REQUIREMENT FOR FORMATION OF LIMITED LIABILITY PARTNERSHIP LIMITED LIABILITY PARTNERSHIP (LLP) IN INDIA

Partner

There should be atleast 2 persons (natural or artificial) are required to form a LLP. In case any Body Corporate is a partner, than he will be required to nominate any person (natural) as its nominee for the purpose of the LLP.

Following can become a partner in the LLP

1. Company incorporated in and outside India
2. LLP incorporated in & outside India
3. Individuals resident in & outside India

Contribution

In case of LLP, there is no concept of any share capital but every partner is required to contribute towards the LLP in some manner. The said contribution can be tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, and other agreements to contribute cash or property, and contracts for services performed or to be performed.

In case the contribution is in intangible form, the value of the same hall be certified by a practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained by the Central Government. The monetary value ofcontribution of each partner shall be accounted for and disclosed in the accounts of thelimited liability partnership in the manner as may be prescribed.

The LLP Agreement must specify the contribution intended to be paid all the members and the form in which it will be paid.

Designated Partners

‘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.

Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India Provided that in caseof a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners.

Designated Partner shall be:

1. Responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnershipagreement; and
2. Liable to all penalties imposed on the limited liability partnership for any contravention of those provisions.

Explanation.—for the purposes of this section, the term “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 Partners Identification Number (DPIN)

Every Designated Partner is required to obtain a DPIN from the Central Government.

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 Form 7 to Central Government and submitting the physical application along with necessary identity and Address proof of the person applying with prescribed fees. However if an individual already holds a DIN (Director Identification Number), the same shall deemed to be the DPIN (Designated Partner Identification Number), and for the purpose, an intimation to be made in Form 25 with Central Government.

It is not necessary to apply Designated Partner Identification Number every time you are appointed partner in a LLP, once this number is allotted it would be used in all the LLP’s in which you will be appointed as partner.

Digital Signature Certificate

All the forms like eForm 1, eForm 2, eForm 3 etc which are required for the purpose of incorporating the LLP are filed electronically through the medium of Internet. Since all these forms are required to be signed by the partner of the proposed LLP and as all these forms are to be filed electronically, it is not possible to sign them manually. Therefore, for the purpose of signing these forms, at least one of the Designated Partner of the proposed LLP needs to have a Digital Signature Certificate (DSC).

The Digital Signature Certificate once obtained will be useful in filing various forms which are required to be filed during the course of existence of the LLP with the Registrar of Companies.

LLP Name Approval, Prohibited word, Words which require Approval

Selection of the name for the proposed LLP to be incorporated is one of the important processes of the entire incorporation process, ideally the name of the LLP should be such which represents the business or activity intended to be carried on by the LLP. Before selecting the name of the LLP, it is necessary to evaluate the proposed name under the following given criteria:

• LLP with Similar Name: The proposed name of the LLP should not be similar to the name of the Company or LLP, which is already registered in India.For example:Name of Company already registered: XYZ Consultants Pvt Ltd Name of Proposed LLP: XYZ Consultants LLP Whether Proposed Name would be available: No

• Prohibited Word: The Ministry of Corporate Affairs of India has prescribed certain words, which should not form part of the name of LLP intended to be incorporatedin India, such words are prohibited under The Emblems and Names (Prevention of improper use) Act, 1950. Following is the List of Prohibitive words alongwith reasons:-

1. 1. National, Union, Central, Federal, Republic, President, Rasthrapathi, Small Scale Industries, Cottage Industries, Financial Corporations, Municipality, Panchayat or any other word imparting connection Union or State Government : It signifies Government Patronage or Participation.
   2. State together with the name of Particular State for e.g. Delhi state corporations Ltd : Itgives an impression that the state is also participating in the paid up share capital of the company.
   3. Ashoka Chakra, Dharma Chakra, Name of Parliament , State Legislature : Prohibited Under Emblems & Names (Prevention of Improper Use ) Act, 1955.
   4. Rama Krishna Math, Ramakrishna Sarada Mission, Bharat Scouts, Interpol : Prohibited Under Emblems & Names (Prevention of Improper Use ) Act, 1955.
   5. Chhatarpait Shivaji Maharaj, Mahatma Gandhi or the name of any Prime Minister/President of India : Prohibited Under Emblems & Names (Prevention of Improper Use ) Act, 1955.

• Words Based on Approval: Various government regulatory authorities operatingin India like Securities & Exchange Board of India, Reserve Bank of India, has prescribed certain words, which if forms part of the name of the proposed LLP to be incorporated, requires there first hand approval.Following is the List of Words which requires approval alongwith the Name of the Authority from whom approval is required:-
  1. Venture Capital/Venture Capital Company/Venture Capital Fund/Venture Capital Finance Company:- Department of Economic Affairs/ SEBI
  2. Stock Exchange/Mutual Funds:- Securities Exchange Board of India (SEBI)
  3. Name belongs to registered trade mark:- Owner of the registered trade mark
  4. Insurance:- Insurance Development Regularity Authority of India (IDRA)
  5. Bank, Banker, Banking:- Reserve Bank of India (RBI)
  6. Names reserved for Foreign LLP/Companies: In case Foreign LLP/Companies have reserved their name under rule 18 of the LLP Rules 2009, than that name will not be applicable for forming of LLP to persons other than the Foreign LLP/Company

LLP Agreement

For the purpose of forming a LLP, there should be agreement between the partners interested in forming the LLP to be known as LLP Agreement. The said Agreement forms the basis of the formation of LLP and lays down its founding structure. The LLP agreement is an agreement between the Partners and between the LLP & its partners.

