AN OVERVIEW ON LIMITED

(1)

AN OVERVIEW ON LIMITED

LIABILITY PARTNERSHIP ACT

Presentation at AHMEDABAD BRANCH OF ICAI

by

CA VIKASH JAIN

PARTNER RSPH & ASSOCIATES

on

E-mail : [email protected]

Contact :- +91-93277 15892

(2)

LLP (history in Indian Legislative)

• 1957- Suggested by iron, steel & hardware merchant

chambers-rejected by 7

th

_{Law commission}

• 1997- Recommended by Abid Hussain Committee on Small Scale

• 1997 Recommended by Abid Hussain Committee on Small Scale

Industries

• 2003-Naresh Chandra Committee Report (Regulation of Private

Companies and Partnerships) highlighted the grave need to

Co pa es a d a t e s ps) g g ted t e g a e eed to

introduce LLPs in India

• 2005- JJ Irani Expert Committee on Company Law recommended

introduction of LLPs

• December 15, 2006: 2006 LLP Bill introduced in Parliament

• May 1, 2008: Union Cabinet gave its approval to introduction of a

new bill (2008 LLP Bill) replacing the 2006 LLP Bill

O t b 21 2008 LLP Bill 2008 i t d

d i P li

t

• October 21, 2008: LLP Bill 2008 introduced in Parliament

• January 7, 2009: President’s assent given to the LLP Bill 2008 after

being passed in Loksabha and Rajyasabha

• March 31 2009 ACT CAME IN TO EXISTENCE

2

• March 31,2009-ACT CAME IN TO EXISTENCE

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N t

Of LLP

AN INSIGHT IN TO LIMITED LIABILITY PARTNERSHIP ACT

Nature Of LLP

¾

Hybrid of companies & Partnerships- Benefit of Limited Liability

¾

Hybrid of companies & Partnerships- Benefit of Limited Liability

of Company and flexibility of Partnership

¾

Separate Legal Entity- Continue its existence irrespective of

Ch

i

t

Changes in partners

¾

LLP itself can enter into contracts and hold properties

¾

Partners’ Liability limited to the agreed contribution

¾

LLP concept exist in UK, US, Australia , Singapore & various gulf

countries (Indian LLP act based on UK LLP Act 2000 and

Singapore LLP Act, 2005)

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,

)

¾

Professional & Non-professional (Businessmen) , both can set up

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LLP AGREEMENT

9

It is a written agreement between the partners of the limited

liability partnership and between the limited liability

partnership and its partners which determines the mutual

rights and duties of the partners and their rights and duties

in relation to that limited liability partnership.

9

It is not necessary to enter into an LLP agreement as per LLP

Act,2008. In the absence of LLP agreement, the mutual rights

f

l

ll b d

d

of partners & in relation to LLP will be determined as per

schedule I of the LLP Act,2008.

9

Due to varied nature of different type of businesses, it may

not be practically advisable to have those standard clauses as

mentioned in schedule 1. Therefore, it is advisable to have a

l

ll d f d

4

legally drafted agreement

(5)

LLP AGREEMENT

Main Features of the Agreement

1.

1. Parties (Individuals or body corporate sec. 5 LLP)

Parties (Individuals or body corporate sec. 5 LLP)

2.

2. Objective

Objective

3.

3. Definition and interpretation Clause

Definition and interpretation Clause

4

4 C

C

t f b i

f LLP

4.

4. Commencement of business of LLP

Commencement of business of LLP

5.

5. Duration of LLP

Duration of LLP

6.

6. Designated Partners (LLP Act) Working partners (IT Act).

Designated Partners (LLP Act) Working partners (IT Act).

7.

7. Role of Partners in Management

Role of Partners in Management

g

(Otherwise any partner can take part in Management)

8.

8. Contribution of Partners (in cash or in kind).

Contribution of Partners (in cash or in kind).

9.

9. Partners’ powers, duties and authorities.

Partners’ powers, duties and authorities.

10 Define share in the capital profit and Losses

10. Define share in the capital, profit and Losses

(otherwise equally as per

(otherwise equally as per Sch

Sch 1.)

1.)

11

11 Specify Remuneration to working partners

Specify Remuneration to working partners

(otherwise no remuneration) [(See

(otherwise no remuneration) [(See I.T.Sec

I.T.Sec. 40(b)]

. 40(b)]

12. 12. Define Interest to partners [Sec.40(b) of I.T. Act allows

Define Interest to partners [Sec.40(b) of I.T. Act allows interest

interest

up to 12% only]

13.

