Second amendment to LLP Rules will ease procedural burden: Experts

At the time of incorporation, five can be appointed designated partners

According to the Economic Survey 2021-22, India has 83 unicorns. Of these, 44 were created in 2021. One factor that has aided this development is the introduction of limited liability partnership (LLP) — a platform that allows business to be carried out in partnership, but limits the liability of each partner.

Recently, the Ministry of Corporate Affairs (MCA) notified the LLP (Second Amendment) Rules, 2022, to amend the existing LLP Rules, 2009. This was the second time these rules were amended. Suresh Surana, founder, RSM India, says, “The recent changes to the LLP Rules are aimed at driving the LLP regime procedurally in the same direction as companies. The incorporation procedure for LLPs, for instance, is set to become fully web-based, just like in the case of companies.”

Here are the key changes entrepreneurs must know:  

More DPINs at the time of incorporation

Earlier, a maximum of two designated partner identification numbers (DPINs) could be applied for at the time of incorporating an LLP. Now, the rules have been amended to allow up to five DPINs at the time of incorporation.  

Rachit Sharma, deputy general manager, Taxmann, says, “This will make it easier to appoint more than two designated partners at the time of incorporation itself.”

In other words, there is flexibility to appoint five partners as designated partners at the time of incorporation, instead of only two. Another change, according to Surana, is that digital signatures will become mandatory for all partners. Earlier, only one designated partner needed to have it.

Get PAN and TAN

The amended provisions allow the allotment of permanent account number (PAN) and Tax deduction and collection Account Number (TAN) to LLPs alongside the certification of incorporation. Earlier, there was no provision for the automatic allotment of PAN and TAN at the time of incorporation. Deepak Jain, chief executive, TaxManager.in, says, “Until now, one had to apply for PAN and TAN separately. It was not a part of the incorporation process. This will make the process of obtaining PAN and TAN easier, and speed up the process.”

In the case of companies, PAN and TAN can be applied for at the time of incorporation, under SPICe+, which is an initiative of the MCA, where at the time of applying for incorporation, all other compliance registrations like the goods and services tax, PAN, TAN, along with support in opening bank accounts is provided.

Applying for name change

Earlier, whenever an application for changing the name of LLP had to be made, one had to mention the authority (like central government, registrar, etc) under which this was being done. The procedure is slightly different under each authority. Now, the requirement of mentioning the authority has been done away with. Mukul Chopra, senior partner, Victoriam Legalis-Advocates & Solicitors, says, “The amendment notification states that the condition specifying the person to make an application under Rule 19(4) of the LLP Rules, 2009, is no more required. This will reduce the compliance burden of LLPs.”

Winding up an LLP

Sometimes, when things don't work out, the process of winding up an LLP has to be initiated. Now a physical statement of account disclosing nil assets and nil liabilities is not required. The information can be provided in the form itself.

Until now, starting an LLP was much easier than closing it. Many documents had to be submitted and elaborate procedures had to be followed at the time of closure. After the amendments, the need to submit a large number of documents in the physical form has been removed. This will make it easier to wind up an LLP. Finally, with all forms becoming web-based, the focus of the modified rules is on the real-time capturing of information. Reporting is expected to become more accurate and real-time. The process of starting and closing an LLP is also expected to become easier.