Presentation on theme: "Analysis on Limited Liability Partnership"— Presentation transcript:
1 Analysis on Limited Liability Partnership CA.V.M.V.Subba RaoChartered Accountant
2 International Scenario Limited Liability Partnership has been prevalent in many countries includingUSA YearUK YearJAPAN YearSINGAPORE – Year – 2006Our LLP model is based on UK /Singapore
3 Journey of LLP in IndiaIn the year 1997 Abid Hussain Committee recommended Legislation of LLP in IndiaIn the year 2003 Naresh Chandra Committee prepared a Report on LLPOn 15th December,2006 the LLP Bill,2006 was introduced in Rajya Sabha by MCAOn 27th December,2007 Parliamentary Standing Committee submitted a Report to Lok Sabha & Rajya Sabha
4 Journey of LLP in India (Contn.) On 21st October,2008 the Revised LLP Bill,2008 was introduced in Rajya SabhaOn 24th October,2008 the LLP Bill,2008 has been passed by Rajya SabhaThe LLP Bill,2008 will now placed for approval of Lok Sabha in December,2008 and may, hopefully, be passed before the end of the current year.
5 The Limited Liability Partnership Bill,2008 Constitutional BackgroundThe Central Government has exclusive power to make Limited Liability Partnership Act under Entry 44 of List I of the Union ListThe LLP Bill,2008 consists of :14 Chapters81 Sections04 SchedulesThe LLP Rules & Forms consists of:16 Chapters40 Rules29 Forms03 Annexures
6 Basic Features of LLPLLP is a Body Corporate having perpetual succession.LLP is a legal entity separate from its partners.Any Change in partners of a LLP shall not affect the existence, rights or liabilities of the LLP.No partner is personally liable to liabilities of the LLP
7 Basic Features of LLPLiability of LLP is not liability of individual partners.LLP must have at least two partnersNo maximum Limit of partnersAny Individual or Body Corporate may be a partner in LLP.Partner is an agent of LLP but not of other partner.Ministry of Corporate Affairs is administrating Authority
8 Basic Features of LLPThe Provisions of Indian Partnership Act,1932 shall not apply to a LLP.The Provisions of Companies Act,1956 can be made applicable with suitable modification by issuing a notification to LLPIf the number of partners fall below two, the surviving partner will have to admit at least one more partner within 6 months. If he does not do so, his liability will become unlimited and LLP will be wound up.
9 Designated Partners. Every LLP shall have two (2) Designated. Partners Designated Partners * Every LLP shall have two (2) Designated Partners. * At least one of such designated partner shall be resident individual.. * Every Designated Partner shall obtain DPIN / DIN from MCA.
10 Incorporation Document - Form 2 Name of LLPProposed BusinessAddress of Regd. OfficeNames and addresses ofPartnersDesignated PartnersAny other information prescribedSimilar to MOANo provision to amend Incorporation DocumentProvision to Change Name, Business & Registered OfficeCertificate of Incorporation by ROC is conclusive evidence
11 Liabilities of Designated Partners Responsible for compliance of the provisions of the LLP Act including filing of various returns and documents specified in the Act.Liable to all penalties imposed on the LLP for any contravention of those provisions.
12 L L P Agreement Form 4Limited Liability Partnership Agreement means any written agreement between the partners of the LLP or between the LLP and its partners and its partners which determines the mutual rights and duties in relation to that LLP.After incorporation, the LLP may have the LLP agreement.The LLP agreement is similar to A O A of Company.
13 L L P AgreementIn the absence of any LLP agreement the provisions set-out in FIRST SCHEDULE is applicable.If the partnership agreement is executed before registration of LLP the partners will have to ratify this agreement after incorporation of LLP and file with ROC
14 Clauses in FIRST SCHEDULE All partners entitled to share equally in the Capital and Profits/losses.Indemnity ClauseEvery Partner shall take part in managementNo partner shall be entitled to remuneration.No partner introduced without consent of all partners.All decisions with majority of partners consentMinutes to be recorded within 30 daysRender True AccountsAll Disputes referred to Arbitration Act
15 ContributionContribution of Partner is similar to Share Capital of a Company.Contribution may be Tangible or Intangible.Contribution of partner consisting of Tangible or Intangible or Other Benefits shall be valued by the Practicing Chartered Accountant or Cost Accountant or approved valuer from the panel.Nature and amount of Contribution should be disclosed in accounts
16 Designated Partners and their role The ‘designated partner’ has no implied authority to conduct day to day business of LLP.It is not essential that power to conduct business should be with designated partner.Appoint any partner as “Managing Partner” or “Executive Partner” to manage the day to day affairs of LLP
17 Accounts and Audit Statement of Account & Solvency Form 8To be filed with ROC within 6 months from close of financial yearAnnual ReturnForm 11To be filed with ROC within 60 days.Annual Return to be certified by Company Secretary OnlyA LLP shall be exempt from the audit of its accounts if its turnover does not exceed, in any financial year, Rs.40 Lakhs; or its contribution does not exceed Rs.25 Lakhs.Such audit shall be carried by a Chartered Accountant in practice.Required to keep all recrods for 8 years.
18 Accounts and AuditFinancial Year means the period from April 1 of a year to the March 31 of following year.All Accounts, Details and documents are available for public Inspection.Very heavy fines for delay in filing of Returns – Minimum Rs.25,000/- /Maximum –Rs.5 lacsOffenses compoundable.Heavy Fees for late filing of documents- Rs.100 per day.Late filing up to 300 days is permissible
19 Other Provisions Compromise, arrangements or reconstruction of LLP Winding up and dissolution of LLPStrike off defunct LLPLiability of partner by holding out.Whistle BlowingAssignment and transfer of partnership rights.
20 Other Provisions Investigation of affairs of LLP Every LLP shall have either the words “Limited Liability Partnership” or the acronym “LLP” as the last words of its name.Application of Name availability.Minor can be admitted to the benefits of LLPE-filing of documents.Inspection of documents filed ROC
21 SECOND SCHEDULEIt Contains provisions for Conversion of existing Partnership Firm into Limited Liability Partnership.
22 THIRD SCHEDULEIt Contains provisions for Conversion of existing Private Company into Limited Liability Partnership
23 FOURTH SCHEDULEIt Contains provisions for Conversion of existing Unlisted Public Company Firm into Limited Liability Partnership
24 TAXATION OF LLPLLP Act is silent regarding taxation of LLP under the Income-tax Act.A separate Chapter is required under income-tax on taxation of LLPPass-through Concept:Share of each partner should be taxed in the hands of individual partners (as was the provision in case of partnership up to 1993).Let us wait and see how LLP and individual partners are made liable to income-tax