(6)

L L P vs. Other Business forms

L L P vs. Other Business forms -- A Comparative analysis

A Comparative analysis

S. S. no no

Particulars

Particulars Partnership Partnership Company Company LLP LLP

1.

1. GoverningGoverning Limited PartnershipLimited Partnership Companies AreCompanies Are Limited Liability Limited Liability P t hi

P t hi Law

Law Are governed by ‘TheAre governed by ‘The Partnership Act,1932 Partnership Act,1932

And various rules And various rules made there under. made there under.

governed by ‘The governed by ‘The Companies Act, 1956’ . Companies Act, 1956’ . Partnerships are Partnerships are governed by The governed by The Limited Liability Limited Liability Partnership Act,2008 Partnership Act,2008

and various rules and various rules made there under. made there under.

2

2 Registration Registration Registration Registration isis optional optional Registration with Registration with ROC is required ROC is required Registration with Registration with ROC is required. ROC is required. optional

optional ROC is required. ROC is required. qq

3.

3. Creation Creation It is Created byIt is Created by Contract Contract It is Created by It is Created by Law Law It is Created by Law It is Created by Law 4. 4. DistinctDistinct Entity Entity It is not a It is not a separate legal separate legal Entity Entity It is a separate It is a separate legal entity under legal entity under the Companies the Companies Act, 1956 Act, 1956 It is a separate legal It is a separate legal entity under the LLP entity under the LLP

Act, 2008. Act, 2008.

6

Act, 1956 Act, 1956

(7)

L L P vs. Other Business Forms

L L P vs. Other Business Forms -- A Comparative Analysis

A Comparative Analysis

Sr. Sr. no no

Particulars

Particulars Partnership Partnership Company Company LLP LLP no.

no.

5.

5. Choice of Name Choice of Name Any name as perAny name as per choice choice Name to contain Name to contain ‘Limited’ in case of ‘Limited’ in case of Public company or Public company or Name to contain Name to contain ‘Limited Liability ‘Limited Liability Partnership’or ‘LLP’ Partnership’or ‘LLP’ Public company or Public company or ‘Private Limited’ in ‘Private Limited’ in case of Private case of Private Company as suffix & is Company as suffix & is

bj il bili bj il bili

Partnership’or ‘LLP’ Partnership’or ‘LLP’ as suffix & is subject as suffix & is subject

to availability. to availability. subject to availability. subject to availability. 6 6 Cost ofCost of Formation Formation Nominal cost of Nominal cost of creating a partnership creating a partnership firm. firm.

Minimum fee for Minimum fee for incorporation of incorporation of Private Company is Private Company is

The cost of formation The cost of formation

of LLP is of LLP is comparatively lesser comparatively lesser Private Company is Private Company is Rs.6,000/

Rs.6,000/-- approx. andapprox. and for incorporation of for incorporation of Public Company, Public Company, ff comparatively lesser comparatively lesser

than the cost of than the cost of formation of Company. formation of Company.

It’s statutory fees It’s statutory fees

f /

the minimum fee is the minimum fee is

Rs.21000/ Rs.21000/-- approx. approx. ranges from Rs 500/ ranges from Rs 500/ to Rs 5,000/ to Rs 5,000/--7. 7. PerpetualPerpetual S i S i

It does not have It does not have

t l i t l i It has It has t l i t l i It has perpetual It has perpetual succession and succession and Succession

Succession perpetual successionperpetual succession as this depends upon as this depends upon the will of partners . the will of partners .

perpetual succession perpetual succession and the members may and the members may

come and go. come and go.

succession and succession and partners may come partners may come

and go . and go .

(8)

L L P vs. Other Business forms

L L P vs. Other Business forms -- A Comparative analysis

A Comparative analysis

S.

S. Particulars Particulars Partnership Partnership Company Company LLP LLP no no 8. 8. CharterCharter Document Document Partnership Deed is a Partnership Deed is a

charter of the firm charter of the firm which denotes its which denotes its

Memorandum and Memorandum and Articles of Association Articles of Association

is the charter of the is the charter of the

LLP Agreement is a LLP Agreement is a charter of the LLP charter of the LLP which denotes its which denotes its scope of operation

scope of operation and rights and duties and rights and duties

of the partners of the partners

company which company which defines its scope of defines its scope of

operation. operation.

