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It is a new phenomenon in Indian context. The Parliament of India has enacted (Limited Liability Partnership Act, 2008) with effect from April 1, 2009. Therefore, now the Indian laws permits to incorporate LLP.

Following are silent features of LLP

1. It shall be a body corporate and a legal entity separate from its partners.
2. Perpetual succession
3. The liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner wouldbe liable on account of the independent or unauthorized actions of other partners
4. The partners have the right to manage the business directly
5. Minimum of 2 partners and no maximum number.
6. The rights and duties of partners in LLP, will be governed by the agreement between partners.
7. Liability of the partners is limited to the extent of his contribution in the LLP.
8. Audit of the accounts is required only if the contribution exceeds Rs. 25 lakhs by the partners or annual turnover exceeds Rs.40 lakhs.
9. It is mandatory for the partners to have DPIN

Procedure for Establishment of LLP

STEP – I

Decide on the Partners and the Designated Partners

A LLP can be incorporated with a minimum of at least two partners who can be Individuals or Body Corporate through their nominees. Further for incorporating an LLP, of the total number no. of partners, at least two shall be Designated Partners, of which at least one must be an Indian Resident.

Parameters for deciding the Partners and Designated Partners:
Atleast Two Partners; Individuals or Body Corporate through individual nominees.
Minimum of Two Individuals as Designated Partners, of total no. of Partners.
Atleast One Designated Partner to be Resident Indian.

A person ‘Resident in India’ means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one year.

‘Designated Partner’ means a partner who is designated as such in the incorporation documents or who become a designated partner by and in accordance with the Limited Liability Partnership Agreement

STEP – II

Obtain Designated Partner Identification Number (DPIN) and a digital signature certificate

DPIN is an eight digit numeric number allotted by the Central Government in order to identify a particular partner and can be obtained by making an online application in eForm 7 to Central Government and submitting the physical application along with necessary identity and Address proof of the person applying with prescribed fees.

STEP – III

Decide on the name of the LLP and check whether it is available.

The next step is to decide the name for the proposed LLP to be incorporated, anyone intending to incorporate an LLP has to evaluate his proposed name under the prescribed parameters and make an application in Form 1of Rule 18(5) of the Limited Liability Partnership Act 2008, for reservation of the desired name. The name of the limited liability partnership shall not be similar or identical with Company or LLP already registered in India and it should not contain words prohibited under the law.

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STEP – IV

Draft the LLP agreement

The next step is drafting of Limited Liability Partnership Agreement governing the mutual rights and obligation of the partners and among the LLP and its partners.

The basic contents of Agreement are:

The basic contents of Agreement are:
Name of LLP
Name of Partners & Designated Partners
Form of contribution
Profit Sharing ratio
Rights & Duties of Partners
Proposed Business
Rules for governing the LLP

The Agreement can be drafted before or after Incorporation of the LLP

STEP – V

File the LLP Agreement, incorporation documents

Next is the filing of Incorporation documents, consent of Partners and declaration electronically through the medium of e-forms prescribed with the Registrar of LLP for incorporation of the LLP on payment of prescribed fees based on the total monetary value of contribution of partners in the proposed LLP.

eForm 2: Incorporation Document

This is an informative document setting down the details of LLP, its Partners including designated partners along with their amount of contribution and consent for forming a Limited Liability Partnership to carry on a lawful business with profit motive along with declaration stating that all the requirements of Limited Liability Partnership Act, 2008 regarding incorporation of LLP in India have been complied with.

eForm 3: Details of LLP Agreement

This form provides for the necessary information in respect to the LLP Agreement entered into between the partners.

eForm 4: Consent of Partners

Consent of each partner to become a partner of Limited Liability Partnership along with their address and identity proof to be filed with the Registrar of Companies.

Subscription Sheet: Just like in case of Company formation, the partners are required to subscribe their names along with signatures to the subscription sheet, which shall be witnessed by any chartered Accountant/Company Secretary/Advocate in practice.

eForm 3 & 4 are required to filed within 30 days of the incorporation

STEP – VI

Obtain the Certificate of Incorporation

After the Registrar is satisfied that all the formalities with respect to the incorporation has been complied, he will issue a Certificate of Incorporation as to formation of the LLP within maximum of 14 days from date of filing of documents . The Certificate of Incorporation issued shall be the conclusive evidence of formation of the LLP.

1. Foreign investors planning to open a branch in India are required to seek governmental approval before investing in India. Some approvals are although automatic inspite of that necessary application is required for such approvals. Special Permission could be obtained to invest over and above the regular percentage as prescribed under Annexure B of chapter 10 of Foreign Exchange Management Act 1999. The Reserve Bank of India and FIBP are monitoring & Regulatory Authority in this regard.

   BRANCH OFFICE

Foreign companies are allowed to set up branch office in India for the purpose of following activities :

1. export/import of goods
2. rendering professional or consultancy services
3. R&D, promoting technical or financial collaborations,
4. representing the parent company, acting as buying/selling agents
5. rendering services in IT and development of software
6. rendering technical support to the products supplied by the parent/group companies foreign airline/shipping companies.

   Such branch offices could be established with the approval of the government of India and may remit outside India profit of the branch, subject to applicable Indian Rules & Regulation.

   LIAISON OFFICE/REPRESENTATIVE OFFICE

   A Liaison Office could be established with the prior approval of appropriate Government Authorities as prescribed under the prevailing Indian Rules & Regulations. The Liaison Office can undertake the activities which are confined to collection of information, promotion of exports/imports and facilitate technical/financial collaborations. However, it cannot undertake any commercial activity in any manner.

