Incorporation of LLP and Procedure

By | November 13, 2021
Incorporation of LLP and Procedure

Last Updated on by Admin LB

This article titled ‘Incorporation of LLP and Procedure.’ is written by Mayank Shekhar and discusses the concept of Incorporation of a Limited Liability Partnership and its procedure.

Incorporation of LLP and Procedure

I. What is a Limited Liability Partnership (LLP)?

In India, the Limited Liability Partnership (LLP) Act was enacted in January 2009, and it quickly became popular among entrepreneurs and professional services firms. As the name implies, a Limited Responsibility Partnership (LLP) registration establishes limited liability for its participants.

Thus, it combines the characteristics of a corporation and a partnership. One partner is solely accountable for his or her own conduct and not for the actions of the other. Limited liability partnerships (LLPs) are regulated under the 2008 Limited Liability Partnership Act (LLP Act).

Features-

  1. LLPs are distinct legal entities from their partners; they may possess assets in their own names and sue and be sued.
  2. In contrast to corporate shareholders, partners have the right to personally run the firm.
  3. One partner is not accountable or liable for the wrongdoing or carelessness of another partner.
  4. There must be a minimum of two partners and no maximum limit on the number of partners.
  5. Should be a for-profit enterprise
  6. Has Infinite succession
  7. In an LLP, the partners’ rights and obligations are regulated by an agreement between them, and the partners have the liberty to create the agreement according to their preferences. The Designated Partners’ responsibilities and obligations shall be governed by applicable legislation.
  8. The partners’ liability is restricted to the degree of their participation in the LLP. No exposure of the partner’s personal assets, save in circumstances of fraud.
  9. Foreign nationals may join an LLP as partners.

II. Required Documents for LLP Incorporation

  1. “Copies of partners’ PAN cards
  2. Passport size photograph of partners.
  3. As proof of address, a copy of your Aadhaar card/Voter identification card/license Driver’s is required.
  4. Bills of electricity, water, and telephone service, as well as the most recent bank statement, serve as verification of Registered Office (Business Place)
  5. Affidavit of Sale/Property Deed (If owned property)
  6. NOC from the landlord (Format will be provided)”
  7. “Passport (for Foreign Nationals/Non-Resident Indians)
  8. Certificate of Digital Signature
  9. Notarized Rental Agreement Copies
  10. A copy of the property owner’s NOC”

III. Minimum Incorporation Requirements for LLPs

  1. “A minimum of two partners
  2. If a corporation is a Partner, it is required to choose a natural person as its Nominee.
  3. Although there is no idea of share capital, each Partner is required to contribute to the LLP’s capital.
  4. All Designated Partners must have a DIN (Director Identification Number).
  5. All Designated Partners will get a DSC (Digital Signature Certificate).
  6. Address verification for the LLP’s office.”

IV. The Benefits Of LLP

1. Legal entity distinct from others

LLPs, like corporations, have their own legal entity. The limited liability partnership is different from its partners. A limited liability partnership (LLP) may sue and be sued in its own name. Contracts are signed in the LLP’s name, which helps to earn the trust of numerous stakeholders and instils confidence in consumers and suppliers.

2. Partners’ limited liability

The LLP’s partners have limited responsibility. The partners’ responsibility is limited to their contributions. This implies that individuals are solely accountable for the amount of their contributions and are not personally liable for any company losses. If an LLP becomes bankrupt during the winding-up process, only the LLP’s assets are accounted for debt repayment. Because the partners are not personally liable, they are free to conduct themselves as legitimate businesses.

3. Cost-effective and low compliance

The expense of establishing an LLP is minimal in comparison to the cost of registering a public or private limited company. The LLP’s compliance requirements are also minimal. The LLP is only required to submit two statements each year, namely an Annual Return and a Statement of Accounts and Solvency.

4. There is no minimum capital contribution requirement

No minimum capital requirement exists for the formation of an LLP. There is no need that a company to have a minimum paid-up capital prior to formation. It may be founded with partners contributing any amount of money.

V.  LLP’s Disadvantages

1. Penalty for non-compliance

LLP is required to adhere to a basic amount of compliance. However, if these compliances are not fulfilled on time, the LLP will face severe penalties. Even if the LLP remains inactive throughout the fiscal year, it is obliged to submit yearly reports with the Ministry of Corporate Affairs (MCA). If it fails to submit the returns, the LLP will face severe penalties.

2. LLP winding up and dissolution

An LLP must have a minimum of two partners. The LLP will be dissolved if the minimum number of partners falls below two for six months. If the LLP is unable to pay its obligations, it may be dissolved.

3. Difficulty in obtaining financing

Unlike a corporation, the LLP does not have the idea of equity or shareholders. Angel investors and venture capitalists are not permitted to invest as shareholders in an LLP. This is because shareholders must be partners in the LLP and must assume all of the partner’s obligations. As a result, angel investors and venture capitalists prefer to invest in businesses rather than LLPs, making it more difficult for LLPs to obtain funds.

VI. Procedures and steps for incorporation of LLP

The following components are required for the formation of an LLP:

  1. Partners in decision-making and designated partners.
  2. Obtaining Digital Signature Certificates (DSCs) and Designated Partner Identification Numbers (DPINs).
  3. Verifying the availability of and registering the LLP’s unique name. The applicant may submit up to six potential names.
  4. Creating the LLP’s agreement.
  5. Electronic filing of required paperwork.
  6. Application for the issuance of the Certificate of Incorporation and Limited Liability Partnership Identification Number (LLPIN).

VII. Conclusion

Limited Responsibility Partnership Incorporation is an alternative corporate business structure that provides the firm with limited liability and partners with relief. LLPs may continue to exist even if their partners change. He is able to engage in a contract and retain ownership of the property.

The LLP firm is a distinct legal entity that is accountable for all of its assets, but the partners’ responsibility is limited to their agreed contribution to the LLP. Additionally, neither partner is liable for the individual or unauthorized activities of the other partners, shielding the individual partners from joint responsibility resulting from the other partner’s erroneous business choices or misbehaviour.

VIII. How can Legal Bites assist you?

Legal Bites offers comprehensive formation services. We can assist you with forming and registering your Limited Liability Company, as well as filling out all necessary documents and establishing processes. To get comprehensive information and services on LLP incorporation and related matters in India, contact us at [email protected]


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Author: Mayank Shekhar

Mayank is a student at Faculty of Law, Delhi University. Under his leadership, Legal Bites has been researching and developing resources through blogging, educational resources, competitions, and seminars.

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