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30
May
17
What are the Essentials of an LLP Agreement?

LLP agreement must be written amongst the partners while setting up an LLP. LLP agreement must include the essential information regarding such LLP agreement with respect to the partners, profit sharing ratio, capital contribution, board meetings, mechanism for dispute resolution, winding up of the firm, etc. Under LLP act 2008, schedule I provides provisions of LLP registration in India. It has general template of agreement commonly suits the LLP.

 There are some critical features such as drafting of a specific LLP agreement because there many forms of unique nature and contribution of each partner in terms of investment, time, differs from business to business. Following are the LLP agreement essential clauses which every firm must take into account while drafting

Definition Clause

Definition clause is considered as the essence of any LLP agreement. LLP agreement must contain various definitions such as the definition of designated partners, the accounting period, business of LLP and the name with which the LLP will be known. Agreement must have the full address of the registered office of the LLP as well as the address of all the partners.

Capital Contribution

The partners needs to specify the amount of capital that each of them contributes to constitute the LLP. Capital contribution or Capital of LLP is the amount that each of the partners invest in the LLP. Capital can be any form of fund, cash, assets or in kind .

Business of LLP

LLP members must clearly specify the nature of the Business and areas the in which Business deals with. The agreement must include the place of business where the business of LLP shall be carried on as well the commencement date of such business.

Rights and Duties

Rights and duties of the members mutually agreed by them must be mentioned in the LLP Agreement. the provisions of Schedule I of the Limited Liability Act, 2008 will apply as given in Section 23(4) of the said act. In the absence of such separate agreement between the partners about such rights and duties, etc.,

Profit Sharing Ratio

LLP Agreement must have particular mention ratio in which the profits and the losses of the business will be shared among the partners. The partners must clearly state the amount of profit that each member receives, or the amount of the loss that they’re liable for will be set out in the agreement. The agreement could also provide for part of the profits to be paid as interest calculated on the members’ capital contributions.

Dispute Resolution Mechanism

LLP agreement is considered fully formed agreement if it consist of provision for resolving disputes between the members. In a normal course, every LLP prefers Arbitration as a mode of resolving disputes. Such LLP is governed by the Arbitration and Conciliation Act, 1996.  It is suggested that every LLP agreement must incorporate a clause providing for a dispute resolution mechanism to avoid disputes that result in lengthy and expensive litigation.

Indemnities

The LLP agreement should contain a provision regarding indemnities. Protection of its members from any kind of liability or claim incurred by them while carrying the business of the LLP must consist of clause of indemnity states.The members should also agree to indemnify the LLP for the loss caused by it due to any breach committed by them.

Restrictive Covenants

Members of can be under various restrictions on its members. Every LLP agreement must contain a provision regarding such restrictive covenants. For instance, a member after leaving the firm might be prohibited from carrying on a competitive business with that of a firm. Such restrictions are called restrictive covenants which are important to protect the legitimate interests of the LLP and an LLP agreement must make a mention of it.

Winding Up

The partners must specify the term of validity of such LLP agreement whether it is a perpetual agreement or is valid for a fixed period.LLP agreement must also provide some situations in case the partners have agreed to wound up the affairs of the LLP either voluntarily or by an order of Tribunal for the specific violations as mentioned in Section 64 of the Act.

Miscellaneous Provisions

The members must also make provisions regarding admission of new partners, retirement as well as the death of a partner, etc. While drafting LLP agreement. The agreement must provide guidelines for the expulsion of partners as well as when can an LLP agreement be renewed. Further, such agreement must include any other relevant clauses as agreed upon by the partners of an LLP.

Conclusion

A complete LLP agreement must contain all the features given above. We should also consider some of the various other clauses that needs to be incorporated in an agreement depending on the type of the business carried on by an LLP. Keep things in mind the schedule only provides for limited clauses. But as a matter of prudence, there must be a detailed agreement for registering an LLP.

