LIMITED LIABILITY PARTNERSHIPS AN OVERVIEW

Presented by : CA Kamlesh Vikamsey Organized by : Calicut Branch of SIRC of ICAI

CA. Kamlesh Vikamsey

Indian history
2003: Naresh Chandra Committee Report highlighted need for LLPs &

suggested application of LLPs to Service industry, Chartered Accountants,

Lawyers, Architects, etc. 2005: J J Irani Expert Committee on Company Law recommended introduction

of LLPs-suggested small enterprises be included in scope of LLP & there should

be a separate LLP Act 2006: LLP Bill introduced in Parliament

2007: Bill referred to Parliamentary Standing Committee (PSC) for examination

2008: Lok Sabha passes New LLP Bill as revised by PSC

CA. Kamlesh Vikamsey

Indian history
2009: LLP Act, 2008 receives presidential assent & is published in Official Gazette 2009: LLP Act, 2008 gets notified w.e.f March 31st, 2009 2100 LLPs registered till 24.08.2010

CA. Kamlesh Vikamsey

Different Chapters of the Act

Chapter I-Preliminary (Ss. 1 & 2) Chapter II-Nature of LLP (Ss. 3-10) Chapter III-Incorporation & Incidental Matters (Ss. 11-21) Chapter IV-Partners & their Relations (Ss. 22-25) Chapter V-Extent & Limitation of Liability of LLP & Partners (Ss. 26-31) Chapter VI-Contributions (Ss. 32 & 33) Chapter VII-Financial Disclosures (Ss. 34-41) Chapter VIII-Assignment & Transfer of Partnership Rights (S. 42) Chapter IX-Investigation (Ss. 43-54)
CA. Kamlesh Vikamsey

Different Chapters of the Act

Chapter X-Conversion to LLP (Ss. 55-58) Chapter XI-Foreign Limited Liability Partnerships (S. 59) Chapter XII-Compromise, Arrangement or Reconstruction of LLPs (Ss. 60-62) Chapter XIII-Winding Up & Dissolution (Ss. 63-65) Chapter XIV-Miscellaneous Provisions (Ss. 66-81) First Schedule-Mutual Rights & Liabilities of Partners & LLP Second Schedule-Conversion of Partnership Firm to LLP Third Schedule-Conversion of Private Company to LLP Fourth Schedule-Conversion of Unlisted Public Company to LLP

CA. Kamlesh Vikamsey

Preliminary (Ch. I)

Short title, extent & commencement This Act may be called the Limited Liability Partnership Act, 2008 It extends to the whole of India All sections have been notified as on March 31st, 2009, vide notification no. S.O. 891(E), except Clauses (c) and (u) of sub-section (1) of S. 2-Appellate Tribunal & Tribunal Extent of applicability of Section 31 in respect of Tribunal S. 51-Application by Central Government for Winding-up of LLP Ch. X-Conversion to LLPs [Notified vide Notification no. S.O. 1323(E) dated May 22nd, 2009] Ch. XIII-Winding Up of LLPs S. 72-Jurisdiction of Tribunal & Appellate Tribunal Clauses (b) of S. 81, pertaining to its applicability to Ss. 51, 63 & 64; & (c) of S. 81 Second, Third & Fourth Schedule-Pertaining to Conversion of Firms & Companies (except Listed Companies) to LLPs [Notified vide Notification no. S.O. 1323(E) dated May 22nd, 2009]
CA. Kamlesh Vikamsey

Preliminary (Ch. I)
Important Definitions: Body Corporate [S. 2 (1) (d)]:
means a company defined in section 3 of the Companies Act, 1956 and includes(i) a limited liability partnership registered under this Act; (ii) a limited liability partnership incorporated outside India; and (iii) a company incorporated outside India, but does not include(i) a corporation sole; (ii) a co-operative society registered under any law for the time being in force; and (iii) any other body corporate (not being a company as defined in section 3 of the Companies Act, 1956 or a limited liability partnership as defined in this Act), which the Central Government may, by notification in the Official Gazette, specify in this behalf

CA. Kamlesh Vikamsey

Preliminary (Ch. I)

