Prepared By : A.RAMA GOPAL KRISHNA CA-FINAL

 The Limited Liability Partnership was formed in the early 1990 s in United States in the consequence of the collapse of real estate and energy prices in Texas in the 1980s. This collapse led to a large wave of bank and savings and loan failures. Because the amounts recoverable from the banks were small, efforts were made to recover assets from the lawyers and accountants who had advised the banks in the early 1980s.  The reason was that partners in law and accounting firms were subject to the possibility of huge claims which would bankrupt them personally, and the first LLP laws were passed to shield innocent members of these partnerships from liability.  Apart from India Many Countries like Canada, China Germany, Greece, Japan, Kazakhstan, Poland, Romania, and Singapore have felt the need to recognize LLPs in their country.

IIn India, The Limited Liability Partnership Act, 2008 was published in the official Gazette of India on January 9, 2009 and has been notified with effect from 31 March  The first LLP was incorporated in the first week of April  Some sections relating to conversion of existing partnership firms and private as well as public unlisted companies into LLP have been brought into force on TThe legal consultants “Handoo and Handoo” have become the first Limited Liability Partnership firm of India.

 LLP is a separate legal entity separate from its partners, can own assets in its name, sue and be sued.  Unlike corporate shareholders, the partners have the right to manage the business directly.  In an LLP, One partner is not responsible or Liable for partner’s misconduct or negligence.  Minimum of 2 partners and no maximum.  Should be ‘for profit’ business.

 The rights and duties of partners in LLP, will be governed by the agreement between partners and the partners have the flexibility to devise the agreement as per their choice. The duties and obligations of Designated Partners shall be as provided in the law.  Liability of the partners is limited to the extent of his contribution in the LLP. No exposure of personal assets of the partner, except in cases of fraud.

 LLP shall maintain annual accounts. However, audit of the accounts is required only if the contribution exceeds Rs. 25 lakhs or annual turnover exceeds Rs.40 lakhs.  Perpetual succession.

 Partner in LLP is not liable for the wrongful acts of other partners.  LLP will have a perpetual succession. Admission or Cessation of a Partner shall not affect its status.  A Firm, Private Company or a Public Company can be converted in LLP.  Partner may transact with LLP.  Professionals like CA, CS etc. can form LLP. ADVANTAGES OF LLP

 No limitation on maximum number of Partners in LLP.  Even a body corporate can be a Partner.  Audit not mandatory for certain LLPs.  Rights of Partners can be transferred, either wholly or in part.

 Business with profit motive for LLP (Nothing like Section 25 Company).  Unlimited liability of partners and LLP in case of Fraud.  Mandatory filing with ROC.  LLP can not maintain financial secrecy.  FDI issue yet not notified.  Accounting Standard yet not notified

Though LLP is a combination of both Partnership and Company, it differs from them in certain aspects as discussed below: Sl. NoConditionLLPCompanyPartnership 1RegistrationTo be registered With Registrar of LLP under LLP Act To be registered with under companies Act, 1956 Registration is optional 2NameName should contain ‘’ Limited Liability Partnership” or “LLP” as last word. Name should contain ‘Limited’ or ‘Private Limited’ as last word. Any name as per choice. 3Legal EntityLLP is a separate legal entity registered under LLP Act Company is a separate legal entity registered under Companies Act, 1956 Not a separate legal entity

Sl. No ConditionLLPCompanyPartnership 4Formation Cost The cost of Formation is lesser that of formation of Company. The cost of` Formation is higher than that of formation of LLP The Cost of Formation is negligible 5Formation by Foreign Nationals alone can not form a LLP Foreign Nationals alone can form a Company. Foreign Nationals can not form Partnership Firm in India 6Minimum Number of Members Minimum 2 partnersMinimum 2 in case of Private Company 7 in case of Public Company. 2 7Management Team Minimum 2 Designated Partners Minimum 2 / 3 Directors No requirements

