How to Incorporate an LLP in India?

A Limited Liability Partnership (LLP) is a modern business structure in India that combines the benefits of a partnership with the limited liability of a company. It offers flexibility in operations while protecting the personal assets of its partners. This model is ideal for startups, small businesses, and professionals who want legal protection without high compliance burdens. Its ease of formation and cost-effectiveness make it a popular alternative to traditional partnerships. In this blog, you will learn how to incorporate a new LLP registration in India.

What is an LLP?

A Limited Liability Partnership (LLP) is a modern business format introduced in India under the LLP Act, 2008. It combines the flexibility of a traditional partnership with the limited liability protection of a company. An LLP is considered a separate legal entity. It has the authority to hold property, sign contracts, and initiate legal proceedings under its own name. Its existence remains unaffected even if there is a change in the partners. Unlike old-style partnerships under the Indian Partnership Act, 1932, an LLP can have unlimited partners. However, at least two partners are required, with one being an Indian resident.

Requirements to Register an LLP in India?

Here is a list of entities that can register an LLP in India:

1.  Minimum Number of Partners

An LLP must have at least two partners at the time of incorporation. These partners can be individuals or corporate bodies. The law does not specify any upper limit for the number of partners in an LLP. This allows more flexibility compared to traditional partnerships.

2.  Indian Resident Requirement

At least one of the designated partners must be a resident of India. A resident of India is a person who stays in India for at least 120 days during the financial year. This rule ensures that the LLP always has a responsible person within the country for compliance and communication.

3.  Who Can Be a Partner

Any individual who is mentally sound and not disqualified under any law in force can become a partner. Body corporates such as private limited companies, public limited companies, LLPs, and foreign companies can also be partners. Foreign entities need to follow the rules laid down under the Foreign Exchange Management Act (FEMA).

4.  Role of Designated Partners

An LLP requires a minimum of two designated partners to be appointed. These partners are responsible for compliance, legal filings, and maintaining statutory records. Only individuals, not corporate bodies, can act as designated partners. Each designated partner must have a valid Designated Partner Identification Number (DPIN) or Director Identification Number (DIN).

5.  Ineligibility Criteria

The law does not allow minors, people declared insolvent, or persons convicted of any offence involving moral turpitude in the last five years to become partners in an LLP. This ensures that only trustworthy and legally competent individuals manage LLPs.

6.  Foreign Nationals and NRIs

Foreign nationals and Non-Resident Indians (NRIs) can register an LLP in India. They must appoint at least one Indian resident as a designated partner. Foreign participants must follow FEMA regulations and other relevant rules issued by the Ministry of Corporate Affairs (MCA).

LLP Agreement: Importance and Key Clauses

An LLP Agreement defines the structure, duties, and rights of all partners in the LLP. It provides legal clarity on how the LLP operates and how profits, losses, and responsibilities are shared. Without a proper agreement, the LLP follows the default rules mentioned in the First Schedule of the LLP Act, 2008. These default rules may not suit the needs of all partners. The LLP Agreement also prevents future disputes among partners. It acts as a safeguard against confusion related to roles, authority, and decision-making. The agreement must be filed with the Ministry of Corporate Affairs through Form 3 within 30 days from the date of incorporation.

Here are the Key Clauses of an LLP Agreement:

1.  Name and Address of the LLP

This clause mentions the legal name of the LLP and its registered office address. It ensures that all official records and notices reach the correct address.

2.  Partner Details and Capital Contribution

The agreement must include the names and details of all partners. It also states the amount of capital each partner contributes. Contributions may be in cash, property, or services. This clause records the financial commitment of each partner.

3.  Profit and Loss Sharing Ratio

This clause explains how the LLP distributes profits and bears losses. It ensures transparency and avoids future confusion related to financial sharing among partners.

4.  Roles, Rights, and Duties of Partners

Each partner’s role in managing the LLP must be clearly defined. This clause outlines individual responsibilities and decision-making powers. It also mentions duties like maintaining accounts and meeting legal requirements.

5.  Designated Partners and Their Authority

This clause lists the designated partners and their legal responsibilities. Designated partners manage the day-to-day operations and ensure compliance with MCA regulations. They must hold a valid DPIN (Designated Partner Identification Number).

