Presentation on theme: "Formation, Conversion & Changes in Limited Liability Partnership CS Makarand Lele Central Council Member of ICSI Partner – MRM Associates, Company Secretaries,"— Presentation transcript:
Formation, Conversion & Changes in Limited Liability Partnership CS Makarand Lele Central Council Member of ICSI Partner – MRM Associates, Company Secretaries, Pune
Preamble of the Act LLP, in simple terms, is an alternative corporate business form that gives the benefits of limited liability company and the flexibility of a partnership firm. It does not restrict the benefit of LLP structure to certain classes of professionals only and is available for use by any enterprise which fulfils the requirement of the Act.
Statutory Recognition LLP is a Body Corporate (section 2(1) (d)) LLP is a Legal Entity separate from its partners & have Perpetual Succession Any change in the partners of a limited liability partnership shall not affect the existing right or liabilities of the LLP Provisions of Indian Partnership Act, 1932 shall not apply to LLP(section 4)
Companies Act 2013 – made LLP as most convenient vehicle Stringent compliances Difficulties in getting the approvals for vital business transactions Incapacity to do business transactions Private Company at Par with Public – No lucrative exemptions available to do business Restrictions on number of members for companies.
Salient Features of LLP Liability Liability of the partner is limited to his agreed contribution. No partner is liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct. Every Partner, for the purpose of business of LLP, is the agent of LLP but not of other partner. Partners are liable personally to the extent of guarantees provided by them.
Salient Features of LLP Perpetual Succession & continuity Borrow/ Invest on its own name Initiate legal proceedings on its own name Simplified compliances & no mandatory requirement of statutory audit for certain LLP’s Number of partners There is no upper limit for number of partners in LLP unlike a ordinary partnership firm where the maximum number of partners cannot exceed 100 nor like private limited company wherein can not exceed 200.
Salient Features of LLP Rights and duties of partners governed by the agreement subject to act Related Party Transactions: There is no restriction on entering into any contracts with related parties. Loans to related LLP is also not falling within the provisions of section 185 of Companies Act,2013 No mandatory meetings & their compliances. No restrictions on salaries, compensations, distribution of profit to Partners. (under LLP Act) No restrictions on withdrawal from capital account.
Allowable Business in LLP All profit making activities LLP can be a member of Stock Exchange LLP formed with other objectives may undertake group Investment activity. Provided it limits to a 50% criteria of RBI. LLP can undertake profession - CA, CS, CWA, Architect etc. For CS both Attestation & Non Attestation Services are permitted CP holder can be a DP & can have share in profit.
Tax Aspects LLP’s is treated as Partnership Firms for the purpose of Income Tax There is no surcharge on income tax of LLP. Minimum Alternative Tax (MAT) (Sec. 115JB) : The provisions are not applicable to LLP. Alternate Minimum Tax (AMT) (Sec.115JC to Sec.115JF): With effect from A.Y , LLPs are required to pay Alternate Minimum Tax 18.5% on their Book Profit Dividend Distribution Tax Sec 115O : NO dual taxation on distribution of its profits as DDT is not applicable Deemed Dividend [Section 2(22) (e)]: Any loan given by LLP to its partners out of its accumulated Profits/ Reserves is not liable to be taxed as Deemed Dividend unlike in the case of closely held companies. As per Finance Bill, 2015 LLP’s will be 30%.
Eligibility of LLP under Income Tax S 184 The LLP is evidenced by an instrument i.e. there needs to be a written LLP Agreement. The individual shares of the partners are required to be clearly specified in the deed. A certified copy of LLP Agreement must accompany the first return of income of the LLP Changes in the constitution of the LLP or in the profit sharing ratio are required be informed to IT by filing a certified copy of the revised LLP Agreement along with the IT return. Agreement should specify the continuation of LLP Business. There should not be any failure on the part of the LLP while attending to notices given by the Income Tax Officer for completion of the assessment of the LLP.
Income Tax - Available Deductions Interest paid to partners, provided such interest is authorized by the LLP Agreement. Any salary, bonus, commission, or remuneration (by whatever name called) to a partner will be allowed as a deduction if it is paid to a working partner who is an individual. The remuneration paid to such working partner must be authorized by the LLP Agreement and the amount of remuneration must not exceed the limits under IT act. In case of non compliance of section 184 no deduction towards interest and remuneration is allowed.
