E-mail : [email protected]@gmail.com Contact :- +91-93277 15892 1 AN OVERVIEW ON...

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1

AN OVERVIEW ON LIMITED LIABILITY PARTNERSHIP ACT

Presentation @ RAJKOT BRANCH of ICAI

by

CA VIKASH JAIN

On

23RD May, 2015

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LLP HISTORY

• Origin in Italy as a Medieval European Business mode

• France, Germany Great Britain, USA, Japan started following

• First time, LLP was brought under regulation in France in 1673 by an Ordinance of state.

• In US first law on LLP was codified in 1822

• In Great Britain it was enacted in 1867

• In Germany it was enacted in 1892

• In Singapore it was enacted in 2005

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LLP (history in Indian Legislative)

• 1957- Suggested by iron, steel & hardware merchant chambers- rejected by 7th Law commission

• 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 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

• 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 Notified & came into existence

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Some Important Definitions:

2(1)(d) Body Corporate means a co as defined in S.3 of the Cos Act & includes - LLP regd in India, Incorporated o/s India, A Co regd outside India but does not include a corporation sole, Co-op society, any other body corporate.

2(1)(l) Financial year : ending on 31st march year S.5- Any Individual or body Corporate can be a partner S.11(1)- Dealing with Incorporation reads as – For a LLP

to be incorporated (a)– 2 or more persons associated for carrying on a lawful business with a view to profit shall subscribe their names to an incorporation document

AN INSIGHT IN TO LIMITED LIABILITY PARTNERSHIP ACT

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Nature Of LLP

Hybrid of companies & Partnerships- Benefit of Limited Liability of Company and flexibility of Partnership

Separate Legal Entity- Continue its existence irrespective of Changes in partners

LLP itself can enter into contracts and hold properties Partners’ Liability limited to the agreed contribution 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)

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

AN INSIGHT IN TO LIMITED LIABILITY PARTNERSHIP ACT

LLP AGREEMENTLLP AGREEMENT 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.

It is not necessary to enter into an LLP agreement as per LLP Act,2008. In the absence of LLP agreement, the mutual rights of partners & in relation to LLP will be determined as per schedule I of the LLP Act,2008.

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 legally drafted agreement

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LLP AGREEMENTLLP AGREEMENTMain Features of the AgreementMain Features of the Agreement1.1. Parties (Individuals or body corporate sec. 5 LLP)Parties (Individuals or body corporate sec. 5 LLP)2.2. ObjectiveObjective3.3. Definition and interpretation ClauseDefinition and interpretation Clause4.4. Commencement of business of LLPCommencement of business of LLP5.5. Duration of LLPDuration of LLP6.6. 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

(Otherwise any partner can take part in Management)(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 Sch 1.)(otherwise equally as per Sch 1.)1111 Specify Remuneration to working partners Specify Remuneration to working partners (otherwise no remuneration) [(See I.T.Sec. 40(b)](otherwise no remuneration) [(See I.T.Sec. 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 up interest up

to 12% only]to 12% only]13.13. Power to expel (otherwise nobody can be expelled as per Schedule)Power to expel (otherwise nobody can be expelled as per Schedule)

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

S. S. no no

Particulars Particulars Partnership Partnership Company Company LLP LLP

1.1. GoverningGoverning

LawLaw

Limited PartnershipLimited Partnership

Are governed by ‘TheAre governed by ‘The

Partnership Act,1932Partnership Act,1932

And various rulesAnd various rules

made there under. made there under.

Companies AreCompanies Are

governed by ‘Thegoverned by ‘The

Companies Act, 2013’ .Companies Act, 2013’ .

Limited Liability Limited Liability 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.

22 Registration Registration Registration isRegistration is

optional optional

Registration withRegistration with

ROC is required. ROC is required.

Registration with Registration with ROC is required.ROC is required.

