WORKSHOP ON THE LIMITED LIABILITY PARTNERSHIP CA D R Venkatesh Bcom, LLB, FCA Partner - MSSV & Co Bangalore

DISCUSSION Introduction Introduction LLP – An overview LLP – An overview Incorporation of LLP Incorporation of LLP Financial disclosures Financial disclosures Investigation Investigation Conversion to LLP Conversion to LLP Foreign Limited Liability Partnership Foreign Limited Liability Partnership Winding up and Dissolution Winding up and Dissolution

Business Structure Proprietorship Proprietorship Partnership Partnership Companies-Private Companies-Private -Public Co-operative Societies Co-operative Societies Trusts Trusts

INTRODUCTION Background Background Naresh Chandra & JJ Irani committee Naresh Chandra & JJ Irani committee Concert paper on LLP 2005 Concert paper on LLP 2005

Indian Partnership Act, 1932 Indian Partnership Act was passed in 1932 Indian Partnership Act was passed in 1932 ‘Partnership’ is the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all ‘Partnership’ is the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all

Indian Partnership Act, 1932 Persons who have entered into partnership with one another called individually “Partners” and collectively “a firm” Persons who have entered into partnership with one another called individually “Partners” and collectively “a firm” Unlimited Liability of Partners Partnership Firm is not a legal entity Firm legal entity for purpose of taxation

Indian Partnership Act, 1932 Partners are mutual agents Partners are mutual agents Oral or written agreement Oral or written agreement Sharing of profit necessary Sharing of profit necessary Sharing of losses is not an essential condition Sharing of losses is not an essential condition Contribution of capital is not essential Contribution of capital is not essential Partners can be Minors, HUFs, Companies Partners can be Minors, HUFs, Companies

Indian Partnership Act, 1932 Number of partners: Number of partners: Minimum  2 Maximum - General  20 Banking Business  10 Mutual agency is the real test Mutual agency is the real test Partnership at Will Partnership at Will Particular partnership Particular partnership Determination of rights and duties of partners by contract between the partners Determination of rights and duties of partners by contract between the partners

Indian Partnership Act, 1932 Every partner has right to take part in business Every partner has right to take part in business Partner to be agent of the firm Partner to be agent of the firm Implied authority of partner as agent of the firm Implied authority of partner as agent of the firm Partners jointly and severally liable acts of the firm Partners jointly and severally liable acts of the firm Registration of firm Registration of firm

Companies Act, 1956 The Companies Act, 1956 The Companies Act, 1956 Registration Compulsory Registration Compulsory Legal entity separate from that of its directors / members Legal entity separate from that of its directors / members Perpetual succession Perpetual succession Liability Limited Liability Limited Meeting - Board Meeting Meeting - Board Meeting - AGM - EAGM

Companies Act, 1956 Directors / Shareholders Directors / Shareholders Company funds Company funds Filing of documents Filing of documents Complex procedures Complex procedures Taxation -Dividend Tax Taxation -Dividend Tax -MAT

Limited Liability Partnership – On overview LLP Bill 2008 LLP Bill Chapters 81 - Clauses 4 - Schedules LLP Bill 2006 LLP Bill Chapters 14 - Chapters 73 - Clauses 73 - Clauses 4 - Schedules 4 - Schedules Rajya Sabha Rajya Sabha Lok Sabha Lok Sabha

LLP Bill 2008 ChapterParticularsSection IPreliminary -1 & 2 IPreliminary -1 & 2 IINature of LLP -3 to 10 IINature of LLP -3 to 10 IIIIncorporation of LLP & Matters IIIIncorporation of LLP & Matters incidental thereto-11 to 21 incidental thereto-11 to 21 IVPartners & their relations -22 to 25 IVPartners & their relations -22 to 25 VExtent and limitation of liability VExtent and limitation of liability of LLP & Partners -26 to31 VIContribution -32 & 33 VIContribution -32 & 33 VIIFinancial Disclosures-34 to 41 VIIFinancial Disclosures-34 to 41