   PROJECT OFFICE

   Foreign Companies planning to execute specific projects in India can set up a temporary project/site offices in India for carrying out activities only relating to the project for which it has setup project office. The Government of India has now granted general permission to foreign entities to establish project offices subject to terms & conditions.

   LIMITED LIABILITY PARTNERSHIP (LLP)

   It is a new phenomenon in Indian context. The Parliament of India has enacted (Limited Liability Partnership (LLP) Act of 2008). Therefore, now the Indian laws permits to Incorporate LLP. It shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. The liability of the partners would be limited to their agreed contribution in the LLP. Further, no partner would be liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful business decisions or misconduct. LLP is an alternative corporate business module that provides the benefits of limited liability of a Company but allows its members the flexibility of organizing their internal management on the basis of a mutually-arrived agreement, as is the case in a partnership firm.

   This module is recommendable for small and medium enterprises in general and for the enterprises in services sector in particular.

   JOINT VENTURE COMPANY

   Joint Venture Companies are the most preferred module of corporate entities for Doing Business in India to achieve specific objectives of a partnership like temporary arrangement between two or more firms. JVs are advantageous as a risk reducing mechanism in new-market penetration, and in pooling of resource for large projects. The Company incorporated in India, even up to 100% foreign equity, are at par at domestic companies. A Joint Venture may be any of the business modules available. There are no separate laws for joint ventures in India. They, however, present unique problems in equity ownership, operational control, and distribution of profits (or losses).

   SUBSIDIARY COMPANY

   A subsidiary, in business matters, is an entity that is controlled by a separate entity. The controlled entity is called a company, corporation, or limited liability company and in some cases can be a government or state-owned enterprise, and the controlling entity is called its parent (or the parent company). The reason for this distinction is that a lone company cannot be a subsidiary of any organization; only an entity representing a legal fiction as a separate entity can be a subsidiary. While individuals have the capacity to act on their own initiative, a business entity can only act through its directors, officers and employees.

   Note that contrary to popular belief, a parent company does not have to be the larger or “more powerful” entity; it is possible for the parent company to be smaller than a subsidiary, or the parent may be larger than some or all of its subsidiaries (if it has more than one). The parent and the subsidiary do not necessarily have to operate in the same locations, or operate the same businesses, but it is also possible that they could conceivably be competitors in the marketplace. Also, because a parent company and a subsidiary are separate entities, it is entirely possible for one of them to be involved in legal proceedings, bankruptcy, tax delinquency, indictment and/or under investigation, while the other is not.

   The most common way that control of a subsidiary is achieved is through the ownership of shares in the subsidiary by the parent. These shares give the parent the necessary votes to determine the composition of the board of the subsidiary and so exercise control. This gives rise to the common presumption that 50% plus one share is enough to create a subsidiary. There are, however, other ways that control can come about and the exact rules both as to what control is needed and how it is achieved can be complex.

   Subsidiaries are separate, distinct legal entities for the purposes of taxation and regulation. For this reason, they differ from divisions, which are businesses fully integrated within the main company, and not legally or otherwise distinct from it. Subsidiaries are a common feature of business life and most if not all major businesses organize their operations in this way over the world.

Foreign companies can set up wholly-owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy. The wholly-owned subsidiary may be either of the following business modules:

1. Private Limited Company
2. Public Limited Company
3. Sole Proprietorship

Foreign Companies can also set up their operations in India through the business modules:

1. Liaison Office/Representative Office
2. Project Office
3. Branch Office

Such offices can undertake any permitted activities. The following business activities are prohibited.

The Company has to register itself with Registrar of Companies (ROC) of respective states where the registered office of the company is likely to be situated, within 30 days of setting up a place of business in India.

PRIVATE LIMITED COMPANY AS A SUBSIDIARY

A private limited company has the following features:
Number of shareholders is limited to fifty excluding its present & past employees;
Shareholders’ right to transfer shares is restricted; and
Prohibition on invitation to the public to subscribe for any shares in or debentures of the company.
Prohibits any invitation or acceptance of deposit from persons other than its members, directors or their relatives.

PUBLIC LIMITED COMPANY AS A SUBSIDIARY

A Public Limited company has the following features:
It must have at least seven members.
A public company is not authorized commence business immediately on receipt of Incorporation certificate. In order to be eligible to commence business as a as a corporate body, it must obtain another certificate called “Certificate of Commencement of Business “.
It must publish a prospectus or file a statement in lieu of a prospectus before it can start transacting business.
A public company is required to have at least three directors.
It must hold statutory meetings within a period of not less than 1 month nor more than 6 months from the date at which the company is entitled to commence business.

There are several other provisions contained in the Companies Act 1956 which are applicable only to a public limited company those are relevant for day to day operation of the company.

Selection of right kind of business module depends upon so many factors. It is always advisable to consult a Chartered Accountants firm well versed in law before taking final decision in this regard as the matter has to be viewed from various angles which includes the applicability of the provisions contained under the Companies Act, 1956, Foreign Exchange Management Act, 2000 (FEMA), Income Tax Act, 1961 other applicable Indian Rules & Regulation of Reserve Bank of India and Ministry of Commerce & Industry.

It is also mandatory for Non resident investors or non resident shareholders to seek Government Approvals for Investing in India . The Govt. policy in the last couple of years has changed drastically in this regard. Foreign Investment Promotion Board (FIPB) & Reserve Bank of India (RBI) are the principle Monitoring & Regulatory Authorities in this regard. It should be inconformity with the sectoral cap on investment by person resident outside India under Chapter X of FEMA (Annexure B). Further Annexure A of the same chapter prescribed the activities which are prohibited or restricted.