6.  Admission, Retirement, and Removal of Partners

The agreement must define rules for adding new partners or removing existing ones. It states the procedure for a partner to retire and how the LLP manages the financial settlement.

7.  Decision-Making Process

This clause explains how the LLP makes decisions. It includes voting rights, quorum requirements for meetings, and the process of passing resolutions. It avoids internal conflict and promotes smooth functioning.

8.  Dispute Resolution

The agreement must contain a clear method to resolve disputes among partners. It may include mediation or arbitration to avoid court cases. This clause helps the LLP settle issues faster and at a lower cost.

9.   Indemnity and Liability

This clause protects partners from losses or legal actions if they act in good faith and within their authority. It also mentions how the LLP handles liabilities arising from negligence or misconduct.

10. Transfer or Exit of Partner’s Interest

This clause explains how a partner may transfer their share or exit the LLP. It includes approval requirements and rules to ensure the LLP continues to function without disruption.

11. Amendment of Agreement

Any change in the LLP Agreement must be agreed upon by all partners. The LLP must file the amended agreement with the MCA within 30 days through Form 3.

Documents Required for LLP Registration

Listed below are the documents required for LLP registration:

1.   Documents from Partners (Including Designated Partners)

• PAN Card: Mandatory for all Indian partners; names and details must match across documents
• Address Proof: Aadhaar, Voter ID, Passport, or Driving License. Must be recent and valid
• Recent Utility Bill: Electricity, gas, or phone bill issued within the last 2 months.
• Passport Photo: Recent colour photograph with white background.
• Passport (for NRIs/Foreign Nationals): Notarised or apostilled copy plus valid address proof (e.g., bank statement, residence card).
• Digital Signature Certificate (DSC): Class 2 or Class 3 DSC for designated partners to sign e-forms.
• DPIN/DIN: Identification number for each designated partner, obtained via the MCA portal.

2.   Documents for Registered Office

• Ownership Proof: Sale deed or property tax receipt if owned by a partner.
• Rent Agreement + NOC: If leased, include a valid rent contract and a signed No Objection Certificate from the owner.
• Utility Bill: Recent electricity, water, or gas bill in the LLP's or owner's name, not older than 2 months.

3.   Supplementary Documents

• Partner Consent Form: All designated partners must formally agree to act in that capacity.
• Draft LLP Agreement: Executed on stamp paper/framed within 30 days after incorporation; detailing structure, roles, contributions, etc.
• Trademark NOC (if applicable): Required if name includes a registered brand or trademark.
• Professional Qualification Proof (optional): Needed if LLP name uses regulated terms like “CA”, “Advocate”

How to Incorporate a New LLP Registration in India?

Below is the step-by-step process to incorporate a new LLP registration in India:

Step 1: Obtain Digital Signature Certificate (DSC)

Each designated partner must get a Digital Signature Certificate. The DSC allows them to sign documents online in a secure and legally valid way. The Ministry of Corporate Affairs (MCA) requires a DSC to complete the registration process digitally. You can obtain the DSC from government-approved certifying authorities. This ensures the authenticity of documents filed during incorporation.

Step 2: Apply for Director Identification Number (DIN)

Every designated partner must apply for a Director Identification Number. A DIN is a unique identification number issued by the MCA. It helps the government identify and track directors or partners in companies and LLPs. To apply for a DIN, the partner needs to submit Form DIR-3 through the MCA portal, along with identity and address proof. The DIN stays valid for life and is used in all future filings.

Step 3: Name Reservation

You need to reserve a name for your LLP before incorporation. This is done by submitting the Form FiLLiP on the MCA portal. The name must follow the guidelines issued by the MCA, which include avoiding offensive words, identical or similar names, and restricted terms. A unique and valid name increases the chances of quick approval. You may suggest up to two names for review.

Step 4: Incorporation of LLP

To officially create the LLP, you must complete and file Form FiLLiP with all required information. This form asks for the LLP name, registered office address, details of designated partners, and other essential information. After successful verification, the MCA issues a Certificate of Incorporation. This certificate proves the legal existence of the LLP and allows it to begin business activities.