Business [S. 2 (1) (e)]:

includes every trade, profession, service and occupation

Financial Year [S. 2 (1) (l)]:

in relation to limited liability partnerships, means the period from the 1st day of April of a year to the 31st day of March of the following year: Provided that in case of a limited liability partnership incorporated after the 30th day of September of a year, the financial year may end on the 31st day of march of the year next following that year

CA. Kamlesh Vikamsey

Preliminary (Ch. I)

Limited Liability Partnership Agreement [S. 2 (1) (o)]:

means any written agreement between the partners of the limited liability partnership or 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

Registrar [S. 2 (1) (s)]:

means a Registrar, or an Additional, a Joint, a Deputy or an Assistant Registrar, having the duty of registering companies under the Companies Act, 1956

CA. Kamlesh Vikamsey

Preliminary (Ch. I)

S. 2 (2):
Words and expressions used and not defined in this Act defined in the Companies Act, 1956 shall have the meanings respectively assigned to them in that Act

CA. Kamlesh Vikamsey

Nature of Limited Liability Partnership (Ch. II)

LLP is body corporate formed & incorporated under LLP Act [S. 3 (1)] LLP is legal entity separate from its partners [S. 3 (1)] LLP has perpetual succession [S. 3 (2)] Existence, Rights & Liabilities of LLP not affected by change in partners [S. 3 (3)] Indian Partnership Act, 1932 does not apply to LLPs [S. 4] Partners Individuals / Body Corporate can be partners [S. 5] Minimum two partners [S. 6 (1)] Maximum unlimited partners
CA. Kamlesh Vikamsey

Nature of Limited Liability Partnership (Ch. II)

If no. of partners fall below 2 for more than 6 months & Remaining partner has knowledge of such no. of partners falling below two for period more than 6 months Then remaining partner will be personally liable for liabilities incurred by LLP [S. 6 (2)]

CA. Kamlesh Vikamsey

Nature of Limited Liability Partnership (Ch. II)

Designated Partners (DP) [S. 7 (1)] At least two DPs Only Individuals can be DPs Can be nominees of Body corporate partner/s At least one resident in India [Q. 19 of FAQs] Every DP to obtain a Designated Partner Identification No. (DPIN) Responsibilities & Liabilities of DPs [S. 8] Responsible for doing all acts, matters & things required to be done by LLP w.r.t compliance of LLP Act including filing of any document, return, statement & like report under LLP Act & as specified in LLP Agreement Liable to all penalties imposed on LLP for any contravention of above
CA. Kamlesh Vikamsey

Nature of Limited Liability Partnership (Ch. II)

Changes in DPs [S. 9] LLP to appoint DP within 30 days of vacancy If no DP is appointed or if, at any time, there is only 1 DP, each partner shall be deemed to be a DP Penalty for Contravention [S. 10] For S. 7 (1): LLP & its every partner shall be fined > Rs. 10,000 (Maximum Rs. 5 Lacs) For Ss. 7 (4) & (5), 8 & 9: LLP & its every partner shall be fined > Rs. 10,000 (Maximum Rs. 1 Lac)

CA. Kamlesh Vikamsey

Nature of Limited Liability Partnership (Ch. II)

Disqualifications of DPs
R. 9 (1): No person can be DP of LLP, if He is adjudged as insolvent within preceding 5 years He has suspended payment to his creditors & not made any composition with them within preceding 5 years He is convicted by Court for any offence including moral turpitude & sentenced to imprisonment not less than 6 months He is convicted by Court for offence under Section 30 of LLP Act

CA. Kamlesh Vikamsey

Incorporation & Incidental Matters (Ch. III)

Incorporation Document [S. 11] Is among Prime Documents of LLP Must be submitted to registrar in Form-2 [R. 11] S. 11 (2) requires particular information to be contained in Incorporation Document Name of LLP Proposed Business of LLP Address of Registered Office (RO) [Q. 27 of FAQs] Names & Addresses of Partners Names & Addresses of DPs Other Information as may be prescribed RO shall be place of all correspondence for LLP [S. 13 (1)] On Contravening provisions relating to RO, LLP & its every partner shall be punishable with fine upto Rs. 25,000 but not less than Rs. 2,000 [S. 13 (4)]
CA. Kamlesh Vikamsey

Incorporation & Incidental Matters (Ch. III)