LLP Bill 2008 Cont….. ChapterParticularsSection VIIIAssignment and transfer of partnership rights - 42 IX Investigation -43 to 54 IX Investigation -43 to 54 XConversion to LLP-55 to 58 XConversion to LLP-55 to 58 XIForeign LLP - 59 XIForeign LLP - 59 XIICompromise, arrangement or XIICompromise, arrangement or Reconstitution of LLP -60 to 62 XIIIWinding up and Disclosure-63 & 65 XIIIWinding up and Disclosure-63 & 65 XIVMiscellaneous-66 to 81 XIVMiscellaneous-66 to 81

LLP Bill 2008 Cont….. First Schedule First Schedule Second Schedule Second Schedule Third Schedule Third Schedule Fourth Schedule Fourth Schedule Provisions regarding matters relating to mutual rights and duties of partners and LLP and its partners applicable in the absence of any agreement on such matters Provisions regarding matters relating to mutual rights and duties of partners and LLP and its partners applicable in the absence of any agreement on such matters Conversion from Firm into LLP Conversion from Firm into LLP Conversion from Private company into LLP Conversion from Private company into LLP Conversion from Unlisted public company into LLP Conversion from Unlisted public company into LLP

LLP (Concept ) Rules and Forms Rules 40 Rules Annexure - A Form 1 to Form 29 Annexure - A Form 1 to Form 29 Annexure - BFees Annexure - BFees Annexure - CDocument - period of preservation (Permanent) Annexure - CDocument - period of preservation (Permanent) Annexure - DDocument – period of preservation (5 years) Annexure - DDocument – period of preservation (5 years) Annexure - EDate of and mode of destruction of documents of LLP by Registrar Annexure - EDate of and mode of destruction of documents of LLP by Registrar

Draft LLP (Winding up and Disclosure) Rules Rules 310 Rules

The Salient features of the LLP Chapter – II Chapter – II Clause 3 to 10 Clause 3 to 10 LLP LLP Body Corporate Body Corporate Legal Entity Legal Entity Separate from that of its partners Separate from that of its partners Perpetual succession Perpetual succession Any change in the partners of LLP will not affect the existence, assets or liabilities of LLP Any change in the partners of LLP will not affect the existence, assets or liabilities of LLP

The Salient features of the LLP Provisions of Indian Partnership Act, 1932 will not apply to LLP Provisions of Indian Partnership Act, 1932 will not apply to LLP Any individual or body corporate may be a partner in LLP Any individual or body corporate may be a partner in LLP Every LLP should have at least two partners Every LLP should have at least two partners Every LLP should have at least two designated partners Every LLP should have at least two designated partners

The Salient features of the LLP LLP will be an alternative corporate business vehicle LLP will be an alternative corporate business vehicle LLP structure would be available for use by any enterprises LLP structure would be available for use by any enterprises LLP shall not be any upper limit on number of partners LLP shall not be any upper limit on number of partners An LLP shall be under obligation to maintain annual accounts reflecting the true and fair view of its affairs An LLP shall be under obligation to maintain annual accounts reflecting the true and fair view of its affairs Provisions have been made in to bill for corporate actions like mergers, amalgamation etc., Provisions have been made in to bill for corporate actions like mergers, amalgamation etc., Winding up and dissolutions of LLP’s - provided by way of rules under the act Winding up and dissolutions of LLP’s - provided by way of rules under the act

Financial Disclosures Chapter-VII Chapter-VII Clauses-34 to 41 Clauses-34 to 41 Rules-24 to 26 Rules-24 to 26Accounts LLP shall maintain such proper books of account as may be prescribed LLP shall maintain such proper books of account as may be prescribed Cash basis or accrual basis and according to the double entry system of accounting Cash basis or accrual basis and according to the double entry system of accounting Every LLP shall keep the accounting records which are sufficient to show and explain the LLP’s transactions Every LLP shall keep the accounting records which are sufficient to show and explain the LLP’s transactions Disclose with reasonable accuracy at any time Disclose with reasonable accuracy at any time