Step 5: Draft and File LLP Agreement

The LLP Agreement defines how the partners will operate the business. It clearly outlines the duties, rights, and profit-sharing ratio among partners. You must prepare this agreement on stamp paper of appropriate value based on the state. You must then file this agreement with the Registrar of Companies through Form 3 within 30 days of incorporation. The agreement provides a legal foundation for the LLP’s internal functioning.

Step 6: Apply for PAN and TAN

Once you receive the Certificate of Incorporation, you must apply for a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN) for the LLP. The PAN is necessary for filing income tax returns, and the TAN is required for deducting taxes at source. You can apply for both through the NSDL or UTIITSL portals. These numbers are essential for compliance with income tax laws.

Step 7: Open a Bank Account

To operate your business, you need to open a current account in the name of the LLP. You must submit the Certificate of Incorporation, LLP Agreement, PAN, and proof of the registered office to the bank. Most banks also ask for KYC documents of the partners. Once the account is active, you can use it for all financial transactions related to the LLP.

Post-Incorporation Compliance for LLPs

Here are the Post-Incorporation Compliance for LLPs in India:

1. File LLP Agreement (Form 3)

The LLP must file its agreement with the Ministry of Corporate Affairs through Form 3. This filing must take place within 30 days of incorporation. The agreement defines partner roles, capital contributions, profit-sharing, and decision-making rules. Late filing results in a penalty of Rs. 100 per day without any maximum limit.

2. Deposit Capital Contributions

All partners must deposit their agreed capital into the LLP's bank account. If the contribution exceeds Rs. 20,000, the partner must transfer it through banking channels. Cash is acceptable only for smaller amounts. This deposit confirms each partner’s financial participation.

3. File Annual Return (Form 11)

Form 11 is a summary of partner details and any structural changes in the LLP. The LLP must submit this form within 60 days after the close of the financial year, i.e., on or before 30th May each year. Non-filing attracts a daily penalty of Rs. 100.

4. File Statement of Accounts and Solvency (Form 8)

Every LLP must prepare and file Form 8 by 30th October each year. This form includes the financial position of the LLP, details of assets and liabilities, and a declaration of solvency. If the LLP’s turnover exceeds Rs. 40 lakh or the contribution exceeds Rs. 25 lakh, a statutory audit becomes compulsory.

5. File Income Tax Return (ITR-5)

An LLP must file its income tax return using Form ITR-5. If the LLP is not subject to audit, the due date is 31st July. If it is subject to audit, the due date is 31st October. Timely filing helps avoid late fees and interest under the Income Tax Act.

6. File DIR-3 KYC for Designated Partners

Each designated partner must update their KYC details through Form DIR-3 KYC once every financial year. This filing must be done on or before 30th September. If a partner fails to file it, the MCA deactivates their DIN and charges a penalty of Rs. 5,000.

7. File Event-Based Forms

Certain events require immediate reporting to the MCA. The LLP must file:

• Form 3 for changes in the LLP Agreement
• Form 4 for changes in partners or designated partners
• Form 5 for changes in the LLP name

Each of these must be filed within 30 days of the relevant event.

8. Conduct a Statutory Audit (If Applicable)

If the LLP’s annual turnover exceeds Rs. 40 lakh or its capital contribution crosses Rs. 25 lakh, it must appoint a Chartered Accountant to conduct an audit. The audit report must be attached to Form 8 at the time of filing.

9. Avoid Penalties and Strike-Off

If the LLP fails to file mandatory forms like Form 8 or Form 11 for two or more consecutive financial years, the MCA may initiate strike-off proceedings. Regular compliance helps the LLP remain active and avoids high penalties.

Conclusion

A Limited Liability Partnership (LLP) is a smart and practical business structure. It offers a perfect mix of legal protection, operational flexibility, and easy compliance. This makes it ideal for startups, small businesses, and professionals. LLP ensures limited liability and a separate legal identity for the business. It also helps build trust among clients and partners. Early registration boosts credibility and provides legal safety. Choosing an LLP gives a strong base for long-term business success and growth. If you want to register a Limited Liability Partnership (LLP), contact Online Legal India. They have experts to assist you.