LLP Company Advantages and drawbacks for startups

Updated : 19th April 2019

Partners :-
At least 2 persons (natural or artificial) are required to form a LLP out of which one should be resident in India
In case any Body Corporate is a partner, than he will be required to nominate any person (natural) as its nominee for the purpose of the LLP.
Following can become a partner in the LLP.
» Company/Body Corporate incorporated in and outside India
» LLP incorporated in & outside India
» Individuals resident in & outside India

*Please note that there should be atleast one Designated Partner, resident in India. Following cannot become partner in LLP;
HUF and its Karta

Contribution means capital in LLP. The contribution can be tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, and other agreements to contribute cash or property, and contracts for services performed or to be performed.

If the Contribution in Cash – No Valuation required
In case the contribution is in intangible form i.e. other than Cash – Valuation required, the value of the same shall be certified by a practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained by the Central Government.

The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed. The LLP Agreement must specify the contribution intended to be paid by all the members and the form in which it will be paid.

Designated Partner
means a partner who is designated as such in the incorporation documents or who become a designated partner by and in accordance with the Limited Liability Partnership Agreement. Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India. Provided that in case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners.

Designated Partner shall be:

a. Responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnership agreement and

b. Liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.

Explanation – for the purposes of this section, the term ‘resident in India’ means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one year.

Designated Partners Identification Number (DIN)
Every Designated Partner is required to obtain a DPIN from the Central Government.

DIN is an eight digit numeric number allotted by the Central Government in order to identify a particular partner and can be obtained by making an online application in Form DIR 3 to Central Government and submitting the physical application along with necessary identity and Address proof of the person applying with prescribed fees.

DIN is valid for lifetime.

Digital Signature Certificate

All the forms like eForm 1, eForm 2, eForm 3 etc which are required for the purpose of incorporating the LLP are filed electronically through the medium of Internet.

Since all these forms are required to be signed by the partner of the proposed LLP and as all these forms are to be filed electronically, it is not possible to sign them manually.

Therefore, for the purpose of signing these forms, at least one of the Designated Partner of the proposed LLP needs to have a Digital Signature Certificate (DSC). The Digital Signature Certificate once obtained will be useful in filing various forms which are required to be filed during the course of existence of the LLP with the Registrar of LLP.

LLP Name
Selection of the name for the proposed LLP to be incorporated is one of the important process of the entire incorporation process, ideally the name of the LLP should be such which represents the business or activity intended to be carried on by the LLP. Before selecting the name of the LLP, it is necessary to evaluate the proposed name under the following given criteria:
1. LLP with Similar Name: The proposed name of the LLP should not be similar to the name of the Company or LLP, which is already registered in India.
For example:
Name of Company already registered: Oasis Water Treatments Pvt Ltd Name of Proposed LLP: Oasis Water Treatment LLP Whether Proposed Name would be available: No
2. Prohibited Word: The Ministry of Corporate Affairs of India has prescribed certain words, which should not form part of the name of LLP intended to be incorporated in India, such words are prohibited under The Emblems and Names (Prevention of improper use) Act, 1950. click here to check the list of Prohibited Words

3. Words Based on Approval: Various government regulatory authorities operating in India like Securities & Exchange Board of India, Reserve Bank of India, has prescribed certain words, which if forms part of the name of the proposed LLP to be incorporated, requires there first hand approval. click here to check the list of Words based on Approvals

4. Names reserved for Foreign LLP/Companies: In case Foreign LLP/Companies have reserved their name under rule 18 of the LLP Rules 2009, than that name will not be applicable for forming of LLP to persons other than the Foreign LLP/Company

LLP Agreement
The LLP Agreement forms the basis of the formation of LLP and lays down its founding structure. It is an agreement between the Partners and between the LLP & its partners.

The basic contents of Agreement are:

» 1. Name of LLP
» 2. Name of Partners & Designated Partners
» 3. Form of contribution
» 4. Profit Sharing ratio
» 5. Rights & Duties of Partners

Registered Office
The Registered office of the LLP is the place where all correspondence related with the LLP would take place, though the LLP can also prescribe any other for the same.

A registered office is also required for maintaining the Government records and books of Account of LLP.

At the time of incorporation, it is necessary to submit proof of ownership or right to use the office as its registered office with the Registrar of LLP.