Effect of Registration [S. 14]: LLP will be able to, in its own name Sue & be sued Acquire, hold & develop or dispose off any property Have common seal Do & suffer such other acts & things as bodies corporate may lawfully do or suffer Name of LLP must end with words Limited Liability Partnership or acronym LLP [S. 15 (1)] [Q. 25 of FAQs] Change in name of LLP [S. 17] Penalty for improper use of words Limited Liability Partnership or LLP [S. 20] Punishable with fine of Rs. 50,000 but may extend upto Rs. 5 Lacs Publication of name, address of RO, Registration No. & Statement of limited liability [S. 21]
CA. Kamlesh Vikamsey

Incorporation & Incidental Matters (Ch. III)

Procedure for formation of LLP: Check availability of name on site llp.gov.in Acquire Digital Signature Certificate (DSC) Acquire DPIN by applying in prescribed Form-7 Apply for Reservation of Name in prescribed Form-1 [Q. 26 of FAQs] Apply for Incorporation Document in prescribed Form-2 Alongwith Incorporation Document, submit application for Information regarding LLP Agreement in Form-3 Appointment of Persons and their consent as such to act as Partners / DPs in Form-4 & Form-9, respectively Receive Form-2 duly signed by Registrar & certificate from registrar regarding incorporation, within 14 days of filing such documents LLP is ready to function
CA. Kamlesh Vikamsey

Incorporation & Incidental Matters (Ch. III)

CA. Kamlesh Vikamsey

Partners & their Relations (Ch. IV)

Eligibility to be partner [S. 22] Persons who subscribe to Incorporation Document By LLP Agreement

Relationship of partners [S. 23] Rights & duties of partners with other partners & with LLP governed by LLP Agreement In absence of any agreement, principles set out in First Schedule will apply

CA. Kamlesh Vikamsey

Partners & their Relations (Ch. IV)

Cessation of Partnership Interest In accordance with LLP Agreement [S. 24 (1)] By resignation notice in writing of 30 days [S. 24 (1)] On death, dissolution of LLP, or if he is of unsound mind or insolvent as declared by court [S. 24 (2)]

Liability of Outgoing Partner he still remains liable to the extent of obligations he incurred while he was a partner [S. 24 (4)] Registration of changes in partners / details of partners to be filed in prescribed time & in prescribed Form-6 [R. 22 (1)]
CA. Kamlesh Vikamsey

First Schedule (Ch. IV)

Relates to mutual rights & duties between partners & LLP & its partners absence of Agreement on such matters Partners of LLP entitled to share equally in capital & profits / losses Partners shall be indemnified by LLP in respect of payments made & liabilities incurred by him In ordinary & proper conduct of business of LLP In anything necessarily done for Preservation of business or property of LLP LLP shall be indemnified by Partners for any loss caused by his fraud in conduct of business of LLP Partners may participate in management of LLP Partners shall not be entitled to any remuneration for acting in business or management of LLP No partner may be introduced without consent of all other partners Any ordinary matter regarding LLP may be decided by resolution passed by majority of partners
CA. Kamlesh Vikamsey

First Schedule (Ch. IV)

However, change in nature of business may be decided only by consent of all partners Every decision taken by LLP be recorded in minutes within 30 days of such decision Minute Book be maintained & kept at RO of LLP Partners must render true accounts & full information of all things affecting LLP to any partner or his legal representative Partners to account for & pay over all profits earned from business of similar nature & competing with LLP, to LLP if there is no consent from LLP in that respect Partners to account to LLP for any benefit derived by him without LLPs consent, from any transaction concerning LLP or from use of name, property or business connection of LLP No partner may be expelled by a majority unless there is an express power conferred by LLP Agreement to do so All disputes which cannot be resolved by LLP Agreement can be referred to for arbitration as per Arbitration and Conciliation Act, 1996
CA. Kamlesh Vikamsey

Liability of LLP & Partners (Ch. V)