Audit under section 44AB of IT act Tax Audit u/s 44AB would be applicable if Total Sales, Turnover or Gross Receipts exceed Rs.100 Lakhs with effect from A.Y
Formation of LLP
It can be formed as new LLP It can takeover proprietary concern after formation
Formation of New LLP Understanding of : the specific requirements of the parties nature of business likely to be carried out principle terms & conditions between the partners decision making process contribution ratio profit sharing ratio admission, cessation, expulsion of partners dispute resolution mechanism veto powers
Formation of New LLP Decide about the partner and Designated Partner: Minimum 2 Partners are required (Individual or body corporate) (Sec. 5) Minimum 2 Designated Partners who are individuals and at least one of them should be resident in India. (section 7(1)) Ensure that all the Designated Partners have DIN reflecting residential status. Otherwise file DIR 6 first. Ensure that any one Designated partners has DSC Decide the place Registered Office of LLP Decide partner contribution that may consist of any tangible, intangible, movable or immovable property or other benefits to LLP (Section 32 (1))
Sr. no.LLP Form No. Purpose of formTime Limit 1LLP Form No. 1 Application for reservation of name 2LLP Form No. 2 For Incorporation of a LLPFile within 3 months from the date intimation of Name approval by ROC 3ROC will issue Certificate of Incorporation in LLP Form No. 16. Certificate shall be conclusive evidence. 4LLP Form No. 3 For information regarding LLP agreement Within 30 days from the date of incorporation 5Execution of LLP AgreementMay be : 1.After name approval but before formation OR 2.After formation
LLP Form No. 1 Key Points Name of the applicant- whether nominee of body corporate or individual. Nominee should also be individual. It can be anyone. Description of proposed business activity (Prefilled in LLP Form No. 2 subsequently) Proposed monetary value of partner's contribution Name Justification, whether name based on regd. Trade Mark etc In case of body corporate is a partner attach copy of signed resolution: Making Investment in LLP( check compliance of 186 in case of Company)- specify amount and %. Appointing nominee for it. NOC for the name Approving Draft LLP Agreement
LLP Form No. 2 Key Points Address of RO Description of proposed business activity (Prefilled from LLP Form No. 1) NIC 2004 list to be used. Details of Partners & Designated Partners- Name, address, nationality gets prefilled, occupation, form of contributions- manually filled In case of body corporate is a partner attach copy of signed resolution.
LLP Form No. 2 Key Points Mandatory Attachments- Proof of RO, Subscriber’s sheet Where name includes specified sectors such as banking, insurance, VC, MF, stock exchange, Advocate, CA, CS, CWA, etc, a copy of the in-principle approval of the regulatory authority or council is required to be attached. Addendum required in case no. of partners exceeds 200. (LLP Form No. 4 - details of the partners as an addendum) Certification by professional stating all requirements of Act & rules in respect of incorporation complied.
LLP Form No. 3 Key Points Date of Agreement-To be filled manually from LLP agreement. Date of Ratification, if agreement is done prior to incorporation (also attach relevant declaration/ confirmation about ratification) Business objectives & Obligation to contribute gets PREFILLED from LLP Form No. 2. Mutual rights & duties of the partners, duration of LLP, admission cessation of partners, dispute resolution etc. Mandatory Attachments: LLP Agreement
LLP Agreement LLP agreement is very CRUCIAL constitutional document – governing relationship between LLP & its partners & interse among the partners. Matters provided in Schedule I of LLP Act – if LLP agreement is silent on any matter, then standard provisions provided here will prevail. Draft LLP agreement to suit LLP Form No. 3- It is highly advisable to draft LLP Agreement in same sequence as far as possible, so that filling LLP Form No. 3 and its checking by ROC would be easy. LLP agreement & all supplements & amendments to be filed with ROC in LLP Form No. 3 within 30 days along with signed copy.
LLP Agreement It can be executed after name availability before formation i.e. filing of LLP Form No. 2 - LLP can’t be a party. OR It can be done after registration within 30 days - so as to make LLP itself as one party to make provisions of LLP agreement binding on it. Stamp duty on LLP agreement is to be paid as per relevant state stamp act for Partnership entry based on capital contribution slabs. (Entry 47 of schedule I of Bombay stamp act, 1958.)
