LLP Form 3: A Complete Guide

Form URC-1

Form URC-1, also known as the "URC 1 form", is an e-form prescribed under Rule 3(2) of the Companies (Authorised to Register) Rules, 2014. It enables various business entities, including partnerships, LLPs, societies, and others, to register as companies under Section 366 of the Companies Act, 2013. The form plays a crucial role in facilitating the formal registration process when an entity decides to transform its business structure into a company.

Filing Form URC-1 is mandatory for entities opting to convert into a company under the provisions of the Companies Act. It captures comprehensive details about the existing entity, the proposed company, and the compliance requirements for a smooth transition. By submitting this form, entities can initiate the company registration process and ensure adherence to the legal framework governing such conversions.

What is Section 366 of the Act?

Section 366 of the Companies Act, 2013 is a pivotal provision that allows various business entities, such as partnerships, LLPs, and societies, to register as companies under the Act. A significant amendment to this section, based on the recommendations of the Company Law Committee, reduced the minimum member requirement from seven to two, making it easier for smaller entities to convert into companies.

The scope of Section 366 has evolved since its introduction in the Companies Act, 1956. The 2017 amendments aimed to widen the eligibility criteria for registration, enabling more businesses to benefit from the advantages of operating as a company. This provision offers a streamlined pathway for entities formed under other laws to transition into the corporate structure governed by the Companies Act.

By registering under Section 366, entities can enjoy benefits such as limited liability protection, better access to capital, and enhanced credibility in the market. The provision creates a bridge between different legal frameworks, allowing businesses to adopt a more formal and regulated structure that aligns with their growth aspirations.

Companies that can be Registered under Section 366

Section 366 of the Companies Act, 2013 allows a wide range of entities to register as companies, including:

• Partnership firms
• Limited Liability Partnerships (LLPs)
• Cooperative societies
• Societies registered under the Societies Registration Act, 1860
• Any other business entity formed under other laws

These entities must have a minimum of two members to be eligible for registration under Section 366. They can convert into companies limited by shares, guarantee, or as unlimited companies.

It's important to note that Section 366 applies to entities originally formed under laws other than the Companies Act. It provides a pathway for these businesses to transition into the corporate structure and operate under the purview of the Companies Act, 2013.

This provision provides a legal pathway for such organisations to adopt a corporate structure, enabling them to operate under a more regulated framework while enjoying benefits like limited liability, perpetual succession, and enhanced legal status.

Purpose of Form URC-1

The primary purpose of Form URC-1 is to facilitate the registration of certain entities, such as partnerships, LLPs, and societies, as Part I Companies under the Companies Act, 2013. When an entity has seven or more members, Form URC-1 is filed along with Form INC-7 to initiate the company registration process.

Form URC-1 simplifies the online registration procedure by capturing all the necessary details and documents required for the conversion. It serves as a comprehensive application form that enables entities to provide information about their existing structure, proposed company details, and compliance with the legal requirements.

By filing Form URC-1, entities can ensure a smooth transition from their current legal status to a company registered under the Companies Act. The form helps in maintaining transparency and accuracy in the registration process, as it requires the submission of relevant documents and disclosures.

For entrepreneurs and startups, Form URC-1 acts as a practical tool, guiding them through the registration process and helping them understand the documents and disclosures needed for conversion.

Key Amendments and Implications

The Companies (Authorized To Register) Amendment Rules, 2023, introduced several significant changes to Form URC-1. The amended form now requires additional details, including:

The amendments aim to strengthen the due diligence process and ensure that all relevant information is disclosed during the registration process. By mandating the submission of these details, the MCA seeks to enhance the integrity and reliability of the information provided by the entities seeking to convert into companies.

The implications of these amendments are significant for entities considering registration under Section 366. They must ensure compliance with the new disclosure requirements and maintain proper documentation to support their application. The increased transparency and disclosures help in preventing any misrepresentation or concealment of material facts during the registration process.

Entities should carefully review the amended Form URC-1 and ensure that they have all the necessary information and documents ready before initiating the filing process.

Attachments to be submitted for Form URC-1

The amended Form URC-1 requires several mandatory attachments to be submitted along with the application. These documents provide supporting evidence and ensure compliance with legal and regulatory requirements. The key attachments include:

