PROCEDURE OF LLP (LIMITED LIABILITY PARTNERSHIP) FORMATION under LLP ACT 2008

PROCEDURE OF LLP (LIMITED LIABILITY PARTNERSHIP) FORMATION

STEP BY STEP PROCEDURE OF LLP (LIMITED LIABILITY PARTNERSHIP) FORMATION, IN INDIA

STEP – 1 APPLY FOR DIN -1

Apply for obtaining DIN (Director Identification Number) of proposed Designated Partners

Need to attach following documents (self attested) by an applicant with along with DIN 1 form

a)      1 passport size photograph in physical or a soft copy (in.JPEG format)

b)      Address Proof: Passport / Driving License having pin code /Election card. Or Electricity Bill/Telephone Bill/ Bank Statement certified by Bank Manager which should not be older than 2 months.

c)       Identity proof : PAN card (Mandatory Field of DIN form)

d)      Email address  of the applicant (Mandatory Field of DIN form)

e)      Mobile Number(Mandatory Field on DIN form)

f)       Annexure DIN 1(verification of an applicant) to be signed by an applicant

In case of Foreign Partner / NRI, the passport copy is mandatory requirement as a proof of identity.  The address proof should not be older than 1 year from the date of filing of the e-form.  The passport copy and address proof should be notarized by the consulate of the Indian Embassy, Foreign public notary or Company secretary in full time employment / CEO / Managing Director of the Indian company in which he/ she proposed to be a director.

STEP – 2 APPLY FOR DIGITIAL SIGNATURE CERTIFICATE:

Need to apply for Digital Signature Certificate of 2 Designated Partners. Need to attach documents (Identity Proof and Address Proof) with DSC application form same as mentioned for DIN 1  . An applicant is required to affix photo and sign across the photo on DSC application form and on 2^nd stage.

In case of a Foreign Partner / NRI , the Passport copy and address proof should be notarised by the consulate of the Indian Embassy , Foreign public notary or  company secretary in full time employment /CEO/ Managing Director of the Indian company in which he / she proposed to be a director .

STEP – 3 APPLICATIONS TO GOVERNEMENT FOR NAME AVAILABILITY OF THE PROPOSED LLP

Need to file e-form 1 with www.llp..gov.in for name availability.  The applicant also needs to give 5/6 proposed names in preference along with their meaning and significance of each word.

Refer Name Availability Guidelines issued by MCA

STEP – 4 VERIFICATION OF DOCUMENTS AND FORMS BY GOVERNMENT

After this, Form – 1 shall be checked by the Government (Registrar of Companies) in detail and may suggest some changes to be made in the attachments or form itself. Need to make necessary changes if any.

STEP 5 : FILLING OF INCORPORATION DOCUMENT  &  SUBSCRIPTION  STATEMENT  (E-FORM 2)

After Form –1 is approved by the Government (Registrar of Companies), the next step is to file Incorporation Document & Subscription Statement in E – form 2.

Attachments: -

1.       Address proof (Electricity/Telephone/Property Tax Bill)of not older  than 2 months self attested by one of the partners

2.       Incorporation Document  & Subscription  Statement  (Signed by each  Designated  Partner and witnessed by Professional )

STEP 6 : CERTIFICATE OF INCORPORATION

After verification by Government (ROC) and satisfied by it , it shall send soft copy of certificate   of Incorporation via email in Form 16 and physical  certificate of Incorporation by post.

STEP 7: DRAFTING OF LLP AGREEMENT

Need to draft LLP agreement duly printed on stamp paper and signed by each Designated Partner with the signature of two witnesses.  Note: The stamp duty applicable for agreement will vary from state to state depending upon the total contribution of LLP.

STEP 8 : FILING OF LLP AGREEMENT (E-FORM – 3)

Need to file following e – forms with the Government simultaneously within 30 days from the date of receipt of certificate of Incorporation.

a)      Form- 3 – LLP Agreement

As per updated ROC Procedure, no need to file form 4 for appointment of the same partners mentioned in form – 2.  Refer the note at the end for more details.

STEP – 9 : APPROVAL OF FORM -3

After verification by the Government and satisfied by it, it approves LLP Agreement.  This is the last step of LLP Incorporation.  The Company can start its business now onward.

**Note** : Any existing limited Liability Partnership (LLP) will need to file the particulars of designated partners/ partners with the  registrar at the time of their appointment along with any subsequent changes in the particulars  there after .  E- Form – 4 is required to be filed for appointment of new partners and / or cessation / change in designation of existing partner / designated partner.  No need to file form – 4 for appointment of same partners mentioned in Form – 2.  The change in the particulars of designated partner or partner having DIN shall be updated in the system through e - form DIN 4 and LLP shall file intimation thereof in this form.