scope of operations scope of operations And rights and duties And rights and duties

of the partners vis of the partners vis--àà

vis LLP vis LLP vis LLP vis LLP 9 9 CommonCommon Seal Seal There is no concept There is no concept of common seal in of common seal in partnership partnership It denotes the It denotes the signature of the signature of the company and every company and every h ll h it h ll h it It denotes the It denotes the signature and LLP signature and LLP may have its own may have its own

common seal common seal

company shall have its company shall have its

own common seal own common seal

common seal common seal

(Optional), (Optional), dependant upon the dependant upon the

Terms of the Terms of the Agreement Agreement Agreement Agreement 10. 10. Formalities ofFormalities of Incorporation Incorporation In case of In case of registration, Deed registration, Deed along with form / along with form / ff

ff

Various e

Various e--forms along forms along the Memorandum & the Memorandum & Articles of Association Articles of Association

are to be filed with are to be filed with

Various e

Various e-- forms are forms are to be filed with The to be filed with The

Registrar of Registrar of Companies with Companies with 8 affidavit required to affidavit required to be filed with ROF be filed with ROF along with requisite along with requisite

filing fees filing fees

are to be filed with are to be filed with

The Registrar of The Registrar of Companies with Companies with prescribed fees prescribed fees Companies with Companies with prescribed fees prescribed fees

(9)

L L P vs. Other Business forms

L L P vs. Other Business forms -- A Comparative analysis

A Comparative analysis

S.

S. Particulars Particulars Partnership Partnership Company Company LLP LLP no

no 11.

11. Time required for Time required for formation

formation

It will take nominal It will take nominal time.

time.

It will take 8

It will take 8--10 days10 days (approx.) to

(approx.) to

incorporate (inclusive incorporate (inclusive

It will take 8

It will take 8--10 days10 days (approx.) to (approx.) to incorporate (inclusive incorporate (inclusive p ( p (

of time taken to obtain of time taken to obtain DIN) DIN) p ( p ( of time taken to of time taken to Obtain DPIN) Obtain DPIN) 12 12 Legal Legal P di P di Only registered Only registered t hi t hi A company is a legal A company is a legal tit hi h tit hi h A LLP is a legal entity A LLP is a legal entity hi h d b hi h d b Proceedings

Proceedings partnership can sue partnership can sue third party

third party

entity which can sue entity which can sue and be sued

and be sued

which can sue and be which can sue and be sued sued 13. 13. Foreign Foreign Participation Participation Foreign

Foreign NationalsNationals cancan not

not bebe aa PartnerPartner inin aa Partnership

Partnership firmfirm

Foreign Nationals can Foreign Nationals can be a member in a be a member in a company

company

Foreign Nationals can Foreign Nationals can be a Partner in a LLP. be a Partner in a LLP. Partnership

Partnership firmfirm.. company company 14. 14. Number of Number of Members Members Minimum 2 and Minimum 2 and Maximum 10 / 20 Maximum 10 / 20 2 to 50 members in 2 to 50 members in case of Private case of Private Company and Company and Minimum 7 members Minimum 7 members Minimum 2 partners Minimum 2 partners and there is no limit and there is no limit for maximum number for maximum number Minimum 7 members Minimum 7 members in case of Public in case of Public Company Company of partners of partners 15. 15. Ownership of Ownership of Assets Assets

Partners have joint Partners have joint ownership of all the ownership of all the

Company & not its Company & not its members has

members has

The LLP independent The LLP independent of its members has of its members has Assets

Assets ownership of all the ownership of all the assets belonging to assets belonging to partnership firm partnership firm members has members has ownership of assets ownership of assets

of its members has of its members has ownership of assets ownership of assets

(10)

L L P vs. Other Business forms

L L P vs. Other Business forms -- A Comparative analysis

A Comparative analysis

S.

S. Particulars Particulars Partnership Partnership Company Company LLP LLP no no 16. 16. Rights/Duties/ Rights/Duties/ obligation of the obligation of the Partners/ Partners/ M i M i Rights / Duties/ Rights / Duties/ obligation of the obligation of the

partners are governed partners are governed b P t hi d d b P t hi d d Rights / Duties/ Rights / Duties/ obligation of the obligation of the

directors are governed directors are governed

Rights / Duties/ Rights / Duties/ obligation of the obligation of the

partners are governed partners are governed Managing Managing Partners/ Partners/ Directors Directors by Partnership deed by Partnership deed .. gg by AOA and by AOA and resolutions passed by resolutions passed by shareholders or shareholders or directors directors p g p g by LLP Agreement. by LLP Agreement. directors directors 17 17 Liability ofLiability of Partners/ Partners/ Members Members

Unlimited. Partners are Unlimited. Partners are severally and jointly severally and jointly liable for actions of liable for actions of other partners and the other partners and the