Essentials of LLP Agreement Name of LLP, Partners, Designated Partners, business activity, procedure for alteration of above, duration of LLP, definitions, registered office. Term and Conditions for functioning of LLP, Partners contribution, profit sharing ratio, voting pattern, drawings by partners, loans from/ to Partners, property of LLP. Provisions for Partners and Designated Partners of LLP like admission, cessation, removal, vacations, expulsion, rights, duties, liabilities and responsibilities of Partners.
Essentials of LLP Agreement Restriction on powers of partners. Matters requiring consent of all partners/designated partners. Forbidden acts Transfer or assignment of share in LLP Management of LLP including meetings etc. Miscellaneous Provisions Deed of Adherence as Schedule to admit new partner.
Special points for LLP Agreement Understand the specific requirement of proposed business Provide simplified decision making processes Non compete Veto Power- the agreement may provide for veto power for one or more partners. Can be useful if some partners intend to control decision making process. List of items can be provided. Executive/ Managing Committee- in the case of large number of partners, it would be advisable to form a committee of senior partners to handle management.
Decision Making Mechanism Decision making mechanism can be framed through LLP Agreement. Routine matters can be left to Designated Partners. Important matters (as specified in LLP agreement) can be dealt with the prior consent of all partners or majority of it. Provision for written consent or approval through meeting is to be done. Admission or retirement of partners can be done with unanimous consent. Provision for annual meeting would be useful.
Compliances after registration Execute LLP Agreement, file LLP Form No. 3, if not done at time of incorporation Obtain PAN, registrations under other Acts Open Bank Account Print letterheads with LLPIN Prepare rubber stamps Prepare Common Seal of the LLP, if it decides to have one (Section 14(c)) Obtain all required registrations, licenses and permissions Maintain necessary registers if specified by LLP agreement Maintain proper books of accounts (mandatory requirement)
Routine compliances LLP shall maintain books of accounts on cash or accrual basis and according to double entry system of accounting.(Rule 24(2)) Audit of books of accounts of the LLP is not mandatory if the turnover does not exceed Rs 40 lacs in any FY or contribution does not exceed Rs 25 Lakhs (Rule 24(8)) An LLP has to close its financial year on 31 st March every year. All the Books of accounts, other documents and annual forms shall be preserved at its registered office for 8 years from the date on which they are made
Routine compliances Statement of Account and Solvency Declaration Every LLP shall prepare Statement of Account and Solvency declaration within 6 months from the end of the financial year and file the same with ROC in LLP Form No. 8 within 30 days of expiry of 6 months from the end of the financial year i.e. by 30 th October every year. Annual return Every LLP shall file an annual return to the Registrar in LLP Form No. 11 within 60 days of completion of its Financial Year i.e. by 30 th May every year Filing of Income Tax Returns Every LLP is required to file their returns with the Income Tax Department as per time schedule prescribed Returns to be filed under all other applicable laws
FEMA Regulations for LLP As per press note 1(2011 Series) issued by Ministry of Commerce and Industry, department of industrial policy and promotion dated 20 May 2011, FDI is allowed, through the Government approval route, in those sectors/ activities where 100% FDI is allowed, through the automatic route and there are no FDI - linked performance related conditions. LLPs with FDI will not be allowed to operate in prohibited sectors (agricultural/ plantation activity, print media or real estate business.) LLPs with FDI will not be eligible to make any downstream investments.
FEMA Regulations for LLP Overseas Direct Investments (ODI) by LLP is not permitted. External Commercial borrowings (ECBs) by LLP is not permitted. Foreign Institutional Investors (Flls) and Foreign Venture Capital Investors (FVCIs) were not be permitted to invest in LLPs. Investment by cash Consideration Foreign Capital participation in the LLPs is allowed only by way of cash consideration, received by inward remittance, through normal banking channels, or by debit to NRE/ FCNR account of the person concerned, maintained with an authorized dealer.
Conversion of a Partnership Firm into LLP
Process Partners of registered firm may with unanimous approval decide to convert their firm into an LLP by following a process provided in Second Schedule of the LLP Act. Cut off date balance sheet is to be drawn. They have to apply for name & need to follow the process of formation of LLP. In addition to formation process, it has to submit LLP Form No. 17 providing all details & copy of partnership deed, Consent letters by partners, Statement of Assets and Liabilities of the firm duly certified as true and correct by the Chartered Accountant in practice, Copy of acknowledgement of latest IT return, NOC from the secured creditors. Registrar will then issue certificate of registration of conversion In LLP Form No. 19 After registration of conversions it is expected to file LLP Form No. 14, however same is not available for filing online.