Sl. NoConditionLLPCompanyPartnership 8Administrati on. Designated Partners are responsible for day to day operations and statutory Compliances Directors are responsible for day to day operations and statutory Compliances Partners are responsible for day to day operations and statutory Compliances 9Remuneratio n to Managerial Personnel Remuneration to partners will be determined on LLP Agreement Remuneration to Directors of Public Companies are governed by Companies Act The firm can pay remuneration to its partners 10Tax LiabilityIncome of LLP is Taxed at a Flat rate of **30% Plus surcharge as Applicable. ** Finance Act, 2013 Income of Company is Taxed at a Flat rate of 30% Plus surcharge as applicable Income of Partnership is Taxed at a Flat rate of 30% Plus surcharge as applicable

Sl. NoConditionLLPCompanyPartnership 11 Transfer of ownership Rights Ownership transfer is governed by the LLP Agreement. Ownership is easily transferable by transfer of shares Not Transferable. 12 Annual Filing(RoC) Annual Statement of accounts and Solvency & Annual Return needs to be filed every year Annual Accounts and Annual Return needs to be filed with the Registrar of Companies No return except Tax returns 13 DissolutionVoluntary or by order of National Company Law Tribunal Voluntary or by order of Company Law Board. By agreement, mutual consent, insolvency, certain contingencies, and by court Order 14 LiabilityLimited Unlimited 15 Corporate Restructuring (Merger/Amalgam ation) Available Not Available

Step-1:-Deciding the Partners and Designated PartnersStep-2:-Obtaining DPIN No. & Digital SignatureStep-3:-Checking the Name AvailabilityStep-4:-Drafting of LLP AgreementStep-5: Filing of Incorporation DocumentsStep-6: Certificate of Incorporation `

 A LLP can be incorporated with a minimum of at least two partners who can be Individuals or Body Corporate through their nominees.  Further for incorporating an LLP, of the total number no. of partners, at least two shall be Designated Partners, of which at least one must be an Indian Resident.  Parameters for deciding the Partners and Designated Partners:  At least Two Partners; Individuals or Body Corporate through individual nominees.  Minimum of Two Individuals as Designated Partners, of total no. of Partners.  At least One Designated Partner to be Resident Indian.  A person ‘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. (Explanation to Section-7)  ‘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

 Director Identification Number (DIN): Every Designated Partner is required to obtain a DIN from the Central Government. If a person already has a DIN, the same can be used for forming LLP.  If DIN/DPIN for partners not available then: For Filing DIN (Directors Identification Number/Limited Liability Partners Identification Number) Form

 Partners Name (with expansion of initials), Father’s Name, Grand Father’s Name, Date of Birth, Place of Birth, Address, Occupation, Educational qualification, IT Permanent Account No or Passport No or Voter Identity No., Phone No. and address.  PAN Card Copy.  Proof of identity – Copies of any one -PAN Card, Passport, Voters Identity card  Address Proof - Copies of any one - Latest Bank pass book or Statement, Ration Card (address should be in English), Voters ID, Driving License.  Passport size Photos of all Partners.  Affidavit in Rs.20 stamp paper for each partner and it should be notarized. (It will be prepared by us – after obtaining the above details The DIN can be applied online at ( 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; it is not possible to sign them manually. Therefore, for the purpose of signing these forms, the Designated Partner of the proposed LLP needs to obtain a Digital Signature Certificate (DSC) from government recognized DSA’s. The signatures shall also be required for signing and filing of all relevant forms and documents to be filed, annually or event based after incorporation of the LLP, asking for approvals or as intimation.

 Name of the Partner who is to obtain the DS  Name, Father’s Name, Date of Birth, Place of Birth, Address, Occupation, IT Permanent Account No. or Passport No or Voter Identity No., Phone No. and address  One Passport Size Photo  Proof of Identity like PAN card, Voters ID and Passport  Proof of Address like Bank Statement, Ration Card or Driving License  The documents – Proof of Identity and Proof of Address should be attested by a Gazetted Officer

 The next step is to decide the name for the proposed LLP to be incorporated, anyone intending to incorporate an LLP has to evaluate his proposed name under the rescribed parameters and make an application in Form 1 of Rule 18(5) of the Limited Liability Partnership Act 2008, for reservation of the desired name.  The name of the limited liability partnership shall not be similar or identical with Company or LLP already registered in India and it should not contains words prohibited under the ‘Emblems and Names (Prevention of improper use) Act, 1950’or which are also not ‘Undesirable’ in the opinion of Central Government or which satisfies the conditions prescribed under rule 18(2). For more information check Name Availability Guidelines.  In case any Body Corporate is partner, copy of Board resolution authorizing the incorporation of LLP shall be attached.