Generally limited to Generally limited to the amount required to the amount required to be paid up on each be paid up on each share

share

Limited, to the extent Limited, to the extent their contribution their contribution towards LLP, except towards LLP, except in case of intentional in case of intentional other partners and the

other partners and the firm and liability

firm and liability extend to their extend to their personal assets personal assets

fraud or wrongful act fraud or wrongful act of omission or of omission or commission by the commission by the partner. partner. 18. 18. TaxTax Liability Liability Income

Income ofof thethe Partnership

Partnership isis taxedtaxed atat a

a FlatFlat raterate ofof 3030%% plusplus education

education cesscess

Income of Company is Income of Company is Taxed at a flat rate of Taxed at a flat rate of 30% Plus surcharge & 30% Plus surcharge & education cess education cess Income of LLP Income of LLP is taxed at a is taxed at a

Flat rate of 30% plus Flat rate of 30% plus education cess education cess

10

19.

19. Principal / Agent Principal / Agent Relationship Relationship

Partners are agents of Partners are agents of the firm and other the firm and other partners.

partners.

Partners are agents of Partners are agents of the firm and other the firm and other partners.

partners.

Partners act as Partners act as

agents of LLP and not agents of LLP and not of the other partners. of the other partners.

(11)

L L P vs. Other Business forms

L L P vs. Other Business forms -- A Comparative analysis

A Comparative analysis

S.

S. Particulars Particulars Partnership Partnership Company Company LLP LLP no no 20. 20. Transfer ofTransfer of Share Share Not transferable.

Not transferable. Ownership is easily Ownership is easily transferable transferable by way of by way of t f f h t f f h Regulations relating Regulations relating to transfer are to transfer are governed by the LLP governed by the LLP A t A t transfer of shares.

transfer of shares. Agreement. Agreement.

21

21 Dissolution Dissolution By By agreement, mutual agreement, mutual consent, insolvency, consent, insolvency, t i ti i t i ti i Voluntary or by order Voluntary or by order of National Company of National Company L T ib l L T ib l Voluntary or by order Voluntary or by order of National Company of National Company L T ib l L T ib l certain contingencies, certain contingencies, and by court order. and by court order.

Law Tribunal

Law Tribunal Law Tribunal. Law Tribunal.

22. 22. Admission as Admission as partner / member partner / member A person can be A person can be admitted as a partner admitted as a partner as per the partnership as per the partnership

A person can become A person can become

member by buying member by buying A person can be A person can be admitted as a partner admitted as a partner as per the partnership

as per the partnership Agreement

Agreement shares of a company. shares of a company. as per the LLPas per the LLP Agreement Agreement 23. 23. Cessation as Cessation as partner / member partner / member

A person can cease to A person can cease to

be a partner by be a partner by

A member / A member /

shareholder can cease shareholder can cease

A person can cease A person can cease to be a partner as per to be a partner as per be a partner by be a partner by resignation resignation or due to death or as or due to death or as per the agreement per the agreement

to be a member by to be a member by selling his shares. selling his shares.

to be a partner as per to be a partner as per the LLP Agreement or the LLP Agreement or in absence of the in absence of the same by giving 30 same by giving 30 days prior notice to days prior notice to days prior notice to days prior notice to

the LLP the LLP

(12)

L L P vs. Other Business forms

L L P vs. Other Business forms -- A Comparative analysis

A Comparative analysis

S.

S. Particulars Particulars Partnership Partnership Company Company LLP LLP no no 24. 24. StatutoryStatutory Meetings Meetings There is no provision There is no provision with regard to holding with regard to holding

of any meeting. of any meeting.

Board Meetings and Board Meetings and General Meetings are General Meetings are

required to be required to be d t d t d t d t There is no provision There is no provision with regard to holding with regard to holding

Of any meeting. Of any meeting. conducted at conducted at appropriate time . appropriate time . y g y g 25 25 AnnualAnnual Filing Filing No return is required No return is required to be filed with to be filed with R i t f Fi R i t f Fi Annual Financial Annual Financial Statement and Annual Statement and Annual

Annual statement of Annual statement of

accounts and accounts and Registrar of Firms

Registrar of Firms _{Return is required to}_{Return is required to} be filed with the be filed with the ROC every year. ROC every year.