Key issues Condition of non existence of security interest in the assets is not specified After conversions, necessary intimation to be given to registrar of firms, so as to remove the name of the firms from its record. New PAN is required to be applied
LLP Form No. 17 Key Issues Principle address of the firm Whether the firm is registered or not, date of agreement Choose yes or no : Whether all the partners have consented for conversion? Whether all the partners of the LLP are partners of LLP ? Whether up to date Income-tax return is filed? Date Whether any proceeding is pending in any Court/ Tribunal/ any other Authority? Whether any earlier application for conversion into LLP was refused by the Registrar? Whether any conviction, ruling, order, judgment of any Court, Tribunal or other authority in favour of or against the company is subsisting? Whether there are any secured creditors ?- Obtain NOC? Whether clearance from any other authority/ body required?
Tax Aspect Conversion of a Partnership Firm to an LLP will have no tax implications if the rights & obligations of partners remain the same after conversion and; there is no transfer of any Asset or Liability after conversion. If the above conditions are violated, the provision of Capital gains specified in section 45 of IT act will apply.
Conversion of a Company into LLP
Only Private Limited & Unlisted Public Companies can be converted into LLP. No security interest – Charge in the register / Secured Loan in the Books/ Position at bankers end for shift the charge on assets in favor of LLP Decision of cut off date, preparation of cut off date audited Financial statements. – Not older than 30 days. ALL the shareholders to become partners and no one else. Key issues
Application for name & need to follow the process of formation of LLP In addition to formation process: LLP Form No. 18 i. e. application to ROC for conversion is required to be filed along with Form No.2. Intimation to ROC in LLP Form No. 14. Process
LLP Form No. 1 Key Issues Application for name to be made for just addition of words “LLP” in the existing Name of the Company by deleting word “private limited” Board resolution required to be attached Description of proposed business activity- same as per Main Object of MOA. Details of Designated Partners - can be non director
LLP Form 2 Key Issues Details of Designated Partners Point No. 9(j) Form of contribution - Conversion of shares and share in profits. i.e. sum total of paid up capital and free reserves to be filled up Point No. 13 Total Monetary value of contribution: Total should match with the amounts specified above. Form of contribution and Total Monetary value of contribution gets prefilled in the LLP Form No. 3 i.e. the same is also required to be reflected in the LLP agreement and initial contribution from partners. Attachments: Proof of RO, Subscriber's sheet, details of company(s)/ LLP(s) in which partner/ designated partner is a director/partner
LLP Form No. 2 For conversion - contribution
LLP Form No. 18 – Application for conversion Key Points Choose yes or no : Whether all the shareholders have consented for conversion? Whether all the partners of the LLP are shareholders ? Whether any security interest in the assets is subsisting or in force? Whether up to date Income-tax return is filed? Date Whether any prosecution initiated against or show cause notice for alleged offences under the Companies Act, 1956? Whether any proceeding is pending in any Court/ Tribunal/ any other Authority? Whether any earlier application for conversion into LLP was refused by the Registrar? Whether any conviction, ruling, order, judgment of any Court, Tribunal or other authority in favor of or against the company is subsisting. Whether there are any secured creditors ?- Obtain NOC? Whether up to date documents including balance sheet and annual returns Companies Act, 1956 have been filed? Whether clearance from any other authority/body required?
LLP Form No. 18 – Application for conversion Key Points No forms pending for payment or processing at MCA No open charges in Charge Index At least 1 balance sheet and annual return submitted since formation, Company with share capital can only be converted Section 25/ 8 company can NOT be converted. Attachments to form: EGM resolution Copy of acknowledgement of IT return NOC from secured creditors NOC from the body/authorities( If applicable) Statement of assets & liabilities duly certified true & correct by the auditor. Statement of shareholders stating compliance of all provisions of LLP Act & rules, annual filing completed etc.