Procedure of Issuing Shares under Companies Act 2013 (For Private Limited)

Procedure of Issuing Share Capital under Companies Act 2013 (For Private Limited)

Under the Companies Act 2013, A Company can raise funds to increase its Share Capital in the following ways:

1.      Private Placement / Preferential  Allotment

2.      Right Issue

3.      Public Issue

APPLICABILITY
From 1st April 2014

A. PRIVATE PLACEMENT

1.      As per Section. 42, of the Companies Act 2013 and Rule 14 under Companies (Prospectus and Allotment of Securities) Rules 2014), A private company has to follow the procedures for private placement of securities.

2.      A Private Placement is issuing shares to a selected group of people, including or not the existing shareholders, like friends, family members, Angel investors, Venture Capitalists etc.

3.      Securities means - equity shares, preference shares and debentures, convertible instruments, and also redeemable instruments.

4.      “Private Placement” means any offer of securities or invitation to subscribe securities (equity or securities that convert to equity) to a select group of persons by a company, other than by way of public offer, through issue of a private placement offer letter. 

B. RIGHTS’ ISSUE

A rights issue is directly offered to all existing shareholders of the Company in proportion to their current holding. The company also set a time limit for the shareholder to buy the shares. Companies pursue Rights Issue as an avenue to raise funds for various reasons, ranging from expansion or acquisitions to paying down debts.

Section 62 of Companies Act, 2013 contains provisions on “further issue of capital”, and enacts the principle of pre-emptive rights of shareholders of a company to subscribe to new shares of the company.

Provisions of Section 62 of Companies Act, 2013 are mandatory for all Private companies, public companies, and listed as well as unlisted companies.

PREFERENTIAL ALLOTMENT :

Sec 62 (1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered:

(a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:—

(i)         the offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;

(ii)        unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (i) shall contain a statement of this right;

(iii)       after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company;

PROCEDURE FOR ALLOTMENT OF SHARES ON RIGHT ISSUE BASIS:

Issue notice in writing to every Director at least seven days’ before convening the Board meeting. [Sec 173 (3)]

Convene a Board Meeting

Pass a Board resolution for approving “Letter of offer”. The offer letter shall include right of renunciation also.

Dispatch Letter of offer to all existing shareholders through registered post or speed post or through electronic mode at least three days before the opening of the issue.

Receive acceptance, renunciations, rejection of rights from shareholders.

Issue notice in writing to every Director at least seven days’ before convening the Board meeting. [Sec 173 (3)]

Convene a Board Meeting

Pass Board resolution for approving allotment and issue of shares.

File with Registrar a return of allotment in E-Form PAS-3 within 30 days of allotment of shares.

File E-form MGT 14 within 30 days of Issue of securities.

OTHER INFORMATION:

There is no prescribed format for “Letter of offer” to be issued, in case of right issue of securities. Format of “Letter of offer” prescribed in Companies Act, 2013 is Pursuant to section 42 and rule 14(1) of Companies (Prospectus and Allotment of Securities) Rules, 2014 and not for Section 62.

Letter of offer shall specify the number of shares offered and other information and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;

Attach with E-Form PAS-3 (i) Board Resolution for allotment and issue of share. (ii) Letter of offer (iii) List of Allottees

List of Allottees attached with E-Form PAS-3 shall state the names, address, occupation, if any, of the shareholder and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the company.

OFFER LETTER

1.       An offer can be made under a Private Placement Offer Letter to not more than 200 people

2.      Notice of issue should be dispatched at least 3 days before opening of offer.

3.      Offer should remain open at least for 15 days and not more than 30 days.

4.      Addressed to specific person in writing or in electronic mode.

5.       Special Resolution – basis or justification of pricing (including premium) to be made in the explanatory statement. Purpose and object of offer Time schedule for which offer is valid. Price of offer and its justification the securities allotted has to be fully paid-up (i.e. it cannot be partly-paid).

6.      .In case the existing shareholders do not accept the offer; the directors should dispose such shares in a manner “non-disadvantageous” to the company.

7.      The 200 people limit excludes Qualified Institutional Buyers and Employees.

8.      The value of the Offer per person shall not be less than Rs 20,000 of the ‘face value’ of securities.  

9.      The payment for subscription should be through the bank account of the person subscribing to the securities and the company should keep a record of the bank account from where such payments have been received.

10.   No cash transaction is permitted.

11.   The money so received shall be kept in a separate bank account of the company and utilised only for allotment, prior to the allotment of shares, the share application money cannot be used for any other purposes.