Solvency (eForm 8) & Solvency (eForm 8) & Annual Return (eform Annual Return (eform 11) is required to be 11) is required to be filed with ROC every filed with ROC everyyy

year. year. 26. 26. Audit ofAudit of Accounts Accounts

Partnership firms are Partnership firms are only required to have only required to have

tax audit of their tax audit of their

Companies are Companies are required to get their required to get their

accounts audited accounts audited

All LLP’s except for All LLP’s except for those having turnover those having turnover less than Rs 40 Lacs less than Rs 40 Lacs accounts as per the

accounts as per the provisions of the provisions of the Income Tax Act. Income Tax Act.

accounts audited accounts audited annually as per the annually as per the provisions of the provisions of the Companies Act, 1956 Companies Act, 1956

less than Rs.40 Lacs less than Rs.40 Lacs or contribution Less or contribution Less than Rs.25 Lacs in than Rs.25 Lacs in any financial year are any financial year are

i d h i i d h i

12

required to get their required to get their

accounts audited accounts audited annually as per the annually as per the Provisions of LLP Act Provisions of LLP Act

(13)

L L P vs. Other Business forms

L L P vs. Other Business forms -- A Comparative analysis

A Comparative analysis

S.

S. Particulars Particulars Partnership Partnership Company Company LLP LLP no no 27. 27. WhistleWhistle Blowing Blowing No such provision is No such provision is provided under provided under The The P t hi A t 1932 P t hi A t 1932 No such provision is No such provision is provided under the provided under the Companies Act, 1956 Companies Act, 1956

Provision has been Provision has been made to provide made to provide protection to protection to Partnership Act, 1932 Partnership Act, 1932 pp

Employees & partners Employees & partners providing useful providing useful information during an information during an investigation or investigation or investigation or investigation or convicting any convicting any partner or firm. partner or firm.

(14)

STEPS REQUIRED TO REGISTER LLP

¾

All the LLP Forms are e-forms which requires digital signatures.

Hence

Step 1 Digital Signature Certificate :

Step 1 – Digital Signature Certificate :

Partner/Designated partner of LLP/proposed LLP, whose signatures are to be

affixed on the e-forms, has to obtain Digital Signature Certificate (DSC) from

affixed on the e forms, has to obtain Digital Signature Certificate (DSC) from

any authorized certifying agency

.

¾

Every LLP must have minimum 2 DPs having DIN Hence

¾

Every LLP must have minimum 2 DPs having DIN. Hence,

Step 2

Obtain Director’s Identification Number. (DIN)

As per rule 2(1)(v) DIN means Identification Number allotted by Central Govt. to

an individual or a nominee of a body corporate who intends to be appointed DP

of LLP.

14

Any individual intending to become DP should file online application

For DIN

(15)

Cont… (Steps required to register LLP)

•Applicant should attach certified copies of identity and address proofs,

Affidavit along with form (scanned copy). In case of foreign national, a certified

copy of Passport should be enclosed.

•DIN is valid for life time.

As per Rule 10(8) Every DP should intimate his consent to become DP to the

LLP in form 9 (within 30 days of admission) and the LLP shall intimate the

same to the Registrar in Form 4 (within 30 days of admission)

same to the Registrar in Form 4 (within 30 days of admission).

¾

Every LLP must have different name. Hence

St

R

ti

f N

(F

1) (R l 18(5)

Step

3 Reservation of Name (Form 1) (Rule 18(5)

Form-1 for reservation of name

shall be filed. Partners shall have to select

name of the proposed LLP (up to 6 choices can be indicated).

p p

( p

)

Any partner or designated partner in the proposed LLP may submit Form-1

and will append his digital signature and submit the e-form.

Approval of name for Indian LLP is valid for 3 months (fees Rs.200/-).

Approval of name for foreign LLP is valid for 3 years (fees Rs 10 000/-)

(Form 25

Approval of name for foreign LLP is valid for 3 years (fees Rs.10,000/ )

(Form 25 + Rule 18(3)

(16)

Step 4 (Steps required to register LLP)

Form 2 Incorporation: Document + Statements

p

After the name is reserved by the Registrar,

“Incorporation Document and Statement” (Form 2)

shall be filled up and filed electronically.

Part A of Form 2 contains following particulars :

(a) Name of LLP

(b) Reg. office address

( )

g

(c) Details of Partners

(d) Value and mode of contribution

(e) Proposed business, etc.

Part B of Form 2 contains a statement to be signed by a DP and a Professional

engaged by LLP.

A statement in Part B of Form 2 (the e form) is to be digitally signed by a person

A statement in Part B of Form 2 (the e-form) is to be digitally signed by a person

named in the incorporation document as a designated partner having DPIN.

Also a statement to be digitally signed by an advocate/company secretary/

h

d

/

h

d

h

16

chartered accountant/ cost accountant in practice who is engaged in the

formation of LLP.

