Limited Liability Partnerships (LLPs) were introduced in the year 2008, as a new legal structure for the incorporation of Partnership businesses in India. These are considered to be far better than traditional partnership firms as they combine the best features of a limited company without losing the core essential elements of a Partnership.
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Limited Liability Partnerships are registered by the Office of the Registrar of Companies, under the Central Ministry of Corporate Affairs. The process of incorporation is governed entirely by the LLP Act, 2009. The act also prescribes certain minimum requirements that an LLP must fulfill in order to get incorporated by the RoC. This blog covers all such minimum requirements and discusses them in detail for your comprehensive understanding.
What is an LLP?
The LLP Act defines a Limited Liability Partnership as a “body corporate formed and incorporated under the provisions of the act, as a legal entity separate from its partners”. In other words, an LLP is an incorporated partnership business with a legal identity of its own, distinct from the identity of its partners. When compared to a traditional Partnership Firm, the most significant benefit that an LLP offers is limited liability for its owners.
| S. No. | Features of a Limited Liability Partnership |
|---|---|
|
1. |
A distinct legal identity |
|
2. |
Mandatory Incorporation under the LLP Act, 2008 |
|
3. |
Separate designations to control ownership and management of the LLP |
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4. |
Limited Liability for owners |
|
5. |
Change in partners does not affect the existence of the LLP |
Minimum Requirements to establish an LLP
The LLP Act prescribes certain conditions for establishing an LLP in India. These conditions deal with the minimum number of partners and designated partners that an LLP can have, the minimum capital required to set it up, and the legal principles to be followed while selecting its name and business address. We have discussed each of these requirements one by one, in the next section.
Number of Partner
The ownership of a Partnership business is shared between its partners, who are collectively responsible to invest capital into it. A Limited Liability Partnership can only be established if it has at least two partners. Any corporate body or individual can become a partner in an LLP provided:
- He has not been declared of unsound mind by a court of law
- He is not an undischarged insolvent
- He is not being adjudicated as an undischarged insolvent
- If he is an individual partner who is an Indian national, then the Income Tax Department must have assigned him a Permanent Account Number (PAN)
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Number of Designated Partners
A designated partner is an authority responsible for controlling the management of a Limited Liability Partnership. This is because, unlike a traditional partnership, the partners in a Limited Liability Partnership do not participate in the management of the business.
A minimum of two Designated Partners are required to set up an LLP in India. It must be noted that, unlike the partners of an LLP who can be both individuals and body corporates, the designated partners of an LLP can only be individuals and not corporate entities.
A Resident Designated Partner and DPIN
An LLP can have a maximum of fifteen designated partners, who can either be Indian or foreign nations, resident or non-resident in India. However, the LLP Act, 2008, mandates that out of all the designated partners of an LLP, at least one should be a Resident Indian, meaning that they should all have resided in India for more than 182 days in the previous calendar year.
A Designated Partner Identification Number (DPIN) is a unique identification number issued by the Ministry of Corporate Affairs to all individuals looking forward to be appointed as Designated Partners of an LLP. In other words, no individual can be appointed as the designated partner of an LLP if he has not been allotted a DPIN by the MCA. Click here to obtain a DPIN with our assistance.
Name of LLP
No business, including an LLP, can be formed or incorporated without a name. To name an LLP you must follow certain legal guiding principles mentioned in several laws like the Companies Act, Company Incorporation Rules, and Trademark Act. To know all about the naming guidelines of an LLP, click here.
An ideal name of an LLP must be unique, original, and communicative of its brand and business activity. The best way to do that is to mention the industry to which an LLP belongs, in its name itself. For instance, an LLP dealing in footwears, can be named as “XYZ Footwears”, where XYZ represents the name of the LLP, and “Footwears” represents its business activity.
Address of Registered Office
Every business must have an address with which they shall get incorporated and where the main office or the principal place of business shall be situated. This is known as the “registered address” of the business.
Before you begin the process of incorporation, you must make sure that you have a registered address for your LLP, where all the statutory communications and correspondence in the name of the LLP shall be addressed to. Additionally, you also need a No Objection Certificate from the owner of the office space at the registered address, stating that he has no objections against the property he owns being used as the main office of the concerned LLP.
Certain amount of Capital
No business can conduct its operations without capital. This is obviously true for LLP businesses as well. Although the LLP Act does not prescribe any minimum limit of capital for incorporating an LLP, the partners must decide among themselves the ideal or adequate amount of capital that the LLP shall require in its initial stages of operations, based on its needs and suitability. In the due course of business, it is this decided capital investment that the partners must target to achieve.
Primary Business Activity
The LLP’s proposed commercial operations are referred to as its objectives. An LLP can be opened for all lawful purposes or objectives. It is obvious that you must determine the primary objective of the LLP before beginning the process of its formation and incorporation.
Note that, an LLP can conduct multiple business activities but can be incorporated with only a single objective or primary business activity. The name of the LLP should mention its primary objective to strengthen its brand value.
LLP Agreement
Although an LLP is a new concept in the world of Partnership businesses, it still is a Partnership at its core. Therefore, like all other Partnership businesses, the foundation of an LLP is also based on mutually agreed terms and conditions among all the partners. All these terms and conditions are to be documented in the LLP Agreement, which must be further signed by all the partners. An LLP business cannot be formed and incorporated without the existence of the LLP Agreement.
Conclusion
As a distinct legal entity, the LLP is nonetheless in charge of carrying out its other tasks. The mutual rights and obligations of the partners within an LLP are governed by an agreement between the partners or, if applicable, between the partners and the LLP. To form and incorporate an LLP, there are certain conditions that must be fulfilled, related to its name, registered address, capital, minimum number of partners and designated partners.
