Salient features of LLP and Conversion of Company into LLP

Conversion Of Companies & Compliance by LLP

V.K.Tulsyan & Co.1C.A. Vishnu Kr Tulsyan

About LLP:

LLP, a legal form available world-wide, now introduced in

India and is governed by the Limited Liability Partnership

Act 2008, with effect from April 1, 2009

Limited Liability Partnership (LLP) is a corporate business

vehicle that provides both the benefits of a company and

partnership firm i.e. limited liability and allows its members

the flexibility of organizing their internal structure as a

partnership based on a mutually arrived agreement.

C.A. Vishnu Kr Tulsyan

C.A. Vishnu Kr Tulsyan 3

History of LLPLLP is not a new concept but already practiced in various countries across the globe. Such as:

USA - Emerged in 1990s. – popular among professionals (lawyers, accountants and architects).

UK – LLP Act 2000 – LLP is not taxable but members are liable for taxation.

Japan – 2005 – not a corporation but a contractual relationship. Therefore, Lawyers and accountants cannot form LLP.

Canada – only to the group of professionals (lawyers, Accountants and Doctors). LLP not to file IT returns but taxes are paid by partners.

4C.A. Vishnu Kr Tulsyan

Germany – Not exactly aching to Corporate entity – taxes are paid by the respective partners.

China – Special general partnership (SGP). –Restricted knowledge based professionals – LLP structure shields from wilful misconduct of partners.

Singapore – 2005 – Inspired by US and UK. LLP like a Body Corporate – It takes transparency (Partners are subject to tax not partnership).

India – Not restricted to Professionals/Technical services. (As was recommended by Naresh Chandra Committee) but available to Business too ( eg. small entities / venture capital enterprises).


What Is Limited Liability Partnership??

LLP is Relatively a new arrival that has taken thecentre stage. An LLP is a Corporate businessvehicle that combines the flexibility of aPartnership with the advantages of SeparateLegal entity. It has rightly been called theHYBRID of a Company and Partnership Firm.


C.A. Vishnu Kr Tulsyan V.K.Tulsyan & Co.

Essential Features Of LLP

Essential Features Of LLP

Sl. No.

LLP is……

1.

BodyCorporate

A Body Corporate formed and incorporated underthe Limited Liability Act, 2008 and registered withthe Registrar of Companies.

2.SeparateLegal Entity

A Separate Legal entity from itspartners, it can sue and be sued and hold propertyin its own name.

3.PersonalLiability

A Partner is not personally liable for an obligation ofthe LLP or misconduct of other partners. LLP liablefor its full assets visais partners for their agreedcontribution.



4. Agent-PrincipalRelationship

Every partner is the agent of the LLP, but not ofother Partners.

5. PerpetualSuccession

Any change in partners does not affect theexistence rights or liabilities of the LLP.

6. Taxation Treated at par with traditional Partnerships under the Income Tax Act, 1961.

7. Business View Point only

“Carrying on a Lawful Business with the view toProfit.” Hence, Non-profit objectives (Section25 or Section 8) of the Companies Act1956/2013 cannot form LLP.

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Difference between LLP & Company

Sr. No. Limited Liability Partnership Private Limited Company

1. Governed by LLP Act,2008 Governed by Companies Act 1956 & 2013.

2.Liability of the partner limited to the extent ofhis capital contributed or agreed to becontributed as per LLP agreement.

Liability of shareholders is limited to the extentamount due on shares subscribed.

3. Minimum 2 partners, maximum unlimited. Minimum 2 shareholders, maximum 200.

4.LLP agreement is the main document definingthe activities of LLP & provides the procedureto be followed by LLP.

Memorandum of Association is the main documentdefining the activities of the company & it iscompulsory for a company to have its own articles ofassociation.

5. Managed by the partners, agreement give thepower to run the business to one or morepartners.

Managed by the Board of Directors.


Sr. No. Limited Liability Partnership Private Limited Company

6.Designated partners are liable for compliance of the LLP requirementsi.e. filing returns, Annual Accounts etc.

Secretary / Managing director / executive director / Directors / Manager is liable for compliance of Company Law requirements (KMP).

7.Minimum 2 Designated partners andno directors.

Minimum 2 Directors.

8.Transfer allowed . Transferee doesnot become partner automatically.

The AOA has to provide restrictions for transfer of shares.

9.LLP can be converted into LimitedCompany by following Company Lawprocedure. In that event LLP wouldbe wound up.

Unlisted Companies and Private Limited Companies canbe converted into LLP.

10. Common Seal is optional.Common Seal is Compulsory (recent amendment has made it optional)

11.Change of registered office from onestate to another possible with veryless legal formalities to be followed.

Change of registered office from one state to anotherpossible with lot of legal formalities to be followed.( Sec 17 in 1956 / Sec 13 in CA 2013)


Formation of LLP

LLP

Conversion

From Existing Companies

From Existing Firms

New Formation


Why Is Conversion Needed ?