(17)

Congratulations! Your LLP is now registered by ROC

St

5 E

t LLP Ag

t + St

Step 5 – Execute LLP Agreement + Stamp

And file Form 3 which is summary of LLP Agreement. As per Rule 21

Form 3 should be filed along with the prescribed fee within 30 days of the date

of Incorporation. (Rule 21).

p

(

)

Forms List

Description E-Forms

Application for reservation or change of name Form1 Incorporation Document and Statement to Incorporation Document and

Subscriber's Statement Form2

Information with regard to Limited Liability Partnership Agreement and

changes, if any, made there in Form3

Notice of appointment, cessation, change in name / address / designation of pp , , g / / g a partner / designated partner, intimation of DPIN and consent to become a

partner/designated partner. Form4

Notice for change of name Form5

A li ti f ll t t f D i t d P t Id tifi ti N b N DIN

Application for allotment of Designated Partner Identification Number Now DIN

Statement of Account & Solvency Form8

(18)

Annual Return of Limited Liability Partnership Form11

Form for intimating other address for service of documents Form12

Notice of change of place of registered office Form15

Application and statement for the conversion of a firm into Limited Liability

Partnership Form17

Application and Statement for conversion of a private company/unlisted public

company into limited liability partnership. Form18

Notice of intimation of Order of Court/ Tribunal/CLB/Central Government to the / / /

Registrar Form22

Application for direction to LLP to change its name Form23

Application to the Registrar for striking off name Form24

Application for reservation/renewal of name by a foreign LLP/foreign company Form25

Form for registration of particulars by foreign limited liability partnership Form27

Alt ti i th (A) Th i ti d t th i t t tit ti Alteration in the - (A) The incorporation document, or other instrument constituting or defining the constitution of a limited liability partnership incorporated or

registered outside India; or (B) The registered or principal office of a limited liabili Form28

(A) Alt ti i th tifi t f i ti i t ti f li it d li bilit

18

(A) Alteration in the certificate of incorporation or registration of limited liability partnership incorporated or registered outside India (B) Alteration in the name or

address of any of the persons authorized to accept service on behalf of a foreign l Form29

(19)

Statements of Accounts and Solvency & Audit

((Sec.34)

Sec.34)

((ii))

LLP is required to maintain books of accounts for each year as prescribed

((ii)

) LLP is required to maintain books of accounts for each year as prescribed

LLP is required to maintain books of accounts for each year as prescribed

by Rule 24. (Sec.34).

(ii)

(ii) Accounts on cash basis or on accrual basis under double entry system of

Accounts on cash basis or on accrual basis under double entry system of

accounting.

(iii) Accounts shall be audited by Auditors appointed by the LLP, in accordance

with Rule 24.

Audit compulsory under LLP Act if :

Audit compulsory under LLP Act if : --

p

y

(a) If turnover exceeds Rs. 40

(a) If turnover exceeds Rs. 40 lakhs

lakhs in any F.Y.

in any F.Y.

(b) Contribution by partners exceed Rs. 25

(b) Contribution by partners exceed Rs. 25 lakhs

lakhs..

(iv) Within a period of six months from the end of the year, LLP to prepare a

( )

p

y

,

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( )

p

y

,

p p

Statement of A/

Statement of A/cs

cs and Solvency in Form No.8 as prescribed by Rule 24.

and Solvency in Form No.8 as prescribed by Rule 24.

It is to be signed by the Designated Partner.

(v) Before 30th October in each year, the Statement of Accounts and Solvency

f

th

d d

31 t M

h i

i d t b fil d ith th R i t

f

th

d d

31 t M

h i

i d t b fil d ith th R i t

for the year ended on 31st March is required to be filed with the Registrar

( Rule 24)

(vi) (Sec. 35) Annual Return

(vi) (Sec. 35) Annual Return –– Every LLP to file Annual Return within 60

Every LLP to file Annual Return within 60 days of

days of

closure of financial year Incase of failure DP to be fined (Rs 10 000/

closure of financial year Incase of failure DP to be fined (Rs 10 000/-- to

to

closure of financial year. Incase of failure DP to be fined (Rs.10,000/

closure of financial year. Incase of failure DP to be fined (Rs.10,000/ to

to

Rs. 100,000/

(20)

CONVERSION TO LLP

(Sec.55 to 57)

Conversion from firm/company into limited liability partnership

Conversion from firm/company into limited liability partnership.

(Section 55 + Schedule

(Section 55 + Schedule--II).

II).

1 Eligibility

1 Eligibility A firm can be converted only if all the partners agree to become

A firm can be converted only if all the partners agree to become

1. Eligibility

1. Eligibility –– A firm can be converted only if all the partners agree to become

A firm can be converted only if all the partners agree to become

partners of LLP.

2.