Just like partnership, every partner is an agent; not of other partners but of LLP [S. 26] LLP not bound by unauthorized acts of partners in dealing with person if that person knows that the partner had no authority or did not know him to be partner of LLP [S. 27 (1)] LLP liable in respect of wrongful acts or omissions of partners in course of its business or with its authority [S. 27 (2)] Obligation of LLP is solely an obligation of LLP & shall be met out of property of LLP [S. 27 (3) & (4)] Partners not personally liable [S. 28 (1)] Liability of partner(s) committing wrongful acts or omissions will be unlimited [S. 28 (2)] Partnership by Holding out [S. 29] [Q. 36 of FAQs]

CA. Kamlesh Vikamsey

Liability of LLP & Partners (Ch. V)

Unlimited Liability in case of fraud [S. 30] If fraud done with knowledge / authority of LLP, LLPs & partners liability will be unlimited. LLPs liability = Partners liability [Q. 37 of

FAQs]
Otherwise, LLP will not be liable Imprisonment for 2 years & fine upto Rs. 5 Lacs Whistle Blowing [S. 31] Court / Tribunal may reduce penalty if partner / employee assists Court / Tribunal

CA. Kamlesh Vikamsey

Contributions (Ch. VI)

Form of Contribution in any manner- in cash or in kind [S. 32 (1)] Accounting & Disclosure of Contribution must also involve the nature & amount of Contribution [S. 32 (2) & R. 23 (1)] R. 23 (2): Contribution in kind must be valued by practicing CA or CWA or approved valuer from panel maintained by Central Government Obligation to Contribute as per LLP Agreement [S. 33 (1)] Creditor may enforce Original Obligation against partner in case if he was unaware of compromise between partners [S. 33 (2)]

CA. Kamlesh Vikamsey

Financial Disclosures (Ch. VII)

Maintain proper books of accounts as prescribed in R. 24 Must disclose all sums of money expended & received & matters pertaining thereto Must record all assets & liabilities of LLP State all purchases & sales & record all information regarding inventories Other particulars which partners may decide Cash or Accrual; Double-Entry System of Accounting [S. 34 (1)] Maintain books at RO for period of 8 years as per R. 24 (3) Prepare Statement of Accounts & Solvency in prescribed Form-8 within 6 months from end of FY & must be signed by DPs [S. 34 (2)] Must be filed with ROC alongwith prescribed fees Audit as per rules [R. 24 (8)] Exempt if turnover < / = 40 L or Contribution < / = 25 L File annual return (Form-11) with ROC within 60 days from end of FY [R. 25 (1)] Must be accompanied by certificate issued by CS confirming veracity of particulars / statements in such return, if turnover exceeds Rs. 5 Crores or Contribution exceeds Rs. 50 Lacs, else certificate must be issued by DP [R. 25 (2)]
CA. Kamlesh Vikamsey

Assignment & Transfer of Partnership Rights (Ch. VIII)

Right of partner to share profits is transferable / assignable (in whole or in part) [S. 42 (1)] [Q. 33 of FAQs] Transfer does not imply that transferor / assignor has ceased to be partner [S. 42 (2)] Likewise, transferee / assignee does not have right to participate in management [S. 42 (3)] Transferee / assignee has no right to obtain any information of transactions of LLP [S. 42 (3)]

CA. Kamlesh Vikamsey

Investigation (Ch. IX)

[S. 43 (1) & (3)]: Central Government (CG) may appoint one or more inspector(s) to investigate into affairs of LLP & report thereon, if Not less than 1/5 th of partners apply for investigation on payment of prescribed security to Central Government LLP applies for investigation CG is of opinion that Business of LLP is with intent to defraud its Creditors, Partners or any other Person Affairs of LLP are not being conducted in accordance with provisions of this Act On receipt of Report of Registrar or any other Regulatory Agency, there exist sufficient reasons that affairs of LLP ought to be investigated Inspector cannot be partnership firm, body corporate or other association [S. 45] Investigator has power to investigate in matters of any entity which has been associated, or is associated, to LLP unless it is irrelevant to do so [S. 46 (1)] Investigator must obtain prior approval of CG [S. 46 (2)]
CA. Kamlesh Vikamsey

Investigation (Ch. IX)

[S. 47 (1)]: It shall be duty of DPs & Partners to Preserve & produce before investigator all documents relating to LLP or, as case may be, any other entity Give assistance to investigator in connection to investigation Investigator has power to keep such documents in custody upto 30 days [S. 47 (3)] Failure to comply with requirements as above will result in punishment of person in default with fine upto Rs. 25,000 but not less than Rs. 2,000 & further fine of upto Rs. 500 but not less than Rs. 50 for everyday of default [S. 47 (5)]