LLP Form No. 3 Key Issues OBLIGATION TO CONTRIBUTE- gets prefilled from LLP Form No.2 Deemed Dividend & DDT issue In order to finalize the required contribution pattern for LLP, necessary amendments to be made in Company’s cut off balance sheet before conversion. Shareholding pattern Revaluation of Assets Issue of Bonus Shares Buy back of shares Payment of Dividend
LLP Form No. 3 for conversion-obligation
LLP Form No. 14 Key Issues Intimation to ROC in respect of conversion No fees just acknowledgment is received Particulars of Company gets prefilled in Part B, CIN to be entered Particulars of LLP gets prefilled in Part C, LLPIN to be entered. Attachment is certificate of registration issued on conversion.
Tax Aspect Finance Act, 2010 has provided that any transfer of capital assets, intangible assets by a private company or unlisted public company to LLP on its conversion into LLP would not be taxable on fulfillment of following conditions specified in Sec. 47(xiii a). Conversion is in accordance with provisions of Sec. 56/57 of LLP Act, 2008, The total sale, turnover or gross receipts in business of the company does not exceeds Rs lacs in any of the 3 preceding previous years. All the assets & liabilities are transferred to LLP, All the shareholders of the company become partner of the LLP in same proportion as their shareholding in the company,
No consideration other than share in profit and capital contribution in the LLP arises to partners The erstwhile shareholders of the company continue to be entitled to receive at least 50% of the profits of the LLP for a period of 5 years from the date of conversion, No amount is paid, either directly or indirectly, to any partner out of the accumulated profits of the company for a period of 3 years from the date of conversion
Takeover of proprietary concern by LLP After formation LLP can takeover any business by entering into an agreement of takeover. Object of the LLP as stated in the Agreement. If not covering the proprietary business, the same needs to be amended by following the process stated in the LLP Act. It would attract stamp duty. It would attract capital gain tax since it would be treated as transfer under income tax act. All licenses, permission to be changed to the name of LLP.
Effect of conversion
All tangible, intangible assets, interests, rights, privileges, whole of undertaking gets vested in LLP without further assurance, act or deed. Company shall be deemed to be dissolved & removed from records of eth ROC- status gets reflected in Master Data. Pending proceedings may be continued, completed enforced by or against LLP. Conviction ruling, order judgment may be enforced by or against LLP Existing contracts, agreements, employment continues.
Notice of conversion in correspondence LLP not later than 14 days after the date of registration of Conversion of Private Company/firm to LLP, shall; For a period of 12 months ensure that every official correspondence bears: A statement that it was a Private company/ Firm and converted into LLP The name of the Company/ Firm and registration number of the company
Structural Changes in LLP
Structural Changes in LLP- Change of Name Change name as per procedure in the LLP Agreement or if agreement is silent, with consent of all the Partners. It would be advisable to pass resolution to submit to ROC. File LLP Form No. 1 for application for name approval The registrar will reserve name Fix the effective date of change of Name Sign and execute Supplement LLP agreement for change in name File LLP Form No. 3 within 30 days of execution of supplement LLP agreement
Structural Changes in LLP- Change of Name File LLP Form No. 5 (Notice for change of name)within 30 days of change of name. Attachment: Copy of minutes/decision, Extract of relevant provisions of LLP agreement. Registrar will issue fresh certificate of incorporation Changed name must appear on all official documents of LLP Change name with all other authorities Prepare new seal, rubber stamp etc. All registrations are required to be changed Stationary to be changed accordingly
Structural Changes in LLP- Change of Name Check proposed business is allowable to be carried out by LLP Take approvals if any required under other laws Change activity as per procedure provided in the LLP Agreement or if agreement is silent, with consent of all the Partners Advisable to pass resolution Sign and execute Supplement LLP agreement for change in activity File LLP Form No. 3 within 30 days of execution of supplement LLP agreement ROC will record the same & will amend the NIC code accordingly. It will appear in master data LLP can then commence new Business activity.
Structural Changes – Admission partner Decide name of partner to be admitted. Check his DIN & eligibility. Nationality requirements- File DIR-6. Take declarations for no disqualifications (section 5) & consent to act as partner. Decide capital contribution, profit and loss sharing ratio and remuneration, if any of new partner Appoint new partner as per procedure in the LLP Agreement or if agreement is silent, with consent of all the Partners Execute new LLP Agreement/addendum/Deed of Adherence Obtain approval by resolution File LLP Form No. 4 within 30 days from date of appointment File LLP Form No. 3 within 30 days of execution
Structural Changes in LLP- Cessation of Partner A person cease to be partner on his death or dissolution of LLP or if he is declared to be of unsound mind by a competent court or if he has applied to be adjudged as an insolvent or declared as an insolvent Partner can retire by giving notice of his intention to resign to other partners & LLP.