2. A private company can be converted into LLP only if :

A private company can be converted into LLP only if :

-- all shareholders agree to become partners of LLP and

all shareholders agree to become partners of LLP and

-- there is no security interest subsisting like mortgage

there is no security interest subsisting like mortgage

(Sec. 56 Schedule

(Sec. 56 Schedule--III)

III)

33 Conversion from unlisted public company into LLP (Section 57 + Schedule

Conversion from unlisted public company into LLP (Section 57 + Schedule ––

3.

3. Conversion from unlisted public company into LLP. (Section 57 + Schedule

Conversion from unlisted public company into LLP. (Section 57 + Schedule

IV)

4.

4. Registrar to issue a certificate in Form No. 19.

Registrar to issue a certificate in Form No. 19.

5.

On Registration of LLP erstwhile firm or company will be deemed to be

20

5.

On Registration of LLP erstwhile firm or company will be deemed to be

dissolved.

(21)

((ContCont……CONVERSION)CONVERSION)

CONVERSION from FIRM to LLP:

(As per Second Schedule)

CONVERSION from FIRM to LLP:

(As per Second Schedule)

a)

On incorporation of LLP all the rights and liabilities under various agreements

executed by the firm shall stand assigned to LLP as if those agreements were

t d b LLP i t d f th fi

executed by LLP instead of the firm.

b)

All the properties of previous firm would vest in LLP without any assurance.

c)

If any property of the partnership firm is registered with any authority, LLP

must notify the authorities like SSI etc., about the conversion and submit the

particulars in such form as the authority may specify.

d)

For a period of 12 months LLP will have to mention its previous Name and

Registration number and business Form.

If the Registrar refuses registration, the Applicant may apply to the Tribunal

ithi 60 d

f

h i ti

ti

f

l [R l 32(2)]

ithi 60 d

f

h i ti

ti

f

l [R l 32(2)]

within 60 days from such intimation of refusal [Rule 32(2)].

Rule 33 provides that upon such conversion the necessary intimation to the

Registrar of Firms or Registrar of Companies, as the case may be shall be

given in form No 14

given in form No. 14.

(22)

LLP & TAXATION

1. 1. World wide LLP taxation practice.

World wide LLP taxation practice.

a)

a) Tax Transparent (Pass through).

Tax Transparent (Pass through).

In U.K. and Singapore, Tax is not payable by LLP.

b)

b) Tax opaque juridical entity.

Tax opaque juridical entity.

b)

b) Tax opaque juridical entity.

Tax opaque juridical entity.

In Belgium and Australia, LLP is taxable entity.

c)

c) Flexible

Flexible –

–

In USA

In USA –– Left to the decision of the partners.

Left to the decision of the partners.

2. 2. Sec.2(23) of I.T. Act amended to treat LLP as a firm.

Sec.2(23) of I.T. Act amended to treat LLP as a firm.

3. 3. In India LLP is tax opaque juridical entity

In India LLP is tax opaque juridical entity -- Tax payable by LLP.

Tax payable by LLP.

4. LLP registered in India will be a resident even if only a part of control and management is

in India

5. No surcharge, effective tax rate 30.9%

g ,

6. 6. No MAT (Minimum Alternate Tax) A company has to pay

No MAT (Minimum Alternate Tax) A company has to pay

[email protected]%

((eff.rate

eff.rate 20.007%

20.007%

of Book Profit (Sec.115JB) However LLP HAS TO PAY AMT @ 18.5%

of Book Profit (Sec.115JB) However LLP HAS TO PAY AMT @ 18.5% eff.rate

eff.rate 19.055%

19.055%

7. No DDT (Dividend Distribution Tax

7. No DDT (Dividend Distribution Tax –– Sec.115 O)

Sec.115 O)

Amount distributed by the company as dividend is liable for additional income tax @15%

22

Amount distributed by the company as dividend is liable for additional income tax @15%

8. Profits distributed by LLP exempt in the hands of the partners Sec.10(2A).

(23)

LLP & TAXATION

9. Profit earned by the Assignee of economic Interest (as per Sec.42 of LLP Act)

is taxable in his hands.

10 10 Deemed dividend provisions do not apply to LLP

Deemed dividend provisions do not apply to LLP

10. 10. Deemed dividend provisions do not apply to LLP

Deemed dividend provisions do not apply to LLP

If a private limited company gives any loan to any shareholder holding not less than 10%

of share then that loan is taxed as dividend received from the company. [Sec.2(22)(e) of

I.T.Act]

11.

Corporate law provisions for inter

Corporate law provisions for inter--corporate deposits will not apply. (Sec.58

corporate deposits will not apply. (Sec.58--A of

A of

Companies Act.