3.3. Creation Creation It is Created byIt is Created by

ContractContract

It is Created byIt is Created by

LawLaw

It is Created by LawIt is Created by Law

4.4. DistinctDistinct

Entity Entity

It is not aIt is not a

separate legalseparate legal

EntityEntity

It is a separateIt is a separate

legal entity underlegal entity under

the Companiesthe Companies

Act, 2013Act, 2013

It is a separate legal It is a separate legal entity under the LLP entity under the LLP

Act, 2008. Act, 2008.

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

Sr. Sr. no. no.


5.5. Choice of Name Choice of Name Any name as perAny name as per

choice choice

Name to containName to contain

‘‘Limited’ in case ofLimited’ in case of

Public company orPublic company or

‘‘Private Limited’ inPrivate Limited’ in

case of Privatecase of Private

Company as suffix & isCompany as suffix & is

subject to availability. subject to availability.

Name to containName to contain

‘‘Limited LiabilityLimited Liability

Partnership’or ‘LLP’Partnership’or ‘LLP’

as suffix & is subjectas suffix & is subject

to availability. to availability.

66 Cost ofCost of

Formation Formation

Nominal cost of Nominal cost of creating a partnership creating a partnership

firm.firm.

Minimum fee forMinimum fee for

incorporation ofincorporation of

Private Company isPrivate Company is

Rs.6,000/- approx. andRs.6,000/- approx. and

for incorporation offor incorporation of

Public Company,Public Company,

the minimum fee isthe minimum fee is

Rs.21000/- approx. Rs.21000/- approx.

The cost of formationThe cost of formation

of LLP isof LLP is

comparatively lessercomparatively lesser

than the cost ofthan the cost of

formation of Company.formation of Company.

It’s statutory feesIt’s statutory fees

ranges from Rs 500/ranges from Rs 500/

to Rs 5,000/-to Rs 5,000/-

7.7. PerpetualPerpetual

Succession Succession

It does not haveIt does not have

perpetual successionperpetual succession

as this depends uponas this depends upon

the will of partners . the will of partners .

It hasIt has

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

come and go. come and go.

It has perpetual It has perpetual succession and succession and

partners may come partners may come and go . and go .

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

S. S. no no


8.8. CharterCharter

DocumentDocument

Partnership Deed is aPartnership Deed is a

charter of the firmcharter of the firm

which denotes itswhich denotes its

scope of operationscope of operation

and rights and dutiesand rights and duties

of the partnersof the partners

Memorandum andMemorandum and

Articles of AssociationArticles of Association

is the charter of theis the charter of the

company whichcompany which

defines its scope ofdefines its scope of

operation.operation.

LLP Agreement is aLLP Agreement is a

charter of the LLPcharter of the LLP

which denotes itswhich denotes its

scope of operationsscope of operations

And rights and dutiesAnd rights and duties

of the partners vis-àof the partners vis-à

vis LLPvis LLP

99 CommonCommon

Seal Seal

There is no conceptThere is no concept

of common seal inof common seal in

partnership partnership

It denotes theIt denotes the

signature of thesignature of the

company and everycompany and every

company shall have itscompany shall have its

own common seal own common seal

It denotes theIt denotes the

signature and LLPsignature and LLP

may have its ownmay have its own

common sealcommon seal

(Optional),(Optional),

dependant upon thedependant upon the

Terms of theTerms of the

AgreementAgreement

10.10. Formalities ofFormalities of

IncorporationIncorporation

In case ofIn case of

registration, Deedregistration, Deed

along with form /along with form /

affidavit required toaffidavit required to

be filed with ROF be filed with ROF along with requisite along with requisite

filing feesfiling fees

Various e-forms along Various e-forms along the Memorandum & the Memorandum &

Articles of Association Articles of Association are to be filed with are to be filed with

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

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

Registrar of Registrar of Companies with Companies with prescribed feesprescribed fees

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S. S. 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 8-10 daysIt will take 8-10 days