CA. Kamlesh Vikamsey

Investigation (Ch. IX)

[S. 48]: Investigator has power to seize documents relating to LLP, if he believes that such documents may be Destroyed Mutilated Altered Falsified or Secreted Investigator shall make reports (Interim & Final) to CG & such report such act as evidence in any legal proceeding [S. 49 & 54] Application by CG for Winding-up of LLP pursuant to investigation [S. 51] Expenses of Investigation [S. 53]

CA. Kamlesh Vikamsey

Conversion of Firm to LLP (Ch. X)

This part is governed by Section 55 & Second Schedule & is notified vide notification no. S.O. 1323(E) w.e.f May 31st, 2009 All partners of LLP must be partners of original firm & no one else On such conversion All assets & liabilities of firm would get vested in LLP Firm stands dissolved

Will be removed from records of Registrar of Firms

Every partner will continue to be personally liable jointly & severally with LLP, for liabilities prior to conversion / arising out of contract entered prior to conversion Partner to be indemnified by LLP in respect of such liability subject to anything contrary in LLP Agreement Every official correspondence of LLP for 1 year, must bear a statement that it was, from the date of registration converted from a firm into an LLP alongwith name & registration, if applicable, of firm from which it was converted
CA. Kamlesh Vikamsey

Conversion of Firm to LLP (Ch. X)

Partnership Firm proposing to convert to LLP must apply to ROC in prescribed Form-17 (Part A) alongwith Statement of Partners in Form17 (Part B) [R. 38 (1)] ROC must issue certificate of registration in Form-19 [R. 32 (1)]

Upon receipt of Form-19, LLP must apply, within 15 days of registration, to Registrar of Firms to strike-out name of Firm in prescribed Form-14 [R. 33 & 38 (3)]

For Conversion of Firm to LLP, the relevant Rule 38 is notified vide Notification no. S.O. 1324(E) dated May 22nd, 2009 w.e.f May 31st, 2009

CA. Kamlesh Vikamsey

Conversion of Companies to LLP (Ch. X)

This part is governed by Section 56 (for private companies) & Section 57 (for unlisted public companies) Governed by Third Schedule in respect of Private Companies Governed by Fourth Schedule in respect of Unlisted Public Companies Company can be converted into LLP provided All partners of LLP must be shareholders of that company & no one else There is no security interest in its assets Upon conversion, all assets & liabilities get vested in LLP and principally all other provisions are similar as that for firms Listed Public Company cannot be converted into LLP Application for conversion to be made to ROC in prescribed Form-18 (Part A) alongwith Statement of Shareholders in Form-18 (Part B) [R. 39(1) & 40(1)] Same procedures as regards conversion of Firms Above referred Sections & Relevant Schedules are notified vide notification no. S.O. 1323 (E) w.e.f May 31st, 2009 For Conversion of Companies to LLP, the relevant Rules 39 & 40 are notified vide Notification no. S.O. 1324(E) dated May 22nd, 2009 w.e.f May 31st, 2009
CA. Kamlesh Vikamsey

Conversions to LLPs

Company Law Board notified to address all appeals / applications against refusal to register LLPs upon conversion till such time the National Company Law Tribunal (NCLT) is constituted

[vide Notification no. G.S.R. 385 (E) and 386 (E) dated June 4th, 2009]

CA. Kamlesh Vikamsey

Conversion of LLP to Company ??

