a Statement of Accounts and Solvency.  Moreover, the members don’t require to put up any minimum paid-up capital for LLP which results in making the LLP without any minimum capital.

Disadvantages

With advantages, there also come multiple disadvantages. Even if the compliance of LLP is minimal, the compliance if not followed can result in heavy penalties. The returns need to be filed with the Ministry of Corporate Affairs even if the activity has been none in a year which will also result in heavy penalties if not filed. Dissolution of LLP will be done if the minimum number of partners is below two for six months or it can be dissolved if the debts are not paid. Since the LLP does not have the concept of equity or shareholder, raising capital seems to be difficult. Angel investors and venture capitalists cannot invest in the LLP as shareholders. This is because the shareholders must be partners in the LLP and have to take up all the responsibilities of a partner. Thus, angel investors and venture capitalists prefer to invest in a company rather than an LLP making it difficult for the LLPs to raise capital.

IPLF: Registering your LLP

• Firstly, the party needs to check the availability of the proposed name and select up to six names in order of preference.
• Once the proposed name is approved or is available, the party should apply for an LLP registration within 90 days of the name approval.
• It is advisable to obtain a Digital Signature Certificate (DSC) if it’s not available with the party. It is an essential requirement during the form submission.
• Obtaining a Designated Partner Identification Number (DPIN) is mandatory for all the Partners. It is thereby, strongly recommended that a partner obtains DPIN if he/she does not already have one.

For more information regarding the team services and registration of the LLP kindly contact the IPLF team.

Author: Saransh Chaturvedi an associate at IP & Legal Filings, in case of any queries please contact/write back to us at support@ipandlegalfilings.com.