(approx.) to(approx.) to

incorporate (inclusiveincorporate (inclusive

of time taken to obtainof time taken to obtain

DIN) DIN)

It will take 8-10 daysIt will take 8-10 days

(approx.) to(approx.) to

incorporate (inclusiveincorporate (inclusive

of time taken toof time taken to

Obtain DPIN) Obtain DPIN)

1212 Legal Legal ProceedingsProceedings

Only registered Only registered partnership can sue partnership can sue third party third party

A company is a legal A company is a legal entity which can sue entity which can sue and be suedand be sued

A LLP is a legal entity A LLP is a legal entity which can sue and be which can sue and be suedsued

13.13. Foreign Foreign ParticipationParticipation

Foreign Nationals can Foreign Nationals can not be a Partner in a not be a Partner in a Partnership firm.Partnership firm.

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.

14.14. Number of Number of MembersMembers

Minimum 2 and Minimum 2 and Maximum 10 / 20 Maximum 10 / 20

2 to 200 members in 2 to 200 members in case of Private case of Private Company and Company and Minimum 7 members Minimum 7 members in case of Public in case of Public Company Company

Minimum 2 partnersMinimum 2 partners

and there is no limitand there is no limit

for maximum numberfor maximum number

of partners of partners

15.15. Ownership of Ownership of AssetsAssets

Partners have joint Partners have joint ownership of all the ownership of all the assets belonging to assets belonging to partnership firmpartnership firm

Company & not its Company & not its members has members has ownership of assetsownership of assets

The LLP independentThe LLP independent

of its members hasof its members has

ownership of assetsownership of assets

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S. S. no no


16.16. Rights/Duties/ Rights/Duties/ obligation of the obligation of the Partners/ Partners/ Managing Managing Partners/ Partners/ Directors Directors

Rights / Duties/ Rights / Duties/ obligation of the obligation of the partners are governed partners are governed by Partnership deed by Partnership deed ..

Rights / Duties/Rights / Duties/

obligation of theobligation of the

directors are governeddirectors are governed

by AOA andby AOA and

resolutions passed byresolutions passed by

shareholders orshareholders or

directors directors

Rights / Duties/Rights / Duties/

obligation of theobligation of the

partners are partners are governedgoverned

by LLP Agreement. by LLP Agreement.

1717 Liability ofLiability of

Partners/Partners/

MembersMembers

Unlimited. Partners Unlimited. Partners are severally and are severally and jointly liable for jointly liable for actions ofactions of

other partners and the other partners and the firm and liability firm and liability extend to their extend to their personal assetspersonal assets

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 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 of the Income of the Partnership is taxed at Partnership is taxed at a Flat rate of 30% plus a Flat rate of 30% plus education cess education cess

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 LLPIncome of LLP

is taxed at ais taxed at a

Flat rate of 30% plusFlat rate of 30% plus

education cess education cess

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.

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S. S. no no


20.20. Transfer ofTransfer of

Share Share

Not transferable. Not transferable. Ownership is easily Ownership is easily transferabletransferableby way of transfer of by way of transfer of

shares. shares.

Regulations relating Regulations relating to transfer are to transfer are

governed by the LLP governed by the LLP Agreement. Agreement.

2121 Dissolution Dissolution By agreement, mutual By agreement, mutual consent, insolvency, consent, insolvency,

certain contingencies, certain contingencies, and by court order. and by court order.

Voluntary or by order Voluntary or by order of National Company of National Company

Law Tribunal Law Tribunal

Voluntary or by order Voluntary or by order of National Company of National Company

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

Agreement Agreement

A person can becomeA person can become

member by buyingmember by buying

shares of a company. shares of a company.

