A Limited Liability Partnership (LLP) is a business entity that combines the characteristics of both a partnership and a private limited company. It offers partners liability protection, which means they are not personally responsible for the debts and obligations of the LLP. This feature is particularly advantageous for medium businesses as it safeguards the partners’ assets from any liabilities related to the business.
Advantages of LLP Registration
Registering an LLP provides benefits that make it an appealing choice for entrepreneurs and professionals;
a. Limited Liability: The main advantage of registering an LLP is that it limits the liability of partners. The partners’ assets are safeguarded if the LLP faces difficulties or legal claims.
b. Separate Legal Entity: An LLP is considered an entity distinct from its partners. It can own assets, enter into contracts, and initiate or be part of proceedings.
c. Perpetual Succession: The existence of an LLP remains unaffected by changes in its partners. Even if one or more partners leave or new ones join, the LLP continues.
d. Management Flexibility: LLPs enjoy flexibility in their management structure, allowing them to adapt their approach according to their needs. Partners have the flexibility to determine how they wish to handle the operations of the LLP without any obligation for a board of directors or shareholders.
e. Taxation Benefits: Another advantage is that LLPs enjoy tax benefits as they are subject to tax rates compared to companies. This makes them a tax-efficient option for the partners.
f. Easy Transfer of Ownership: Adding or removing partners in an LLP is quite straightforward when transferring ownership. To become a designated partner in an LLP, there are eligibility criteria that individuals must meet;
Eligibility Criteria for Designated Partners
To become a designated partner in an LLP, individuals must meet specific eligibility criteria:
- Only individuals can be appointed as designated partners. Companies, firms or other LLPs cannot hold this position.
- Before being appointed, the proposed designated partner must obtain a Unique Identification Number (UIN).
- Setting up an LLP requires a minimum of two designated partners. There is no limit on the number of partners.
- For compliance purposes, one designated partner must be a resident of India to ensure presence.
- The proposed designated partner needs to provide a consent letter expressing their willingness to join the LLP as a designated partner.
- The individual should be 18 years old, ensuring they can enter into contracts legally.
Individuals Not Eligible for Designated Partnership
Certain entities are disqualified from holding the position of designated partner in an LLP:
- Bankrupt individuals cannot be appointed as designated partners due to their insolvency.
- Individuals identified as payment defaulters by creditors, such as lenders, are also ineligible.
- .People who have engaged in activities or been convicted of crimes cannot be designated partners.
- Additionally, individuals under 18 cannot hold positions as designated partners in Limited Liability Partnerships (LLPs) because they do not have the capacity required.
- Furthermore, non-resident individuals without citizenship are ineligible to become designated partners unless they qualify for exemptions.
Procedure for Appointment of Designated Partner in LLP
To appoint a designated partner in an LLP, there are a few steps you need to follow:
Step 1: Obtain Digital Signature Certificate (DSC)
A Digital Signature Certificate (DSC) is required when appointing a designated partner. The DSC acts as a signature that verifies the partner’s identity. It is issued by a Certifying Authority (CA) after verifying the applicant’s information and documents.
To obtain the DSC, the proposed designated partner must provide the following documents:
a. PAN Card: This is an identification number assigned to individuals for tax purposes.
b. Aadhaar Card: It serves as proof of identity and address. It is issued by the Unique Identification Authority of India (UIDAI).
c. Passport-sized Photograph: You must provide a passport-sized photograph of yourself.
d. Email ID and Phone Number: Please provide your email ID and phone number for communication throughout the process.
The DSC guarantees the authenticity and security of documents and transactions.
Step 2: Apply for Director Identification Number (DIN)
Once you have obtained your DSC, you must apply for a Director Identification Number (DIN) using Form DIR.
Individuals need to obtain a DIN identification number to become a director or designated partner in companies or LLPs. This 8-digit number is assigned to them. Serves as an identification that doesn’t have an expiration date.
The application for DIN requires the submission of the following documents:
a. Identity Proof: You can provide any of the following documents as proof of identity. PAN card, passport, voter ID or driving license.
b. Address Proof: For address verification, you can submit a passport, voter ID, ration card, electricity bill or telephone bill.
c. Passport-sized Photograph: Including a passport photograph of the proposed designated partner is essential.
Once the application is processed and approved, the designated partner will be assigned a DIN with lifetime validity.
Step 3: Hold a Board Meeting
Using the allocated DIN, the existing partners of the LLP must hold a board meeting to authorize the appointment of the designated partner and incorporate it into the partnership agreement. The minutes of this meeting should be properly documented, signed by all partners involved and retained for reference.
The board resolution should contain information about the proposed designated partner, including their DIN and role and responsibilities within the LLP.
Step 4: Draft Supplementary Partnership Deed
The LLP partners should draft a partnership deed to include the name of the proposed designated partner in accordance with the existing LLP agreement. This supplemental deed serves as an amendment to reflect changes in the partnership structure compared to the original partnership deed.
The person chosen as the designated partner should also submit a letter expressing their agreement to become a part of the LLP in the role of a designated partner. This letter should be attached to the partnership agreement.
Step 5: File Form-4 and Form-3
Once you have prepared the supplementary partnership deed and obtained the consent letter, the LLP must submit Form 4 and Form 3 to the Registrar of Companies (ROC) within thirty days of the appointment. These forms and the supplementary partnership deed must be submitted online through the Ministry of Corporate Affairs (MCA) portal.
Form-4: Form 4 is specifically used to appoint designated LLP partners. It includes details such as their DIN (Director Identification Number) and consents to act as designated partners.
Form-3: On the other hand, Form 3 contains information about the LLP agreement, which outlines the rights, duties and responsibilities of all partners, including designated partners.
Remember that these forms and documents should be properly signed by existing and designated partners (s) before submission.
Step 6: Verification and Approval
The MCA will carefully examine all submitted forms and the partnership deed to ensure compliance with the LLP Act, rules, and regulations. The Registrar of Companies will conduct diligence on this appointment process while verifying details related to designated partner(s).
If all requirements are satisfactorily met and everything is in order, MCA will grant permission to add your proposed designated partner(s) to your LLP. This approval will then be officially communicated to your LLP through a notification.
Step 7: Confirmation of Appointment
After receiving approval from the MCA, the applicant should visit the MCA website and verify if the name of the designated partner has been added to the records of the LLP. Once this confirmation is obtained, the designated partner can perform their duties and responsibilities within the LLP.
Conclusion
Registering as a Limited Liability Partnership (LLP) benefits businesses, such as liability protection and management flexibility. To appoint a designated partner in an LLP, you need to follow a few steps; acquire a Digital Signature Certificate (DSC), apply for a Director Identification Number (DIN), hold a board meeting to authorize the appointment, create an additional partnership deed and file the forms with the MCA.
Businesses can successfully appoint designated partners by following these procedures and providing the required documents. Enjoy all the advantages that come with LLP registration. Entrepreneurs often choose the LLP structure because it balances liability protection and operational convenience. With its benefits and simplified compliance requirements, LLP registration remains popular in today’s changing business world.
