What is an LLP?

A limited liability partnership (LLP) is a corporate entity that is structured like a partnership and offers the benefits of a company. The partners of an LLP have limited liability towards the organization and are not liable for the actions of another partner.

Section 2(n) of the Limited Liability Partnership Act, 2008 defines a ‘limited liability partnership’ as a partnership formed and registered under the Act. Further, Section 3, Chapter II of the LLP Act states that a limited liability partnership is a body corporate formed and incorporated under this Act having a legal entity separate from its partners and enjoying perpetual succession. Therefore, the addition/removal/death of a director does not pose a threat to the existence, rights, and liabilities of the limited liability partnership.
 

The Limited Liability Partnership Act

The Limited Liability Act (LLP Act) allows Indian businesses to combine professional expertise with new ideas and entrepreneurial initiatives and renders support for them to operate in an efficient and innovative way. A limited liability partnership allows its members to assume limited liabilities while structuring their company as a ‘partnership’.

While the LLP Act was enacted on 12 December 2008, the Act and Limited Liability Partnership Rules underwent subsequent amendments in 2021 and 2022 respectively. Some of the key amendments in 2021 focused on decriminalizing and compounding offenses, establishing special courts, penalties, and fees for small LLPs and startup LLPs, etc.

Regarding the 2022 amendment, the Ministry of Corporate Affairs amended the Limited Liability Partnership Rules, 2009 to Limited Liability Partnership (Second Amendment) Rules, 2022. The Rules have been amended with the main objective to improve the ease of doing business. With a total of nine Rules being amended and changes being brought about in several forms, the amended Rules pave the way toward scaling up discourse requirements for an LLP.
 

Key Changes: LLP (2nd Amendment) Rules, 2022

The amendments made under the LLP (2^nd Amendment) Rules are:
 

1. DINs increased from Two (2) to Five (5)

Rule 11(1) was amended to replace the word ‘two’ with ‘five’.

Impact: Prior to the amendment, the LLP Rules allowed for only two individuals to apply for Director Information Number (DIN) in the Form for Incorporation of Limited Liability Partnership (FiLLiP).

Post the 2022 amendment, the number of individuals allowed has been increased from two to five. Therefore, an individual who is an appointed director of a company, but couldn’t apply for a DIN, can now apply for such an allotment. The amendment is a step forward toward easing the procedure of appointing more than two Designated Partners (to a maximum of five Designated Partners) during incorporation.
 

2. Certificate of Incorporation to contain TAN and PAN

Rule 11(3) was amended to insert ‘and shall mention Permanent Account Number and Tax Deduction Account Number issued by the Income Tax Department’ after the words ‘Form 16’.

Impact: While the Rules provided for the issuance of Form 16 (Certificate of Incorporation) by the Registrar, the amended provision provides for the allotment of Permanent Account Number (PAN) and Tax Deduction Account Number (TAN) to limited liability partnerships along with the Certificate of Incorporation.

Earlier, limited liability partnerships had to apply separately for PAN and TAN. This added to the number of required procedures, and unlike SPICE+ (an integrated web form for companies establishing business in India), there was an absence of such a facilitator for ease of business as an LLP.

The amendment has, therefore, been made to align the incorporation process of LLPs to that of companies in India.
 

3. Relaxation in mentioning the Name of Authority                                                                                                                                             

Rule 19 of the Limited Liability Partnership Rules provides that if a limited liability partnership or a body corporate has a name similar to the name of a limited liability partnership incorporated subsequently, the LLP can apply to the Registrar under Form 23 (application for direction to Limited Liability Partnership to change its name to the Registrar) directing the subsequent LLP to change its name.
Impact: Earlier, when an application for such name change of a subsequent LLP was filed, Rule 19(4)(a) of the LLP Rules, 2009 required the person making such an application to ‘attach the authority under which he is making such an application’.
The 2022 amendment omits the requirement to attach the authority under which a person is making an application for the change of name of a subsequent LLP. This omission has been done to reduce the burden of compliances and facilitate ease of doing business for an LLP in India.
 

4. Signing of Statement of Accounts and Insolvency of LLPs

Under Rule 24(6) of the Limited Liability Partnership Rules, a ‘limited liability partnership's Statement of Account and Solvency shall be signed on behalf of the limited liability partnership by its designated partners’.

Impact: The amendment of 2022 provides that the Statement of Account and Solvency may now be signed on behalf of the LLP by an Interim Resolution Professional (IRP) or Resolution Professional (RP) or a Liquidator or LLP Administrator. This applies to conditions where the Corporate Insolvency Resolution Process (CIRP) has been initiated against the limited liability partnership under the Insolvency and
Bankruptcy Code, 2016 or the Limited Liability Act, 2008.

Prior to the amendment, the LLP Rules did not provide for provisions regarding the signing of a Statement of Account and Solvency of LLPs under insolvency.
 

5. Certification of Designated Partner

Rule 25(2) of the LLP Rules, 2009 mentions that if the annual turnover or contribution of an LLP during a corresponding financial year is up to five crore rupees or fifty lakh rupees respectively, the annual return of the LLP shall consist of a certificate from a designated director. Further, the rule explicitly mentions that the said director should be different from the signatory of the returns.

Impact: The 2022 amendment inserts a new proviso to superintend a situation where Corporate Insolvency Resolution Process (CIRP) has been initiated against the LLP. Per the amendment, such situations shall require an Interim Resolution Professional or Resolution Professional or a Liquidator or LLP Administrator to sign the LLP’s annual returns. Such cases shall, therefore, negate the requirement of certification from a designated director.
 

6. Form 29 Merged with Form 28

Prior to the amendment, under Rule 34(3) and 34(8), changes in:

• certificate of incorporation or registration of a foreign LLP,
• name or address of a person authorized to accept services on behalf of a foreign LLP in India,
• place of business of foreign LLP in India, or
• closure of business in India

had to be filed in Form 29 of the LLP Rules, 2009.
However, under Rule 34(3), changes in:

• incorporation documents,
• instruments defining the constitution of a foreign LLP in India,
• registration of a foreign LLP’s principal office, or
• partner or designated partner of a foreign LLP

were to be filed under Form 28 of the Rules.

Impact: The 2^nd amendment to the LLP Rules merges Form 29 and Form 28 and places the provision regarding the change in a foreign LLP’s principal place of business or winding up of business in India under Form 28. This reduces the burden of compliances on the LLP and facilitates ease of doing (and exiting) business in India.

Other amendments to the Limited Liability Partnerships (2^nd Amendment) Rules, 2022 include:

• Streamlining the process of incorporation of LLPs by making it web-based and at par with SPICE+ form which was introduced to facilitate ease of doing business for companies.
• Notification of Form for reporting an LLP’s communication address wherein the Ministry of Corporate Affairs notified that change of communication address of an LLP can be intimated through Form 12.

Conclusion

The amendments introduced by way of the Limited Liability Partnerships (Amendment) Rules, 2022 are introduced with the intent to ease the formation process of LLPs in India. Minimum paperwork and reduced compliances under the Limited Liability Partnership Act, 2008 and the Limited Liability Partnership Rules, 2009 will assist the Government’s agenda of facilitating ease of doing business, which has also been mentioned several times in the Union Budget 2022 and, wherein, the Government has implemented or exempted various compliances to align with its vision.