12.  The Company should maintain record of such Bank A/C

13.   Maintain complete record in PAS-5 and PAS-4 to be filed with ROC

PENALTY

1.      Non-compliance can lead to a penalty of Rs 2 crores or the amount involved in the offer, whichever is higher.

2.      Refunding the share application money

3.      It means, Make Allotment of shares within 60 days of receipt of Money from the persons to whom right was given.  Else from the 75th day, the share application monies have to be repaid. In the event of failure to repay, interest at 12% pa has to be paid.

PROCEDURES TO BE FOLLOWED BY THE COMPANY GOING IN FOR PRIVATE PLACEMENT

1.      Check Provision in Article regarding Private Placement. If not there, amend the Articles.

2.      The Articles of Association should provide for and shareholders of the company through special resolution approve the Offer and this resolution should be acted upon within 12 months. At any given point in time, there should be only one active offer for each kind of security.

3.      Call Board Meeting to consider the following :        

a)      To Prepare Offer Letter

b)      Make Proposal for Private Placement

c)      Prepare list of persons to whom option will be given

d)     Call Extra Ordinary General Meeting (EGM)

Call Extra Ordinary Meeting to consider the following:

1.      Pass Special Resolution, which will be valid for 12 months

2.      If Private Placement is not completed in 12 Month, pass another Special Resolution

3.      Approve Draft Offer Letter by Special Resolution

4.      File MGT-14 with ROC with Attachments, viz. Notice of EGM – CTC of SR – Minutes

5.      Issue offer letter in PAS-4 within 30 days of record of name of persons:

6.      Application form serially numbered

7.      Address to the persons to whom the offer is made

8.      Prepare complete record of Private Placement in PAS-5

9.      File PAS-4 + PAS-5 with ROC within 30 days of issue of offer letter in GNL-2

10.  Called Board Meeting for allotment of shares

11.  File PAS-3 with Roc within 30 days if Allotment is made, along with prescribed attachments

12.  The price of the security has to be justified through a    valuation report by a Registered Valuer who can be a company secretary, chartered accountant or a cost accountant.

13.  File Form MGT-14 along with Resolution pass in Board meeting for allotment of shares.

Issue Share Certificates within 60 days of the allotmen

PROCEDURE FOR ALLOTMENT OF SHARES ON RIGHT ISSUE BASIS FOR PRIVATE LIMITED COMPANIES:

PROCEDURE FOR ALLOTMENT OF SHARES ON RIGHT BASIS FOR PRIVATE LIMITED COMPANIES:

1. Issue notice in writing to every Director at least seven days’ before convening the Board meeting.    (Sec 173(3))

2. Convene a Board Meeting.

3. Pass a Board resolution for approving “Letter of Offer”.  The offer letter shall include right of renunciation also.

4. Dispatch Letter of offer to all existing shareholders through registered post or speed post or through electronic mode at least three days before the opening of the issue.  In case of Private companies if ninety percent of the members of company give their consent in writing or in electronic mode, the time limit of three days before the opening of the issue shall not apply.

5. Receive acceptance, renunciations, rejection of rights from shareholders.

6. Issue notice in writing to every Director at least  7  days’ before convening  Board meeting. ( 173 (3))

7. Convene a Board Meeting

8. Pass Board resolution for approving allotment and issue of shares.

9. File with Registrar a return of allotment in E-Form PAS-3 within 30 days of allotment of shares.

1. File E-for MGT 14 within 30 days of Issue of securities. (Not applicable in case of private companies)

OTHER DETAILS:

1. There is no prescribed format for Letter of offer” to be issued, in case of right issue of securities.  Format of “Letter of offer” prescribed in Companies Act, 2013 in Pursuant to section 42 and rule 14(1) of Companies (Prospectus and Allotment of Securities) Rules, 2014 and not for section 62. Hence a letter of Offer may be issued  to the members of the company.

2. Letter of offer shall specify the number of shares offered and other information and limiting a time not being less than 15 days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined; In case of Private companies if ninety percent of the members of company give their consent in writing or in electronic mode, the time limit of fifteen days shall not apply.

3. Attach with E-Form PAS – 3 

(i) Board Resolution for allotment and issue of share.

(ii) Letter of offer.

(iii) List of Allottees.

4. List of Allottees attached with E-Form PAS-3 shall state the names, address, occupation, if any, of the shareholder and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the company.

5. Valuation certificate of Right shares is necessary in case of Non Resident Shareholders.   It is not required for Indian shareholders.

6. After the Rights issue allotment is complete, issue the share certificate and make necessary entries in the Register of Members .