A person can beA person can be

admitted as a partneradmitted as a partner

as per the LLPas per the LLP

Agreement Agreement

23.23. Cessation as Cessation as partner / member partner / member

A person can cease toA person can cease to

be a partner bybe a partner by

resignationresignation

or due to death or asor due to death or as

per the agreement per the agreement

A member / A member / shareholder can cease shareholder can cease

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

A person can ceaseA person can cease

to be a partner as perto be a partner as per

the LLP Agreement orthe LLP Agreement or

in absence of thein absence of the

same by giving 30same by giving 30

days prior notice todays prior notice to

the LLPthe LLP

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S. S. no no


24.24. StatutoryStatutory

MeetingsMeetings

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 conducted at conducted at

appropriate time . appropriate time .

There is no provisionThere is no provision

with regard to holdingwith regard to holding

Of any meeting.Of any meeting.

2525 AnnualAnnual

FilingFiling

No return is required No return is required to be filed with to be filed with

Registrar of Firms Registrar of Firms

Annual FinancialAnnual Financial

Statement and AnnualStatement and Annual

Return is required toReturn is required to

be filed with thebe filed with the

ROC every year. ROC every year.

Annual statement ofAnnual statement of

accounts andaccounts and

Solvency (eForm 8) &Solvency (eForm 8) &

Annual Return (eformAnnual Return (eform

11) is required to be11) is required to be

filed with ROC everyfiled with ROC every

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 accounts as per the accounts as per the

provisions of the provisions of the Income Tax Act.Income Tax Act.

Companies areCompanies are

required to get theirrequired to get their

accounts auditedaccounts audited

annually as per theannually as per the

provisions of theprovisions of the

Companies Act, 2013 Companies Act, 2013

All LLP’s except forAll LLP’s except for

those having turnoverthose having turnover

less than Rs.40 Lacsless than Rs.40 Lacs

or contribution Lessor contribution Less

than Rs.25 Lacs inthan Rs.25 Lacs in

any financial year areany financial year are

required to get theirrequired to get their

accounts auditedaccounts audited

annually as per theannually as per the

Provisions of LLP ActProvisions of LLP Act

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S. S. no no


27.27. WhistleWhistle

Blowing Blowing

No such provision is No such provision is provided underprovided underThe Partnership Act, The Partnership Act, 1932 1932

No such provision is No such provision is provided under the provided under the Companies Act, 2013 Companies Act, 2013

Provision has beenProvision has been

made to providemade to provide

protection toprotection to

Employees & Employees & partnerspartners

providing usefulproviding useful

information during aninformation during an

investigation orinvestigation or

convicting anyconvicting any

partner or firm. partner or firm.

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

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

any authorized certifying agency.

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.

Any individual intending to become DP should file online application For DIN (Rule 10)

STEPS REQUIRED TO REGISTER LLP

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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).

Every LLP must have different name. Hence

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). 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 + Rule 18(3)

An existing entity can object allotment of name (Form 23).

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Step 4 (Steps required to register LLP)

Form 2 Incorporation: Document + Statements 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 (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 named in the incorporation document as a designated partner having DIN.

Also a statement to be digitally signed by an advocate/company secretary/ chartered accountant/ cost accountant in practice who is engaged in the formation of LLP.

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Congratulations! Your LLP is now registered by ROC

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).

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 a partner / designated partner, intimation of DPIN and consent to become a partner/designated partner. Form4

Notice for change of name Form5

Application for allotment of Designated Partner Identification Number Now DIN

Statement of Account & Solvency Form8

Intimation of changes in particulars by Designated Partners Form 10

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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

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) 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

Application for compounding of an offence under the Act Form31

Statements of Accounts and Solvency & AuditStatements of Accounts and Solvency & Audit ((Sec.34)Sec.34)

(i)(i) 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).by Rule 24. (Sec.34).

(ii)(ii) Books of Accounts to be maintained for 8 years from the date on which Books of Accounts to be maintained for 8 years from the date on which they are made.they are made.

(iii)(iii) 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. accounting.