A Registered Limited Company in India (Private or Public) has a lot of

i. Complex formalities.

ii. Additional overheads for managing affairs including

iii.Mandatory Board Meeting, maintenance of Statutoryrecords, etc.

iv.Penalty and prosecution provisions



Conversion of Companies into LLP –

Pre - Requisites / Conditions

From Company•All property, assets, interests, rights, privileges, liabilities,obligations relating to the company and the whole of theundertaking of the Company shall be transferred to and shall vestin the LLP without further assurance, act or deed.(Accordingly, if a CA audit firm, being an auditor in a companyunder the Companies Act, 1956, gets converted into an LLPafter complying with the relevant provisions of the LLP Act,2008, then, such an LLP, in, accordance with the provisions ofsection 58(4) (b) of the LLP Act, 2008 would be deemed to bethe auditor of the said company)

•Up to date filing of Annual returns with ROC

•Up to date filing of Income Tax Returns. Latest ITR copy to be filed

Conversion of Companies into LLP –Pre - Requisites


• All shareholders to become Partners and no one else

• No prosecution initiated against or Show Causenotice for alleged offences under Companies Act (Canbe viewed by Master Data )

• No Charges should subsist at MCA site

• Company should be having share capital

• Section 25 Com. are not allowed

• One financial year must over

• No-Pending of E-forms filing by Company

• Confirmation from all creditors

Conversion of Companies into LLP –Pre - Requisites (Contd)


Conversion of Companies into LLP –Pre - Requisites (Contd)

Things to be ensured before or at time of filing of form 18i. Individual Consent/statement (as per Part-B of form 18) from shareholders.

(Mandatory)

ii. Disinterested Shareholders, if any, to be provided exit option, (shareacquisition/transfer) otherwise no conversion.

iii. Approval from any other body/ authority ( under any LAW ).

iv. Rejection of earlier application for conversion, if any – SRN of old F18 andreasons.

v. Details of conviction, ruling, order, judgment of any Court- subsisting if any.

vi. Consent of all the secured creditors with list, if any. xi) Clearance from any body/authority, if any,

vii. Statement of Assets and Liabilities of the company duly certified as true andcorrect by the auditor & 2 Directors.

viii. Any other information can be provided as an optional attachment.


From Director

• DIN -residential status must (For DP)

• DIN –PAN integration (For DP)

• PAN/ passport (partners)

• PAN containing abbreviation are not allowed (PAN must be in full)

Conversion of Companies into LLP –Pre - Requisites / Conditions


C.A. Vishnu Kr Tulsyan V.K.Tulsyan & Co.

From Company• Board Resolution for conversion into LLP• Approved DIN (Designated Identification Number) is a pre-

requisite for incorporation process.• Filing of form 1 –Application for Name availability (Approval)

Documents required for incorporation of an LLP• Drafting of a LLP Agreement vetted by Promoters• Application for conversion shall be made in e-Form 18• Form 2 (Statement by Promoter)• Form 3 (Information regarding the LLP Agreement)• Form 14 (Conversion intimation to ROC)• Subscription sheet signed by the promoters• LLP Agreement should be duly stamped• Proof of Address of Registered Office

Conversion of Companies into LLP -Procedure


Conversion of Companies into LLP Procedure

Filing Form 3• Within 30 days of date of registration of the LLP• With signed LLP agreement containing Changes (on Stamp

Paper)

Filing of form 14• Within 15 days of the date of registration of the LLP with

ROC• Attachment- LLP Conversion Certificate (result of F-18)• Digitally signed by one of the directors in the company

before conversion


Conversion of Company into LLP Post Conversion Issues

Obtain

Fresh IT PAN/ TAN.

New Bank Account.

All other applicable Licenses like Service Tax, VAT, Excise, Customs, IEC etc.

Maintain

Formerly known as “…………Private Limited”converted and registered as LLP on 31-03-2013vide LLPIN:……. with limited liability- for 12 months.

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Conversion of Company into LLP

Post Conversion Effect ( In case of Company Conversion)Criteria as per IT• Carry forward loss & Accumulated Depreciation next 8 yrs• Tax Saving as per illustration (Surcharge)• Unlimited no. of partners• Last 3 years average turnover of Company should be less than

60 lakhs. (eligibility)• No consideration to partners for conversion• All assets of company to be assets of LLP• All shareholders to be partners of LLP• Accumulated profits on date of Conversion are not allowed for

distribution for next 3 years from date of conversion. (Post)• 50% of shareholders of Company should continue to hold for

next 5 years .(Post)• The shareholder of the company shall not receive any

consideration directly or indirectly except profit sharing in LLP

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Taxation Advantages

Thank You!

CA Vishnu Kr Tulysan+91 98310 54180 / [email protected]

www.vktulsyan.com/

CA Vishnu Kr Tulsyan is practicing Chartered Accountant & Company Secretary with over 15 years of exhaustive experience in the filed of Finance, Accounts, Corporate Compliance & Advisory, Regulatory Changes Implementation.


http://vktulsyan.com/

Date post:	11-Aug-2015
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