Part IX of the Cos. act, 1956 permits companies, associations, societies or partnership firms to register themselves as Co. Same way LLP can be registered as a Co. u/s 568 of part IX of Cos. Act

An LLP consisting of 7 partners not being organized as a Joint Stock Co. can be registered as a Co. limited by shares
On registration, all the provisions contained in any act of parliament or other Indian Law or other instrument constituting or regulating the company will be applicable

CA. Kamlesh Vikamsey

Foreign LLPs (Ch. XI)

Foreign Limited Liability Partnerships [S. 59] LLP Act gives power to CG to make rules for establishment of place of business of Foreign LLPs & conduct of business Rules regarding setting up of Foreign LLPs in India is provided in Chapter XI of LLP Rules, 2009 R. 18 (3) provides that Foreign LLPs may reserve name by which they are known in their country by application in Form-25 This reservation will be valid for 3 years & must be renewed R. 34 (1) provides for application to be filed with ROC alongwith prescribed documents in prescribed Form-27 within 30 days from establishment of business in India Every Foreign LLP must file Statement of Accounts & Solvency in Form8 within 30 days from end of 6 months of FY [R. 34 (4)]

CA. Kamlesh Vikamsey

Compromise, Arrangement or Reconstruction of LLPs (Ch. XII)

Compromise or Arrangement of LLPs [S. 60] Power of Tribunal to enforce Compromise or Arrangement [S. 61] Provisions for Reconstruction or Amalgamation of LLPs [S. 62]

CA. Kamlesh Vikamsey

Winding Up and Dissolution (Ch. XIII)

Winding Up and Dissolution [S. 63] Circumstances of Winding Up [S. 64] Rules relating therein [S. 65] Two modes of winding upa) Voluntary b) By the Tribunal

CA. Kamlesh Vikamsey

Certain provisions of Co Act applicable to LLP

U/s.67(1), Central government has made following provisions of Cos. Act,1956 applicable to LLP (Notification No. G.S.R.6(E) dated 6.01.2010) Section 441, 443, 445, 446, 448, 450, 451, 453, 454, 455, 456, 457, 458, 458A, 460, 463, 464, 465, 466, 467, 468, 471, 474, 476, 477, 478, 479, 481, 482, 483 (Winding up by tribunal) Section 484, 486, 487, 488, 494, 497, 511, 511A, 512, 514, 515, 517, 518, 519 (Voluntary winding up) Section 528, 529, 529A, 530, 531, 531A, 532, 533, 534, 535, 536, 537, 538, 539, 540, 541, 542, 543, 544, 545, 546, 547, 548, 549, 550, 551, 552, 553, 554, 555, 556, 558, 559, 560 ( General Provisions on winding up) Section 584 Winding up of foreign companies.
CA. Kamlesh Vikamsey

Miscellaneous (Ch. XIV)

Transactions of Partner with LLP [S. 66] Partner who transacts or lends money to LLP has same rights &obligations as a person who is not partner Application of provisions of Companies Act [S. 67 & Q. 58 of FAQs] E-Filing of Documents [S. 68] Payment of Additional Fee [S. 69] [Q. 44 of FAQs] Enhanced Punishment [S. 70] Application of Other Laws not barred [S. 71] Jurisdiction of Tribunal & Appellate Tribunal [S. 72] Offences & Penalties [Ss. 73, 74 & 76] Powers of Registrar to Strike-off names of Defunct LLPs [S. 75 & Q. 56 of FAQs] Jurisdiction of Courts [S. 77] Miscellaneous Powers to make Rules, amend Schedules & remove difficulties [Ss. 78, 79 & 80] Transitional Provisions [S. 81]
CA. Kamlesh Vikamsey

Taxation of LLPs

Tax treatment of LLPs to be same as that of Partnership Firms S. 2 (23) of Income Tax Act, 1961 (IT Act) to include LLP & its Partners Partners share of profit will be exempt [S.10 (2A) of IT Act] Partners remuneration will be subject to newly proposed limitsSlab of Book Profit
On first Rs. 3 lacs or in case of loss
On balance of book profit

Remuneration Allowable
Rs. 1.5 lacs or 90% of book profits, whichever is higher
60% of book profits

DPs must verify & sign on Income Tax Returns. In absence of DPs, any partner must sign & verify [S. 140 of IT Act] In case LLP is wound up, every partner will be liable for payment of taxes due unless he can prove that non-recovery cannot be attributed to his acts [S. 167C of IT Act]
CA. Kamlesh Vikamsey

Taxation of LLPs
Tax implications on conversion of partnership firm to LLP

Memo explaining Finance (No.2) Bill, 2009 mentions that:

As a LLP & a general partnership firm is being treated as equivalent (except for recovery purposes) in the Act, the conversion from a general partnership firm to LLP will have no tax implications if:
the

rights and obligations of the partners remain the same after conversion &

if

47 of FAQs]

there is no transfer of any asset or liability after conversion [Q.