 LLP Name (Preferred one and 2 more alternative names) with explanation of the Name coined.  Main Proposed activity of the LLP  Partners List  DIN/DPIN of the Partners  Digital Signature to be obtained for one of the proposed Partner/Designated Partner  Main ID

 The next pertinent step is drafting of Limited Liability Partnership Agreement governing the mutual rights and duties among the partners and among the LLP and its partners. The basic contents of Agreement are:  Name of LLP  Name of Partners & Designated Partners  Form of contribution  Profit Sharing ratio  Rights & Duties of Partners  Proposed Business  Rules for governing the LLP  In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable  It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details of the same needs to field in eform 3 within 30 days of incorporation but in order to avoid any dispute between the partners as to the terms & conditions of the agreement after the formation of LLP, it is always beneficial to have the LLP Agreement drafted and executed before the incorporation of the LLP.  In case the Agreement is executed outside India, than it must be notarized and consularized, for more information check “Incorporation of LLP” under FAQ’s

Next is the filing of Incorporation documents, consent of Partners and declaration electronically through the medium of e-forms prescribed with the Registrar of LLP for incorporation of the LLP on payment of prescribed fees based on the total monetary value of contribution of partners in the proposed LLP. Eform 2: Incorporation Document and subscriber's statement  This is an informative document setting down the details of LLP, its Partners including designated partners along with their amount of contribution and consent for forming a Limited Liability Partnership to carry on a lawful business with profit motive along with declaration stating that all the requirements of Limited Liability Partnership Act, 2008 regarding incorporation of LLP in India have been complied with.  Subscription Sheet: The partners are required to subscribe their names along with signatures to the subscription sheet and also along with their consent to become a partner/ designated partner/ nominee/ nominee & designated partner of the LLP which shall be witnessed by any Chartered Accountant/Company Secretary/Advocate in practice.

In case the subscription sheet is executed outside India, than it must be notarized and consularized, for more information check “Incorporation of LLP” under FAQ’s  eForm 3: Details of LLP Agreement eForm 3  This form provides for the necessary information in respect to the LLP Agreement entered into between the partners.  Only eForm 3 is required to file within 30 days of the incorporation. All the eforms will be digitally signed by any designated partner and shall be certified by an advocate/company secretary/chartered accountant/cost accountant in practice engaged in the formation of LLP. Key points:  Filling will be done on  with All the Designated Partners need to be register as Business User.  Digital Signature is required only for the Designated Partner who would be signing all the e Forms.

After the Registrar is satisfied that all the formalities with respect to the incorporation has been complied, he will issue a Certificate of Incorporation as to formation of the LLP within maximum of 14 days from date of filing of documents. The Certificate of Incorporation issued shall be the conclusive evidence of formation of the LLP.

The precondition for conversion for your partnership firm is 1. Partnership should be a registered under Indian partnership Act All the partners of existing firm should compulsorily become the partners of LLP 3. Minimum 2 partners as Designated Partners and one of them should be Resident in India. 4. Digital Signature Certificate for one of the Designated Partners. 5. LLP (Limited Liability Partnership) Name. 6. LLP (Limited Liability Partnership) Agreement. 7. Registered Office for the existing partnership firm

 Obtain name approval for LLP (Limited Liability Partnership)  Application for conversion of firm to LLP in Form 17  File the following forms along with a statement by all partners with registration number and date of registration of the firm. Form 2 : Details of partners, registered office etc Form 4 : Consent of Partners – Consent of each partner to become a partner of Liability Partnership Form 3 : LLP agreement – this can be filed with in 30 days from the date of registration  After verification, registrar will register all documents and issue Certificate of registration 5. Upon registration of LLP, file an intimation to the Registrar of Firms stating the fact that firm is converted into LLP.