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Setting up a business has three critical steps:
- Conceptualising the product or service
- Knowing how to market it
- Creating the business structure
The last phase is vital because it paints a clear picture of all the rights and liabilities of a business owner. There are many kinds of businesses that can be set up in India, a Limited Liability Partnership (LLP) is just one of them. It is one of the latest business structures to be recognized by the law of the country. The LLP Act was passed just a decade back.
What is an LLP company?
It is a mixture of a partnership and a limited liability firm. It has positive elements of both structures. The prominant factor of an LLP is that the business owner does not have unlimited liability. It means there is no limit to growth yet there are rules and regulations that the company needs to comply with. Such a business structure is best suited for:
- Service industry
- Company with many business partners in varying roles
How to set up an LLP in India?
The passing of LLP Act 2008, made the process of setting up a limited liability partnership reasonably simple. The procedure can be completed on the internet within some working days in a streamlined manner. Given below are the steps any individual or business partner needs to take to start an LLP.
The first step is to create either a service or product to sell. The concept or idea of it has to be generated. Without it, no business can run profitably.
- Partner s:
To form an LLP a minimum of 2 partners are required one of which has to be a Resident of India. There is no cap on the maximum number of partners. Therefore, find at least 2.
- DIN Application:
By law, a director of an incorporated entity in India should have a Director Identification Number. The unique DIN number has to be applied by two of the Designated Partners of the LLP at least. More partners can also apply for the same. DIN ensures that the firm complies with the laws of the LLP Act and therefore, reduces the chances of fraud.
A DIN application can be completed online through the Ministry of Corporate Affairs website – http://www.mca.gov.in . All one requires are some identification paperwork and filling in of forms. Once the scans of ID documents are uploaded, and the forms are signed, you pay a hundred rupees registration fees, and DIN is allotted.
- DSC Application:
Since most businesses are connected online in the present world, it makes sense to have a digital identity proof of all partners. For LLP registration , the law requests to get a Digital Signature Certificate. These are electronic proof of identity that can be used to verify documents online. To apply for DSC, one has to fill a form online at Certifying Authorities. These organizations are created and controlled by the Office of Controller of Certifying Authorities (CCA).
A DSC can be issued by:
- Name Approval:
To register an LLP in the nation successfully, the company needs to have a unique name. The name of the firms can also be trademarked by another business nor can it sound very similar to confuse the end user. Before you put your name for approval, check the guidelines given by the Ministry of Corporate Affairs'. Furthermore, make use of the online tool given on their website to ensure that the name you choose is already taken or not.
If the name is available and is unique, fill in the Form 1 given at the mca.gov.in website. This application will register the LLP's name.
The RoC will inspect the Form 1 submitted by you. If the Registrar of Companies find the form missing, they will suggest alterations to it. You can edit the changes and then re-submit it for approval.
- Form 2:
The next step to creating an LLP is filling the incorporation document and subscription statement. Called Form 2, it is the official paper that recognizes the company as a corporate entity. The Form has to be signed by all Designated Partners under the witness of a professional such as a CA.
- Form 16:
Once Form 2 is verified by the RoC, they issue a Certificate of Incorporation to you. This is also known as Form 16, and it is sent as a hard and soft copy to every partner that is registered. This CoI has the LLP identification number on it. The date written on Form 16 is considered the date of incorporation of the LLP. Now the firm can apply for other documents like TAN, PAN and open bank accounts.
- LLP Agreement:
Within 30 days of the date of incorporation, the LLP has to draft and file the Partnership Agreement with the MCA. This document lists:
- The rights and duties of the partners
- Profit-sharing ratios
- Capital contributions
- The nature of business
- The method of dispute settlement
- Other provisions
The agreement has to be signed by every Designated Partner which is printed on a stamp paper. It is also witnessed by two other individuals. The contract is submitted to the RoC as Form 3. If not filed within the allotted time, then a fine has to be paid.
A grant is given to start the LLP, once Form 3 is inspected and verified. This is the last stage of setting up a limited liability partnership in India.