CA. Kamlesh Vikamsey

Taxation of LLPs
Tax on Conversion of Cos to LLPs [Ss. 32, 35DDA, 43, 47, 49, 72A & 115JAA]

Finance Act, 2010 exempts conversion of Private or Unlisted Public Cos to LLP from Capital Gains Tax subject to following conditions: All assets & liabilities of co. are taken over by LLP All shareholders of co. become partners of LLP Their Capital Contribution & P S R in LLP are in same proportion as their shareholding in Co. Shareholders of co. do not receive any consideration on conversion other than share in Profit & Capital Contribution in LLP

..
CA. Kamlesh Vikamsey

Taxation of LLPs
.

Total of PSR of Shareholders of Co., in LLP should not fall below 50% for 5 consecutive years from conversion date
Total sales, Turnover or Gross Receipts of Co. should not have exceeded Rs.60 Lakh in any of 3 years preceding year of conversion Partners are not paid any amount from accumulated profits of Co. for 3 years from conversion date

If any of above conditions are not satisfied subsequently, such conversion shall be chargeable to tax in hands of LLP in year of non-compliance

CA. Kamlesh Vikamsey

Taxation of LLPs
If aforesaid 6 conditions fulfilled, following benefits are granted:

LLP to continue to enjoy deduction of VRS expenses u/s. 35DDA C/F business loss (other than speculative loss) & unabsorbed dep of co. deemed to be loss or dep allowance of LLP of year of conversion & shall be allowed to be set-off / carry forward in the hands of LLP- u/s. 72A Such c/f business loss or unabsorbed dep to be taxable in LLP in year of noncompliance with any of 6 conditions LLP not entitled to carry-forward & set-off any MAT Credit which was available to co. Cost of Acquisition & WDV of depreciable assets & Cost of Acquisition of other capital assets in hands of LLP shall be same as they were in hands of co. Deprecation pre-conversion will be allowed to predecessor-co. & post conversion to LLP & aggregate of depreciation allowable to Co. & LLP not to exceed that as would have been allowed had conversion not taken place [w.e.f. 1-4-2011]
CA. Kamlesh Vikamsey

Taxation of LLPs

Provisions in IT Act, 1961 relating to companies are not applicable to LLPs: LLPs not liable to DDT u/s 115-O LLPs not liable to MAT u/s 115JB Deemed Dividend u/s 2 (22) (e) is not applicable S. 79 on Carry forward & Set-off of Losses in certain cases is not applicable LLPs not liable to pay surcharge on income tax like firms

CA. Kamlesh Vikamsey

Some Issues

Companies can apply for conversion only if there is no Security Interest on its assets Why introduce a restrictive clause in case of Companies?

CA. Kamlesh Vikamsey

Some Issues

According to S. 71, provisions of LLP Act will not be in derogation to provisions of other Acts The question which arises is as to whether CAs are allowed to form LLPs or convert their firms into LLPs? As per Chartered Accountants Act & Regulations, at various places, the words partnership & firm are used without assigning any particular meaning to it Will a LLP meet the requirements of CA Act & Regulations? This would require amendments to certain Acts which are relevant to professional services [Q. 59 of FAQs]

CA. Kamlesh Vikamsey

Some Issues

If firm of CAs convert into LLP, what will be auditees stand? Does conversion amount to Casual Vacancy as per Companies Act? Would another resolution be required to appoint an LLP as auditors? As per Clause 14 of Second Schedule, appointment of firm in any role or capacity shall operate as if LLP was appointed Effect of such Clause? Some clarifications / amendments are required in the Companies Act

CA. Kamlesh Vikamsey

Some Issues

WHETHER FOREIGNERS CAN INVEST IN LLPs? FEM (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 do not provide for investments in LLPs by foreign individuals / companies. FEM (Investment in firm or proprietary concern in India) Regulations, 2000 provide for investments in proprietary concern or firm by NRIs / PIOs on nonrepatriation basis subject to certain conditions. It is not clear whether LLPs are covered Appropriate amendments is required to enable foreign individuals / companies to invest in LLPs [Q. 24 of FAQs] Recent news - Foreign direct investment in the new form of business, limited liability partnerships, could be allowed without a cap, a highly placed source told PTI. The officials have reached a consensus for 100 per cent FDI in LLPs, he said published in Business standards 19.07.2010