LLP is free to receive deposits from other LLPs. A company can invite

deposits from public as per

deposits from public as per rules only).

rules only).

12.

Interest paid to partners

Interest paid to partners is allowable

is allowable--deduction provided capped at 12%

deduction provided capped at 12%

[Sec.36(1)(iii),Sec.40(b),Sec.184].

As per Sec.36(1)(iii) the interest paid on the capital borrowed for the purpose of business

is allowed as deduction. However as per Sec.40(b)(v) interest paid to partners if not

specified in the Partnership Deed is not allowed.

Moreover, interest is allowed only to the extent of 12%.

(24)

LLP & TAXATION

13

As per Sec 184 a partnership will be assessed as a firm provided there is an

13.

As per Sec. 184 a partnership will be assessed as a firm provided there is an

instrument of partnership (P. Deed or LLP Agreement) and the shares of partners

are specified therein. In case of unwritten partnership the deductions for salary and

interest are not allowed. The provisions will equally apply to LLP.

14. Remuneration to working partners allowed subject to cap.u/s.40(b)(v)

14. Remuneration to working partners allowed subject to cap.u/s.40(b)(v)--if paid in

if paid in

accordance with Deed/Agreement.

(a) On the first 3 lacs of book profit or in the case of loss Rs.1,50,000/

(a) On the first 3 lacs of book profit or in the case of loss Rs.1,50,000/-- or 90% of Book profit.

or 90% of Book profit.

(b) On the balance profit in excess of 3 lacs

(b) On the balance profit in excess of 3 lacs –– @ 60% of book profit.

@ 60% of book profit.

15.

Retiring/deceased partner’s share in loss cannot be carried forward in the hands of

LLP

LLP Sec.78(1)

Sec.78(1)--There is a contrary view also.

There is a contrary view also.

F

i

LLP

h ll b t

d

i

F

i

LLP

h ll b t

d

i

d th I T A t ( d

t

fi

)

16.

Foreign LLPs shall be taxed as companies

Foreign LLPs shall be taxed as companies under the I.T. Act (and not as a firms).

under the I.T. Act (and not as a firms).

17.

Wealth Tax not applicable to LLPs.

But interest of the partner in the assets of the firm may be liable to wealth Tax

[Sec 4(1)(b)of W T Act]

[Sec.4(1)(b)of W.T.Act]

The issue is debatable. Since LLP is not equated with firm under W.T. Act, the provision

may not have applicability in the case of partners of LLP.

(25)

LLP & TAXATION

STATUS AFTER 01

STATUS AFTER 01--04

04--2011

2011

STATUS AFTER 01

STATUS AFTER 01 04

04 2011

2011

Transfer of Assets on conversion u/s 56 & 57 of the act shall not be regarded as

transfer if

transfer

if--

the total sales, turnover or gross receipts in business of the company do not exceed

,

g

p

p y

sixty

sixty lakhs

lakhs rupees in any of the three preceding previous years

rupees in any of the three preceding previous years

the shareholders of the company become partners of the LLP in the same proportion

as their shareholding in the company as on the date of the concussion;

no consideration other than share in profit and capital contribution in the LLP arises

to partners;

the erstwhile shareholders of the company continue to be entitled to receive at least

50 per cent of the profits of the LLP for a period of 5 years from the date of

conversion;

all assets and liabilities of the company become the assets and liabilities of the LLP;

and

no amount is paid, either directly or indirectly, to any partner out of the accumulated

profit standing in the account of the company as on the date of conversion for a

period of 3 years from the date of conversion. [this condition means that no

accumulated profits which are lying in reserve or in the profit and loss (surplus)

balance as on date of conversion should be distributed to any partner or transferred

to their capital accounts until 3 years from date of conversion.]

Note:

Note:-- LLP is allowed carry forward and set

LLP is allowed carry forward and set--off of business loss to the successor LLP

off of business loss to the successor LLP

which fulfills the above mentioned conditions for a fresh period of 8 years from the

expiry of the year of conversion and unabsorbed depreciation indefinitely.72A(6A)

(26)

THANK YOU

CA VIKASH JAIN

B.com (

B.com (Hons

Hons.) F.C.A., DISA

.) F.C.A., DISA

204, Wall Street

204, Wall Street--1,

1,

204, Wall Street

204, Wall Street 1,

1,

Opp. Orient Club,

Near Gujarat College,

j

g ,

Ellis bridge,

Ellis bridge, Ahmedabad

Ahmedabad..

Phone : 079

Phone : 079--32403451; 26401351

32403451; 26401351

26