(iv)(iv) Every designated partner shall have deemed to approve the accounts Every designated partner shall have deemed to approve the accounts unless one take all reasonable steps to prevent their being approved & unless one take all reasonable steps to prevent their being approved & signed.signed.

(v) Within a period of six months from the end of the year, LLP to prepare a (v) Within a period of six months from the end of the year, LLP to prepare a Statement of A/cs and Solvency in Form No.8 as prescribed by Rule 24. Statement of A/cs and Solvency in Form No.8 as prescribed by Rule 24. It is to be signed by the Designated Partner.It is to be signed by the Designated Partner.

(vi) Before 30th October in each year, the Statement of Accounts and (vi) Before 30th October in each year, the Statement of Accounts and Solvency for the year ended on 31st March is required to be filed with Solvency for the year ended on 31st March is required to be filed with the Registrar ( Rule 24)the Registrar ( Rule 24)

(vii) (Sec. 35) Annual Return – Every LLP to file Annual Return within 60(vii) (Sec. 35) Annual Return – Every LLP to file Annual Return within 60days of closure of financial year. Incase of failure DP to be fined days of closure of financial year. Incase of failure DP to be fined (Rs.10,000/- to Rs. 100,000/-) Additional fee of Rs 100/- per day.(Rs.10,000/- to Rs. 100,000/-) Additional fee of Rs 100/- per day.

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CONTD….CONTD….

(viii) Accounts shall be audited by Auditors appointed by the LLP, in (viii) Accounts shall be audited by Auditors appointed by the LLP, in accordance with Rule 24.accordance with Rule 24.

Audit compulsory under LLP Act if : -Audit compulsory under LLP Act if : -

(a) Turnover exceeds Rs. 40 lakhs (a) Turnover exceeds Rs. 40 lakhs

(b) Contribution by partners exceed Rs. 25 lakhs.(b) Contribution by partners exceed Rs. 25 lakhs.

(ix) Auditor shall be appointed before the end of FY for first year(ix) Auditor shall be appointed before the end of FY for first year

Subsequent Auditor to be appointed before 30 days of end of FYSubsequent Auditor to be appointed before 30 days of end of FY

(X)(X) Auditor can resign by giving a notice 14 days prior to the last date for Auditor can resign by giving a notice 14 days prior to the last date for the appointment of auditor along with statement of circumstances the appointment of auditor along with statement of circumstances connected (Otherwise not effective)connected (Otherwise not effective)

(XI)(XI) Auditor’s term comes to end on deposit of notice or date mentioned.Auditor’s term comes to end on deposit of notice or date mentioned.

(XII)(XII) Annual return needs to be certified by CS if Turnover exceeds 5 crores Annual return needs to be certified by CS if Turnover exceeds 5 crores or contribution exceeds 50 lakhsor contribution exceeds 50 lakhs

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CONVERSION TO LLP CONVERSION TO LLP (Sec.55 to 57)(Sec.55 to 57)

Conversion from firm/company into limited liability partnership.Conversion from firm/company into limited liability partnership. (Section 55 + Schedule-II).(Section 55 + Schedule-II).

1. Eligibility – A firm can be converted only if all the partners agree to 1. Eligibility – A firm can be converted only if all the partners agree to become partners of LLP.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-III)(Sec. 56 Schedule-III)

3.3. Conversion from unlisted public company into LLP. (Section 57 + Conversion from unlisted public company into LLP. (Section 57 + Schedule –IV)Schedule –IV)

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

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

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((ContCont……CONVERSION)CONVERSION)

CONVERSION from FIRM to LLP:CONVERSION from FIRM to LLP: (As per Second Schedule)(As per Second Schedule)

a)a) On incorporation of LLP all the rights and liabilities under various On incorporation of LLP all the rights and liabilities under various agreements executed by the firm shall stand assigned to LLP as if agreements executed by the firm shall stand assigned to LLP as if those agreements were executed by LLP instead of the firm. those agreements were executed by LLP instead of the firm.