CA. Kamlesh Vikamsey

Some Issues
RECENT NEWS Foreigners may get to set up LLPs in sectors open to FDI

DIPP has suggested that foreign investments be allowed in LLPs with prior approval in sectors where 100% FDI is allowed Foreign Investments not to be allowed in sectors such as real estate where conditions such as minimum capitalisation and lockin period are applicable or where FDI is prohibited or restricted with caps on investment A discussion paper is expected to be put up in public domain soon, said a government official privy to the discussions

[- published in Economic Times 25.08.2010]

CA. Kamlesh Vikamsey

Some Issues

Also, as per FEM (Transfer or Issues of any Foreign Security) Regulations, 2004 provide for Overseas Investment by Indian Party Reg. 2 (k) defines Indian Party to mean a company or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act, 1932. However, LLP is neither of above Hence, an amendment in the above regulations is required in order to facilitate overseas investments by LLPs

CA. Kamlesh Vikamsey

Some Issues

S. 36 of LLP Act provides for inspection of all documents including Statement of Accounts & Solvency filed by LLP with ROC, by any person Question arises as to whether this is acceptable to Professional Firms like lawyers, CAs, CWAs, etc?

CA. Kamlesh Vikamsey

Some Issues

As per Clause 5 of Second Schedule, LLP, upon receipt of Form19 from ROC must submit an application to concerned Registrar of Firms in prescribed Form-14 for striking-out name of Firm from its Records Is this required in case of Unregistered Firms?

CA. Kamlesh Vikamsey

Some Issues

Whether Stamp Duty is payable on Incorporation of LLPs? If so, how much? Whether Companies & Firms will be exempt from Stamp Duties upon conversion to LLPs? It must be noted that Stamp Duties are legislations of respective States & therefore clarity is needed from them [Q. 50 of FAQs]

CA. Kamlesh Vikamsey

Some Issues

LLPs are treated as pass-through entities for income tax purposes in countries like USA, UK, etc. However, in India, LLPs are taxed as separate entities This will result in problems of availing tax credit as per relevant DTAA

CA. Kamlesh Vikamsey

Comparison with Companies

Basis
Governing Law Name Common Seal

Company
Companies Act, 1956

LLP

Limited Liability Partnership Act, 2008 Must contain suffix Ltd or Pvt Must contain suffix LLP Ltd Common Seal is compulsory Common Seal is optional Flexible & governed by LLP Agreement Auditors shall be deemed to be reappointed in case no specific appointment is made (unless otherwise decided) All companies are subject to audit Only LLPs having turnover of more of accounts than Rs. 40 Lacs or contribution of more than Rs. 25 Lacs are subject to audit of accounts
CA. Kamlesh Vikamsey

Organizational Rigid & governed by Companies Structure Act Appointment of Specific Resolution required for Auditors appointment of auditors at every AGM Audit

Comparison with Partnership Firms

Basis
Governing Law Registration Creation Legal Status Succession

Partnership Firms
Partnership Act, 1932

LLP
Limited Liability Partnership Act, 2008 Compulsory By Law LLP has separate legal status apart from partners LLP would not be affected on change in partnership (Perpetual Succession) LLP can own assets in its own name

Ownership Assets

Liability of Partners Minors Position

Not Compulsory; but is preferred By partnership Agreement Partners collectively known as Firm; no separate legal status Firm would cease to exist on change in partnership, unless otherwise provided in agreement of Partnership cannot own assets in its name; assets must be in name of Partners Unlimited Limited

Minor can be admitted to benefits Law silent on position of Minors of Partnership

CA. Kamlesh Vikamsey

In case of any difficulty

Office of the Registrar Limited Liability Partnerships Ministry of Corporate Affairs, 3rd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi (India)- 110003 Phone : +91-11-66336666 Email : llpsupport-mca@nic.in, santosh.kumar@mca.gov.in, oandm.dca@sb.ni

CA. Kamlesh Vikamsey

Thank you
CA. Kamlesh Vikamsey