Incorporation of LLP or Partnership Firm

A partnership firm is a significant type of business organization and a popular choice in India. It requires a minimum of two individuals to establish. In this form, two or more people join hands to create a business and distribute its profits among themselves based on an agreed-upon ratio. The partnership firm encompasses various trades, occupations, and professions.

Partnership firms in India are governed and regulated by the Indian Partnership Act of 1932. The individuals who come together to establish the partnership firm are referred to as partners. The firm is formed through a contract known as a partnership deed, which governs the relationships among the partners and between the partners and the firm itself.

Registration of a partnership firm under the Indian Partnership Act is not mandatory but optional. It is entirely up to the partners to decide whether or not to register the firm. The registration can take place at the time of its formation, incorporation, or even during the ongoing partnership business.

However, it is highly recommended to register the partnership firm because registered firms enjoy certain privileges and advantages over unregistered ones. The benefits of registering a partnership firm include:

1. Partners have the right to sue another partner or the firm itself to enforce their contractual rights. In the case of an unregistered partnership firm, partners are unable to sue the firm or other partners to protect their rights.

2. A registered partnership firm has the ability to file a lawsuit against any third party to enforce contractual rights. On the other hand, an unregistered firm is unable to initiate legal action against any third party to enforce its rights. However, a third party can file a lawsuit against an unregistered firm.

3. A registered firm can claim set-off or other legal proceedings to enforce rights arising from a contract. Conversely, an unregistered firm cannot claim set-off in any legal proceedings brought against it.

Limited Liability Partnership (LLP) has emerged as a favored organizational structure among entrepreneurs in India due to its combined advantages of a partnership firm and a company. In an LLP, which requires a minimum of two partners, an LLP agreement is entered into. Notably, the partners in an LLP enjoy limited liability, and the LLP itself has perpetual succession similar to a company.

The concept of Limited Liability Partnership (LLP) was introduced in India in 2008, with regulations governed by the Limited Liability Partnership Act of 2008. The incorporation of an LLP necessitates a minimum of two partners, while there is no maximum limit on the number of partners.

Within the partnership, there must be a minimum of two designated partners, who must be natural persons, and at least one of them should be a resident of India. The rights and responsibilities of designated partners are determined by the LLP agreement. They bear direct responsibility for complying with all provisions of the LLP Act, 2008, as well as those specified in the LLP agreement.

Incorporation of LLP is governed by the Ministry of corporate affairs and subject to rules and regulations as amended from time to time.