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

c)c) If any property of the partnership firm is registered with any If any property of the partnership firm is registered with any authority, LLP must notify the authorities like SSI etc., about the authority, LLP must notify the authorities like SSI etc., about the conversion and submit the particulars in such form as the authority conversion and submit the particulars in such form as the authority may specify.may specify.

d)d) For a period of 12 months LLP will have to mention its previous For a period of 12 months LLP will have to mention its previous Name and Registration number and business Form.Name and Registration number and business Form.

If the Registrar refuses registration, the Applicant may apply to the If the Registrar refuses registration, the Applicant may apply to the Tribunal within 60 days from such intimation of refusal [Rule 32(2)]. Tribunal within 60 days from such intimation of refusal [Rule 32(2)].

Rule 33 provides that upon such conversion the necessary intimation Rule 33 provides that upon such conversion the necessary intimation to the Registrar of Firms or Registrar of Companies, as the case may to the Registrar of Firms or Registrar of Companies, as the case may be shall be given in form No. 14.be shall be given in form No. 14.

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Striking off LLP Name(Section-75 Read with Rule-37)

Section-75 empowers Registrar to strike off the name of LLP on Suo moto basis Application by LLP

Suo moto action of Registrar: - LLP shall be defunct for at least two years.

Application by LLP (in form-24): - LLP shall be defunct for at least one year.

NOC from concerned Govt. authority if regulated by them.

Suo moto notice of ROL/application of LLP be placed on Ministry web-site for a period of one month before publication of notice in Official Gazette.

LLP shall be dissolved w.e.f publication of notice in official Gazette.

LLP & TAXATIONLLP & 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.In U.K. and Singapore, Tax is not payable by LLP.b) b) Tax opaque juridical entity. Tax opaque juridical entity. In Belgium and Australia, LLP is taxable entity.In Belgium and Australia, LLP is taxable entity.c) c) Flexible – Flexible –

In USA – Left to the decision of the partners.In USA – 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 - Tax payable by LLP. In India LLP is tax opaque juridical entity - Tax payable by LLP.

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

5. No surcharge, effective tax rate 30.9%5. No surcharge, effective tax rate 30.9%6.6. No MAT (Minimum Alternate Tax) A company has to pay [email protected]% (eff.rate No MAT (Minimum Alternate Tax) A company has to pay [email protected]% (eff.rate

20.007% of Book Profit (Sec.115JB) However LLP HAS TO PAY AMT @ 18.5% 20.007% of Book Profit (Sec.115JB) However LLP HAS TO PAY AMT @ 18.5% eff.rate 19.055%eff.rate 19.055%

7. No DDT (Dividend Distribution Tax – Sec.115 O)7. No DDT (Dividend Distribution Tax – Sec.115 O)Amount distributed by the company as dividend is liable for additional income Amount distributed by the company as dividend is liable for additional income tax @15%tax @15%

8. Profits distributed by LLP exempt in the hands of the partners Sec.10(2A).8. Profits distributed by LLP exempt in the hands of the partners Sec.10(2A). 26


9. Profit earned by the Assignee of economic Interest (as per Sec.42 of 9. Profit earned by the Assignee of economic Interest (as per Sec.42 of LLP Act) is taxable in his hands.LLP Act) is taxable in his hands.

10.10.Deemed dividend provisions do not apply to LLPDeemed dividend provisions do not apply to LLPIf a private limited company gives any loan to any shareholder holding not less 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 than 10% of share then that loan is taxed as dividend received from the company. [Sec.2(22)(e) of I.T.Act] company. [Sec.2(22)(e) of I.T.Act]

11.11. Corporate law provisions for inter-corporate deposits will not apply. Corporate law provisions for inter-corporate deposits will not apply. (Sec.58-A/73 of New Companies Act. (Sec.58-A/73 of New Companies Act. LLP is free to receive deposits from LLP is free to receive deposits from other LLPs whereas a company can invite deposits from public as perother LLPs whereas a company can invite deposits from public as per rules rules only).only).