LLP agreement is an important feature for the success of every LLP mainly depending upon the manner in which the partners have drafted the. Therefore, it is important that the LLP Agreement must be drafted with the help of expert knowledge which is in a position to foresee the future needs of the firm and understand the amount of flexibility required to adjust with the changing circumstances for the smooth and efficient functioning.

11
Mar
17
Mandatory compliance for LLP

Compliance is a process of filing certain forms or information to the central government as the statutory requirement. Compliance follows the principle of maintenance where you need to spend some money to maintain. The company is liable to certain compliance which needs to be completed with a month from Date of Incorporation.

 It helps the entrepreneur to do business with comfort and ease. Registered LLP needs to file Annual returns and statement of account for each financial year. Returns are mandatory to be filed whether doing any Business. 

There are basically three mandatory compliance requirements to be followed by LLPs.

Filing Annual Return

Annual Return or Form 11 is a summary or an indication of any change in the management. The annual return should be filed in Form 11 to the Registrar within 60 days from the closure of a financial year.

Filing Annual Accounts or Statement of Accounts or P&L and Balance Sheet

Books of Accounts are maintained in LLPs through Double Entry System. LLPs also need to prepare a Statement of Accounts every year ending on 31st March.

In some cases, LLPs should file Form 8 with the Registrar of Companies on or before 30th October every year.

Form 8 is applicable to the LLPs registered till 30th September 2015.

In case registration after 1st October 2015, the Annual Statements should be filed in 2017.

LLP Stationary

LLP seal is required to open a bank account and for application of PAN. Hence LLP should have two rubber seals around with LLP name and LLP name with designation can be purchased on Incorporation of the company.

Letter Head is an important stationary. There are some other documents which are required official documents and invoice.

Books of Account maintenance is a requirement of every LLP. It can be maintained manually as well electronically (Tally or QuickBooks).

LLP Bank Account opening

  • Copy of LLP agreement
  • Copy of Incorporation document or DPIN
  • Copy of LLP registration certificate issued by the ROC
  • Copy of the resolution to Open bank Account.
  • List of Authorized people duly signed and attested by the designated partner.
  • Copy of PAN allotment letter.
06
Mar
17
LLP registration for NRI and Foreign Nationals

Limited liability partnership is firm with Limited liabilities. LLP is one of the newest kind of firm. It is a unique type of firm which gives the opportunity of ‘partnership’ and ‘company’ in a single business entity.LLP was introduced under Limited Liability Partnership Act, 2008. LLP is superior than the Partnership firm. In LLP there is an option of raising equity by which chances fundraising decreases in Start-up.

In LLP must have at least two designated partners in these one must be Citizen as well as the resident of India. NRI and Foreign national mainly invest in the private limited company. Since, it is allowed to have 100% FDI under the automatic route. In India, the Government has now allowed 100% FDI in LLP under the automatic route.

Requirement for Filing the agreement

Digital Signature Certificate should be obtained by the all proposed partners and the proposed partners of the LLP. After DSC, partners required to obtain DPIN (Designated Partner Identification Number).Documents must be signed by Foreign Nationals and NRI copy of documents attached to it.

Documents to be attached for Foreign Nationals are:

  • Copy of Passport
  • Address Proof
  • Rest of the documents are same as for the Indian National.

All the Documents are to be notarized by the authorized professionals.

Documents required for foreigners residing in India

  • Resident Permit
  • Passport
  • Visa
  • Application form
  • Passport Photograph

Name Approval of LLP

Once the DIN is obtained, an application for reservation of name of LLP is made with the Ministry of Corporate Affairs (MCA). There need to be six options for names. It must not be generic and needs to have the distinct & unique structure according to the MCA regulations. After approval of name, the application for incorporation made within 60 days.

LLP Registration Process for NRI and Foreign Nationals

  • Obtain DSC and DIN.
  • Approve name of the LLP from the Indian Government
  • File an application for incorporation of LLP with Government.
  • File LLP agreement within 30 days from the date of incorporation of LLP

 Filing for Incorporation of an LLP

LLP application can be filed by the partners with MCA along with the required documents including the subscribers sheet. After satisfaction that all the requirement of incorporation of LLP has been duly complied as per the provision of LLP Act 2008, the registrar of companies shall issue the Certificate of Incorporation and after getting COI the partners can commence their business.