The accounting records shall in particular contain The accounting records shall in particular contain entries from day to day of all the sums of money received and expended entries from day to day of all the sums of money received and expended Record of the assets and liabilities Record of the assets and liabilities Statement of cost of goods purchased, inventories, work in progress, finished goods and cost of goods sold Statement of cost of goods purchased, inventories, work in progress, finished goods and cost of goods sold Any other details which the partner may decide Any other details which the partner may decide Accounting records shall be preserved for Eight years Accounting records shall be preserved for Eight years Statement of accounts and Solvency Statement of accounts and Solvency File in Form No.8 -Period of 30 days from the end of six months from the financial year File in Form No.8 -Period of 30 days from the end of six months from the financial year LLP’s Statement of accounts and solvency shall be signed on behalf of the LLP by designated partners LLP’s Statement of accounts and solvency shall be signed on behalf of the LLP by designated partners

Fees to be paid to Registrar Contribution does not exceed Rs.1 lakh- Rs.50 Contribution does not exceed Rs.1 lakh- Rs.50 Contribution exceeds Rs.1 lakhs but does Contribution exceeds Rs.1 lakhs but does not exceeds Rs.5 lakhs- Rs.100 Contribution exceeds Rs.5 lakhs but does Contribution exceeds Rs.5 lakhs but does not exceeds Rs.10 lakhs- Rs.150 not exceeds Rs.10 lakhs- Rs.150 Contribution exceeds Rs.10 & above- Rs.200 Contribution exceeds Rs.10 & above- Rs.200

Auditing Rule 24(9) – The accounts of LLP for the financial year shall be audited Rule 24(9) – The accounts of LLP for the financial year shall be audited Exempted from the audit-if turnover does not exceeds Rs.40 lakhs or its contribution does not exceed Rs.25 lakhs Exempted from the audit-if turnover does not exceeds Rs.40 lakhs or its contribution does not exceed Rs.25 lakhs Rule 24(13)-An auditor or auditors of LLP shall be appointed for each financial year of the LLP Rule 24(13)-An auditor or auditors of LLP shall be appointed for each financial year of the LLP Rule 24(14)-An auditor or auditors must be appointed with in 30 days before the end of the financial year Rule 24(14)-An auditor or auditors must be appointed with in 30 days before the end of the financial year Rule 24(15)-The designated partners may appoint the auditor or auditors Rule 24(15)-The designated partners may appoint the auditor or auditors

At any time for the first financial year but before the end of the first financial year or At any time for the first financial year but before the end of the first financial year or with in 30 days before the end of the each financial year or with in 30 days before the end of the each financial year or To fill a casual vacancy in the office of auditors or To fill a casual vacancy in the office of auditors or To fill up the vacancy caused by removal of an auditor To fill up the vacancy caused by removal of an auditor Rule (16) The partners may appoint an auditor or auditors - if designated partner fails to do so Rule (16) The partners may appoint an auditor or auditors - if designated partner fails to do so

Rule 24(17)-An auditor of an LLP shall be a Chartered Accountant in practice Rule 24(17)-An auditor of an LLP shall be a Chartered Accountant in practice Rule 24(23)-An auditor of an LLP may resign his office by depositing a notice in writing to that effect at the LLP’s registered office: Rule 24(23)-An auditor of an LLP may resign his office by depositing a notice in writing to that effect at the LLP’s registered office: The notice is not effective unless it is accompanied by the statement of the circumstances connected with his ceasing to hold the to hold office The notice is not effective unless it is accompanied by the statement of the circumstances connected with his ceasing to hold the to hold office LLP fails to comply the above provisions relating to accounts and auditing shall be punishable with fine which shall not be less than Rs.25,000/- but which may extend to Rs.5,00,000/- and every designated partner shall be punishable with fine which shall not be less than Rs.10,000/- but which may extend to Rs.1,00,000/- LLP fails to comply the above provisions relating to accounts and auditing shall be punishable with fine which shall not be less than Rs.25,000/- but which may extend to Rs.5,00,000/- and every designated partner shall be punishable with fine which shall not be less than Rs.10,000/- but which may extend to Rs.1,00,000/-