• Particulars of members/partners: A list of all members or partners of the existing entity, along with their details and shareholding pattern.
• Declaration by directors: A declaration by two or more proposed directors of the company, verifying the particulars of all members/partners.
• Affidavit for dissolution: An affidavit from all members/partners, confirming the dissolution of the existing entity.
• Instrument constituting the entity: A copy of the partnership deed, LLP agreement, or other instrument constituting or regulating the existing entity.
• Certificate of registration: A copy of the certificate of registration of the existing entity, issued by the relevant authority.
• No Objection Certificates (NOCs): NOC from any sectoral regulators or authorities, if applicable, depending on the nature of the business and the sector in which it operates
• Newspaper advertisement: A copy of the newspaper advertisement published in a English and a vernacular language newspaper, giving notice of the proposed registration.
• Compliance certificate: A certificate from a practicing professional (CA/CS/CWA), confirming compliance with the provisions of the Stamp Act, to the extent applicable.
• Consent of majority members: A resolution passed by a majority of members, agreeing to the registration of the entity as a company.
• Statement of Accounts: Optionally, a statement of accounts and a valuation report determining the value of assets and liabilities of the existing entity

These attachments provide critical information about the existing entity, its members, and the proposed company. The affidavit from members ensures their consent and commitment to the conversion process. NOCs from regulatory authorities help in identifying any sector-specific compliance requirements or approvals needed for the conversion. The consent and declarations from the first directors establish their eligibility and willingness to take on the responsibilities of directors in the newly registered company. The copies of incorporation documents and constitutional papers provide proof of the existing entity's legal status and governance framework.

Entities should ensure that all the required attachments are duly prepared, signed, and submitted along with Form URC-1. Incomplete or missing attachments may lead to delays or rejection of the registration application. It is advisable to maintain proper records and documentation to support the information provided in the form and the attachments.

Frequently Asked Questions

DIR-3 KYC

Form DIR-3 KYC is an important annual compliance step that every person holding a Director Identification Number (DIN) must complete. Whether you're currently a director in a company or not, if you have a DIN, you must file this form each year.

The Ministry of Corporate Affairs (MCA) mandates filing this form every year to ensure that directors’ records are current and accurate.

Failing to file this form within the deadline will lead to the DIN being marked as “Deactivated due to non-filing of DIR-3 KYC,” restricting a director from participating in company matters until compliance is restored.

Purpose of the Form DIR-3 KYC

The purpose of DIR-3 KYC is to keep director information in sync with official records and maintain a transparent and compliant corporate ecosystem. It ensures that directors update their information annually with the MCA.

Who Has to File e-Form DIR-3 KYC?

Every individual who holds a DIN, regardless of whether they are currently serving as a director, must file the e-Form DIR-3 KYC with the MCA each year. This includes:

• Directors of private and public companies
  
• Individuals whose DIN is active or approved but inactive
  

There are no exemptions, so it's essential to comply regardless of your status or position.

Applicable Fee For Form DIR-3 KYC

• Filing Fee: Free if filed on or before September 30
  
• Penalty: ₹5,000 if filed after the due date, and the DIN will be deactivated until payment is made
  

Due Date for Filing DIR 3 KYC Form

The KYC form must be submitted by September 30 every year. There are two formats:

• DIR-3 KYC: For first-time filers or those updating details
  
• DIR-3 KYC Web: For those who have filed previously and have no changes
  

Penalties for Late Filing of the Form DIR-3 KYC

Missing the September 30 deadline results in:

• DIN Deactivation
  
• A penalty of ₹5,000 to reactivate the DIN
  

Documents Required to File DIR-3 KYC Form

Directors need the following documents:

• Self-attested PAN card
  
• Self-attested Aadhaar card
  
• Passport (if available)
  
• Valid mobile number and email ID
  
• Digital Signature Certificate (DSC)
  

Key Verification Steps for Filing the Form DIR-3 KYC

Filing the DIR-3 KYC form may seem straightforward, but following the steps carefully is important to ensure successful submission and avoid any delays or penalties. Here's a detailed breakdown of the process:

Step 1: Collect Personal Documents

Before starting the filing process, gather all the required documents.

Step 2: Ensure Accuracy of Details

Ensure that all the information you enter in the form matches the details mentioned in your official documents (especially PAN and Aadhaar). Any mismatch can lead to rejection or delays in processing.

Step 3: Verify with OTP

Once you enter your email ID and mobile number, an OTP (One-Time Password) will be sent for verification. This is an essential part of the KYC process and ensures that your contact information is valid and belongs to you.

Step 4: Sign with a Digital Signature Certificate (DSC)

The DIR-3 KYC form must be digitally signed by the director using a valid DSC (Class 2 or Class 3). This step certifies the authenticity of the information being submitted.

Step 5: Get it attested by a Professional

After signing the form with your DSC, the form must be certified by a practising professional like a Chartered Accountant (CA) or a Company Secretary (CS). The professional must verify the form’s contents and affix their own digital signature. Their membership number, certificate of practice number, and contact details must also be provided.

Step 6: Upload the Form to the MCA Portal

Once the form is digitally signed and attested, upload it on the Ministry of Corporate Affairs (MCA) portal.