The basic contents of Agreement are:

• Name of LLP
• Name of Partners & Designated Partners
• Form of contribution
• Profit Sharing ratio
• Rights & Duties of Partners

In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable. It is possible to amend the LLP Agreement but every change made in the said agreement must be intimated to the Registrar of Companies.

Registered Office

The Registered office of the LLP is the place where all correspondence related with the LLP would take place, though the LLP can also prescribe any other for the same. . A registered office is required for following purposes:

1. All the statutory records and books of accounts of the LLP will be maintained at this office.
2. The Jurisdiction of Registrar of Companies is based on the registered office of the LLP

At the time of incorporation, it is necessary to submit proof of ownership or right to use the office as its registered office with the Registrar of Companies.

courtesy

Cheque Bouncing in Dubai

The UAE legal system considers the cheque instrument of payment as substitute of money, consequently the non-payment of cheque can be pursued not only through civil litigation but also as a crime that makes necessary to inflict criminal punishment under criminal proceeding as per Article Art. 401 of the Federal Penal Code No. 3 of 1987.

The drawer shall be punished with imprisonment that may not be less than 1month and not more than 3years or with fine not less than Dh100 and not exceeding Dh30,000. Moreover, the Civil Court may order in addition the punishment of publishing the extract of the judgment in a daily newspaper, to withdraw the cheque book of the convicted and to ban granting new cheque book for a period to be decided by the court.

Just a quote from an article "Fraud, including bouncing cheques and the non-payment of bills (including hotel bills), is regarded seriously in the UAE and can result in imprisonment and/or a fine. Bail is generally not available to non-residents of the UAE who are arrested for crimes involving fraud."

(c), Copyright 2009, Shreerang ketkar, All rights reserved

Resolution - Not to fill the vacancy of Director

In certain cases a Company may decide to reduce the number fo directors, in such cases the company will decide not to fill the vacancy created by the retiring director. listed below is the specimen resolution to be passed in the Annaul General Meeting.

"Resolved that Mr. _______, a director liable to retire by rotation, who does not seek re-election, be not re-appointed a Directorof the Company.

Resolved Further that the vacancy, so created on the Board of Directors of the Company, be not filled."

Preference Shares

The maximum period for which preference shares can be issued shall not exceed 20 years (according to Section 80A). This means that preference shares must be redeemed within a period of 20 years from the date of issue and companies are prohibited from issuing irredeemable preference shares.

Where shares are redeemed otherwise than from the proceeds of a fresh issue, the company is required to transfer, out of the profits of the company which would otherwise be available for dividends, to a capital redemption reserve account a sum equal to the nominal amount of shares redeemed. The reserve account is treated as if it were paid-up share capital. This is based on the fundamental principle that the capital of the company must be maintained intact. The subscription made to the capital of a company cannot be taken back, but can be converted into liquid cash by the sale of relative shares in the market. For the same reason, the redemption of preference shares must be done only out of the company's profits. Such redemption is an exception to the prohibition contained in Section 77 of the act as the company cannot buy its own shares.

In the case of cumulative preference shares, the fixed dividend accumulates to the credit of the preference shareholder.

A preference shareholder is a shareholder of the company and not its creditor, and hence cannot exercise the rights of a creditor if the company fails to redeem the shares on the due date. However, the shareholder may approach the court for the winding-up of a company in default on just and equitable grounds.

The redemption of preference shares does not reduce the authorized and issued capital of a company. Where preference shares are redeemed, the company has the power to reissue preference shares up to the nominal amount of the shares redeemed.

Another distinctive feature of preference shares is that the capital redemption reserve account may be applied in paying for unissued shares of the company to be issued to members as fully paid bonus shares.

preference shareholders also have a right to vote on every resolution placed before the company at any meeting if dividends due on preference capital or any part of such dividends has remained unpaid. In the case of non-cumulative preference shares, the right to vote arises if the dividend is in arrears in respect of a period of not less than two years ending with the expiry of the financial year immediately preceding the meeting or in respect of an aggregate period of not less than three years in the six years ending with the expiry of the financial year. The voting right on a poll is in the same proportion as the capital paid up in respect of preference shares is to the total paid-up equity capital of the company.

The rate of dividends on preference shares or convertible preference shares should not exceed 300 base points over the prime lending rate of the State Bank of India on the date of the board meeting at which the issue of such shares is recommended.

Foreign institutional investors can invest up to an individual limit of 10% with an aggregate limit of 24% by all foreign institutional investors; this can be increased to 49% with the approval of the board or general meeting of the investee company. Similarly, non-resident Indians can invest in a Indian company with an individual limit of 5%. The non-resident Indian portfolio investment can be up to 10%, and can be increased to 24% with the approval of the board or general meeting of the investee company. These percentages refer to the paid-up capital of the Indian company.