Filing LLP Agreement

LLP agreement must be duly signed and filed by the partner within 30 days if the agreement is not filed within the period of 30 days, it may attract the heavy penalty on the partners who are liable for such default.

How can Foreign National and NRI register an LLP?

In India, LLP registration started in 2008. This has become quick and popular amongst small businesses owing to the low registration cost and lesser compliance requirement as compared to a private limited company.

India Entry for NRIs and Foreign Nationals

Company Incorporation is the most preferred entry strategy in India for NRIs and Foreign Nationals. This is because 100% FDI under the automatic route which has been the main reasons for the popularity of private limited company amongst NRIs and Foreign Nationals.

LLP Registration and investment in India was a cumbersome process before November 2015.Due to this company registration was preferred over LLP registration by NRIs and Foreign Nationals. But, after the relaxation of FDI norms in November 2015, it is easy to register LLP by NRIs and Foreign Nationals. This is considered an ideal investment vehicle for establishing a small business in India with FDI policy.

The opening of Branch Office requires an approval from RBI. In this case, only well-established businesses having good track record in terms of financials are allowed to open a branch office in India.

02
Mar
17
Duties and Rights in LLP

Limited Liability Partnership is a business firm with limited liability. LLP is giving you the advantage of ‘Company’ and ‘partnership’. LLP was passed under limited liability partnership act, 2008.This type of firm is superior to the partnership. In this case single person is not responsible for any misconduct. LLP do not have the concept of shared capital but the contribution of partners.

LLP is a unique form of Business in which partners are limited to their capital contribution.LLP requires fewer compliance formalities. Business is flexible because partners can decide how they will individually contribute to the business operations.LLP is beneficial because no tax is levied on a distribution of profits amongst the partners.

Duties and Rights of the partner in LLP

  • In LLP each partner has the right to take part in the conduct of Business.
  • In LLP every partner has the right to access copy of the books of account.
  • In LLP every partner is bound to attend diligent duties in the conduct of business.
  • In LLP business there are factors which similar to the corporate such legal duties and obligations of limited partners.
  • Partners in a limited liability partnership have a full managerial function.
  • The difference in the process of ordinary matters may decide by the majority of the partners.
  • Every partner has the right to present his/her opinion before the matter is decided.
  • Legal representative has the right to access in case partners dies.
  • The legal right of partners is the capacity to transact business with the limited liability partnership.
  • Partners accept full personal responsibility for a partnership liability.
  • Partners have right to vote without incurring liability. They are allowed to vote for amendments and for the dissolution.
  • Partners have the right to vote for fundamental changes.
  • Property rights are according to the development in the system of capital.

Authority of partners

  • Submission of the dispute related to the Business.
  • Partners can open an account on behalf his/her name.
  • Compromise and relinquish on any portion by the claim of LLP.
  • The suit can be withdrawn on behalf of the LLP.
  • Acquire and transfer immovable property of LLP.
20
Feb
17
Types of Companies under Ministry of Corporate Affairs

Ministry of Corporate affairs is an Indian ministry that is primarily concerned with Companies Act, 2013, Companies Act, 1956, Limited Liability partnership act 2008 and other  rules and regulations. The responsibility of this Ministry is regulation of Indian enterprises in Industrial and Services sector.

Companies can be registered in India

Private Limited Company-It is the type of company recommended for Business. The cost of registration of the private limited company is cheaper than other forms of a company. Private limited should have a minimum of 2 members and can have maximum 200 members. In this company liabilities are limited and it has some features of a partnership.

People mostly prefer this of the company for fundraising. The degree of operation and ownership can easily separate in this type of company. Business can be exited without any hassle. In this members are limited to only contribute towards a number of shares.      