12.12. Interest paid to partnersInterest paid to partners is allowable-deduction provided capped at 12% is allowable-deduction provided capped at 12% [Sec.36(1)(iii),Sec.40(b),Sec.184].[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 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 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. partners if not specified in the Partnership Deed is not allowed.

Moreover, interest is allowed only to the extent of 12%.Moreover, interest is allowed only to the extent of 12%.27


13. 13. As per Sec. 184 a partnership will be assessed as a firm provided there is 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 an instrument of partnership (P. Deed or LLP Agreement) and the shares of partners are specified therein. In case of unwritten partnership the of partners are specified therein. In case of unwritten partnership the deductions for salary and interest are not allowed. The provisions will deductions for salary and interest are not allowed. The provisions will equally apply to LLP.equally apply to LLP.

14. Remuneration to working partners allowed subject to cap.u/s.40(b)(v)-if 14. Remuneration to working partners allowed subject to cap.u/s.40(b)(v)-if paid in accordance with Deed/Agreement.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/- or 90% of (a) On the first 3 lacs of book profit or in the case of loss Rs.1,50,000/- or 90% of Book profit.Book profit.(b) On the balance profit in excess of 3 lacs – @ 60% of book profit. (b) On the balance profit in excess of 3 lacs – @ 60% of book profit.

15.15. Retiring/deceased partner’s share in loss cannot be carried forward in the Retiring/deceased partner’s share in loss cannot be carried forward in the hands of LLP hands of LLP Sec.78(1)Sec.78(1)-There is a contrary view also. -There is a contrary view also.

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

17.17. Wealth Tax not applicable to LLPs.----NOW NO QUESTION OF WTAXWealth Tax not applicable to LLPs.----NOW NO QUESTION OF WTAXBut interest of the partner in the assets of the firm may be liable to wealth Tax 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 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.provision may not have applicability in the case of partners of LLP.

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STATUS AFTER 01-04-2011STATUS AFTER 01-04-2011Transfer of Assets on conversion u/s 56 & 57 of the act shall not be regarded as 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 the total sales, turnover or gross receipts in business of the company do not exceed sixty lakhs rupees in any of the three Previous year preceding previous exceed sixty lakhs rupees in any of the three Previous year preceding previous yearsyears

the shareholders of the company become partners of the LLP in the same 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 conversion;proportion as their shareholding in the company as on the date of the conversion;

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

the erstwhile shareholders of the company continue to be entitled to receive at 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 least 50 per cent of the profits of the LLP for a period of 5 years from the date of conversion;conversion;

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

no amount is paid, either directly or indirectly, to any partner out of the 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 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 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 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 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 partner or transferred to their capital accounts until 3 years from date of conversion.]conversion.]

Note:- LLP is allowed carry forward and set-off of business loss to the successor LLP Note:- LLP is allowed carry forward and set-off of business loss to the successor LLP which fulfills the above mentioned conditions for a fresh period of 8 years from which fulfills the above mentioned conditions for a fresh period of 8 years from the expiry of the year of conversion and unabsorbed depreciation the expiry of the year of conversion and unabsorbed depreciation indefinitely.72A(6A)indefinitely.72A(6A)

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THANK YOUTHANK YOU CA VIKASH JAINCA VIKASH JAIN

B.com (Hons) F.C.A., DISAB.com (Hons) F.C.A., DISA

204, Wall Street-1,204, Wall Street-1,Opp. Orient Club,Opp. Orient Club,

Near Gujarat College,Near Gujarat College,Ellis bridge, AhmedabadEllis bridge, Ahmedabad

Phone : 079-32403451; 26401351Phone : 079-32403451; 26401351email : [email protected] : [email protected]

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