Structural Changes in LLP- Cessation of Partner On cessation, unless otherwise provided in LLP agreement, ceased partner or a person entitled to his share in consequences of death or insolvency shall be entitled to receive from LLP - An amount equal to capital contribution of ceased partner actually made to the LLP and His right to share in accumulated profit of LLP after deduction of accumulated losses of LLP File LLP Form No. 4 within 30 days from date of cessation or retirement
Structural Changes in LLP- Cessation of Partner Any person who ceases to be a partner of a LLP may himself file with the Registrar the notice of his cessation if he has reasons to believe that the LLP may not file the notice with the Registrar (LLP Form No. 4) On receiving such notice Registrar shall obtain a confirmation to that effect from the LLP. Where no confirmation is given by the LLP with a period of 15 days, the Registrar shall register the notice made by the person ceasing to be a partner. (section 25(6))
Structural Changes – Expulsion, Increase in capital Expulsion of Partner As per para 13 of 1st schedule of LLP act, no majority can expel any partner unless a power to do so has been conferred by express agreement between the partners. Thus, there should be express provision in LLP agreement to expel a partner. On expulsion process of communication to Registrar & other authorities is to be followed Increase in capital contribution Process prescribed in LLP agreement to be followed LLP agreement to be amended Pay difference in stamp duty File LLP agreement in LLP Form No. 3 within 30 days
Structural Changes in LLP - Change in RO Within Local Limits Within State but outside local limits Outside the State Change of registered office can be made as per procedure in the LLP agreement or if agreement is silent, as per the procedure laid down in section 13(3) and Rule 17.
Amalgamation or reconstruction – between two LLP’s separate process provided Compromise or arrangements with creditors or partners – separate process provided Structural Changes in LLP- Amalgamation, Compromise or arrangements
Registration of LLP under the New Companies Act Section 366 (1) of the Companies Act 2013 allows registration of existing LLP as Company. Section notified with effect from Application has to be made vide Form no. URC-1. This provides a required exit opportunity to promoters from LLP set up. Income Tax applicability will be in line with conversion of partnership into Company
Some issues in LLP Structure – Needs Solutions Ceasing of Indian residential status by a partner attracts FIPB approval process. Thereafter restrictions on activities to carry out prohibited businesses specified in FEMA regulations. Existence of LLP will be in danger – if any partner ceases to be a member of specified institute, if such LLP is formed with inprinciple approval of regulatory authority. No clarity on completing the process of audit and holding of AGM for a cut off period financial statement required to be submitted in case of conversion of private limited to LLP.
Some issues in LLP Structure – Needs Solutions It would be difficult to win bankers confidence since there is no provision to register charges on LLP There is little discomfort to partners since LLP agreement is available in public domain as against partnership deed. LLP as a distinct form of business from Partnership/ Company & is not recognized under many central, state or local legislations No specific stamp duty provisions and hence required to be dependent upon partnership provisions in state stamp acts.
Some issues in LLP Structure – Needs Solutions HUF/ Karta cannot become a partner in LLP Conversion of more than 2 partnership firm into single LLP is not possible LLP cannot undertake non-profit making activity LLP cannot raise money from public LLP cannot undertake NBFC activities requiring registration with RBI No provision of redressal in case of oppression and mismanagement in the LLP Act.
Penalties & Fines For defaults/ non-compliance on procedural matters such as filing through the levy of a default fee for every day for which the default continues. Such default fee would be payable at the rate of Rs.100 per day after the expiry of the date of filing upto a period of 300 days (section 69). This is to be paid at the time of filing only with out any discretion. The offences under the act can be punished either through payment of fine or through payment of fine as well as imprisonment of the offender The Judicial Magistrate of the first class or Metropolitan Magistrate shall have jurisdiction to try offences under the LLP Act.
Penalties & Fines It also provides for imprisonment penalty for following violations making by any person a false statement at the time of incorporation of LLP carrying on business of LLP with intent to defraud or for any fraudulent purposes and making, knowingly, false statements or omitting any material fact, in any return, documents etc. under the act. The offences which are punishable with fine only can be compounded by the Central Government, by collecting a sum not exceeding the amount of maximum fine prescribed for the offence.