One Person Company-It is the type of company which can be started by a Single member.OPC is the latest form of company in Companies Act, 2013. One person can become the director as well as the shareholder. Similar to the private limited company as the degree of operation and ownership are on the separate basis. 

OPC gives wings in the hand of Sole proprietor to form the company under with full control. It is done without any interference of the third person. This type is easy for an entrepreneur to directly target the market. Fundraising from banks and the financial institution is easy. People who are Indians and resident in India can form OPC.     

Public Limited Company-This is a publicly held company. A large amount of capital investment can easily be obtained. These types companies are considered to be a more transparent business model as compared to other business structures. Investors get the choice of transferring their ownership in the company without any hassle by just selling the shares.

Section 8 Company-These companies are basically formed to encourage arts science, sports, education, research, social welfare, religion, charity, etc. These kinds businesses do not play any vital role in profit. Company Intends to prohibit the payment of any dividend to its members. These companies are the non-profit making company.

Section 8 company was incorporated mainly for welfare purposes. Previously, it was defined as Section-25 Company. Due to commencement of Companies act, 2013 it was called as Section-8 Company

Nidhi Company- Nidhi Company comes from the Hindi word ‘Nidhi’ means fund. These are the  NonBanking financial corporation. These are also known as mutual benefit funds. Nidhi company is known in the corporate scenario is member benefits company. Companies are formed for the welfare of the members and to increase saving habits.  

Other types of Companies

There are some more types companies which can be registered in India.

  • Companies that have unlimited liability
  • Producer Company
  • Joint Venture Company
02
Feb
17
Difference between LLP and Sole Proprietorship

Limited liability and Sole Proprietorship are the two different aspects of business .Before starting any business an entrepreneur should keep in mind what should he/she prefer so that his/her business grow positively.

Here are some points which help you to define difference between LLP and Sole Proprietorship

Description

Limited liability partnership is a business entity in which partners have limited liability and have a separate legal entity.LLP also provides the flexibility of internal structure .Any misconduct in the business is not the responsibility of one person .

Minimum 2 members are compulsory and Maximum 20 members can be there.

Sole Proprietorship, only one person can be the member and it does not have a separate legal entity. There is no legal distinction between business and the Owner. Owner is responsible for all losses and profits.    

Choice of Name

In LLP promoters can provide the name  and get it approved by the Registrar of the Company. Approval is given to only those name which are non-objectionable.

Sole Proprietorship names can be chosen by promoters .No approval is needed regarding usage of the name. But it is preferred to avoid trademark names. 

Registration

LLP has to be registered with Registrar of Company and Certificate of Incorporate has to be issued.

Sole Proprietorship, there is no need of Registration. A sole proprietorship does not require any formality which is there in the LLP. Business can be opened whenever owner wants.Sole proprietorship requires less paperwork.

Participation

In LLP foreign nationals can take part in a partnership which follows RBI guidelines. In these, at least 1 member has to be Indian Resident.

In Sole Proprietorship there are no such made regarding participation .

Applicable Acts

LLP was passed under partnership act 2008 which contains all the rules and regulations.

 In Sole Proprietorship needs no act has been passed.

Taxability

LLPs tax rates are charged 30 % in addition to the service charge.

In Sole Proprietorship tax slabs are applicable according to the personal income.

Control and liability

 LLP is organized in according to the state laws. LLPs have control over business management in partnership.Task and obligations are divided based on the partnership agreement. The agreement includes the division of costs and profits. this type of business entity helps shield the owners' personal assets from attachment to satisfy debts of the business.

 In Sole proprietor person has complete management control over business.

Audit

In LLP firm is audited if there is a contribution of 25,00,000 and turnover crosses 40,00,000

In Sole Proprietorship, an audit is not applicable.

In LLP business partners frame their business idea and then apply all the formalities required for DSC-Digital Signature Certificate, DIN-Director Identification Number, Consent letter and subscription letter. 

These formalities are not required Sole Proprietorship Business.

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