Process After Submitting the DIR-3 KYC Form

Once the DIR-3 KYC form is successfully submitted on the MCA portal, the following steps take place:

• SRN Generation: An SRN (Service Request Number) is instantly generated upon submission. This SRN is important for tracking your application and for any future correspondence with the Ministry of Corporate Affairs (MCA).
  
• Email Acknowledgement: The director receives an acknowledgment email at their registered email address. This email confirms the receipt and approval of the DIR-3 KYC form and usually includes a receipt of the submission. It is advisable to save this receipt for your records.
  
• MCA Verification: The MCA system verifies the details provided in the form. If all information is correct, the status of the Director Identification Number (DIN) is updated to reflect successful KYC completion.
  
• Error Handling: If there are any errors or discrepancies in the submitted information, the form may be rejected, and the director will be required to correct the errors and resubmit the form.
  
• Late Filing Consequences: If the DIR-3 KYC form is filed after the due date (generally 30th September), a late fee of Rs. 5,000 is applicable. In such cases, the DIN remains deactivated due to non-filing until the form is submitted and the late fee is paid.
  

Key Points to Remember:

• Save the SRN and acknowledgment receipt for future reference.
  
• Check your email for approval or any further instructions from MCA.
  
• If filed late, ensure payment of the prescribed penalty to reactivate your DIN.
  

Conclusion

Filing your DIR-3 KYC might feel like just another task, but it plays a big role in keeping things smooth and compliant for you as a company director. It helps the government maintain updated records, ensures transparency, and keeps your Director Identification Number (DIN) active.

If you miss the September 30 deadline, your DIN can be deactivated, which means you won’t be able to sign documents or carry out official duties as a director. So, take a few minutes each year to check your details, fill out the form, and stay compliant.

Frequently Asked Questions

What is One Person Company (OPC)?

A One Person Company (OPC) is a company structure in India that allows a single individual to establish a business with limited liability. It provides the benefits of a corporate entity while retaining the simplicity of sole ownership.

Unlike a sole proprietorship, an OPC is a separate legal entity. This means it can own assets, enter into contracts, and protect the owner's personal assets from business liabilities.

OPCs operate under regulatory requirements similar to private limited companies but are tailored for single ownership. Additionally, the member must appoint a nominee to take over the business in case of the owner's incapacity or death.

What is Sole Proprietorship?

A sole proprietorship is a simple business structure, where the business is owned and managed by one individual. This makes it ideal for small businesses or individual entrepreneurs. The meaning of a sole proprietor is essentially someone who is the sole beneficiary of all business profits and is personally liable for any debts incurred by the business. There is no particular Sole Proprietorship Act in India. 

Unlike a One Person Company, a sole proprietorship does not separate the business entity from the owner. This means that all legal, financial and operational responsibilities rest with the proprietor, who has full control over decision-making and retains all profits.

Operating as a sole proprietor allows for flexibility and ease in starting or closing a business. There are minimal regulatory formalities, although certain licences may be required for specific sectors, like medical or food services. 

One Person Company vs Sole Proprietorship

Here is a detailed analysis of the difference between sole proprietorship and one person company:

Sole Proprietorship Advantages and Disadvantages

Advantages of Sole Proprietorship

Quick Decision-Making

With full control, the sole proprietor can make prompt decisions, aiding responsiveness and agility in business operations.

Confidentiality

All business information remains private to the owner, enhancing operational discretion.

Ease of Formation and Low Costs

Starting a sole proprietorship involves fewer legal requirements, keeping setup costs low.

Direct Incentives

The owner retains all profits, providing direct motivation for business success.

Disadvantages of Sole Proprietorship

Unlimited Liability

The proprietor’s personal assets can be used to cover business debts, increasing financial risk.

Limited Access to Capital

Raising funds can be challenging, as sole proprietors often rely on personal savings or small loans.

Lack of Business Continuity

The business may end with the owner's incapacity, death or insolvency, impacting long-term stability.

Limited Specialisation

Managing all aspects of the business alone can hinder growth and focus on key areas.

One Person Company (OPC) Advantages and Disadvantages

Advantages of One Person Company

Limited Liability

The owner's liability is limited to the capital invested, safeguarding personal assets from business debts.

Separate Legal Entity

Being legally distinct enhances the company's credibility and professionalism.

Tax Benefits

OPCs enjoy certain tax benefits, such as lower rates and deductions on business expenses.

Single Ownership with Control

The owner retains full control over operations, simplifying decision-making.

Disadvantages of One Person Company

Limited Funding Options

OPCs cannot raise funds from the public, which may restrict growth opportunities.

Compliance Requirements

Annual filings, account maintenance and meetings are required, adding to operational tasks.

Nominee Requirement

The need for a nominee can be limiting for owners wanting complete control.

Naming Restrictions

"One Person Company" must be part of the company’s name, reducing flexibility in branding.

Frequently Asked Questions: