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Formation ,Compliance and

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Presentation on theme: "Formation ,Compliance and"— Presentation transcript:

1 “Emerging Business Vehicle” Limited Liability Partnership CA Sudhir Bhansali, Jaipur

2 Formation ,Compliance and
Index Overview What is LLP? Why LLP? Formation ,Compliance and Conversion How to Form LLP? Compliance ? Who Can Convert as LLP? Comparison Comparison between different business forms. CA Bhansali Sudhir

3 Overview 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 Bhansali Sudhir

4 Overview - Constituent of LLP Act, 2008 Lok Sabha on 12.12.2008
President assent on LLP Rules Notified on - Constituent of LLP Act, 2008 81 Section 14 Chapters 4 Schedules Schedule 1 : Mutual Rights and Liabilities in the absence of any matter in LLP Agreement. Schedules 2,3,4: Relating to conversion. - LLP Rules- 2009 Chapter- 16 Rules - 40 Forms- 31 Annexure-03 CA Bhansali Sudhir

5 - Contributions can be tangible, intangible, movable or immovable.
What? - Contributions can be tangible, intangible, movable or immovable. - Firm, Private Company and unlisted public Company may be converted into LLP - Limit liability of partners to the extent of their contribution. - Provides flexibility without imposing detailed requirements and on the basis of an mutual agreement. CA Bhansali Sudhir

6 Highlights of LLP Body Corporate Section 2(1)(d)
Perpetual Succession Section 3(2) Only with Profit Motive Separate Legal Identity Section 3(1) Minimum 2 Partners and Max.-No Limit Section -6 Non applicability of Partnership Act. Section-4 CA Bhansali Sudhir

7 - Unlimited No. of Partners
WHY? - Unlimited No. of Partners - Separate legal entity & body corporate. - Limited Liability of Partners - LLP is liable to the extent of assets. - No Liability of a partner for the wrongful act of other partner. No exposure to the personal assets of partners except in case of fraud. Harsh New Companies Act 2013 CA Bhansali Sudhir

8 Why? Easy to Form, Run , manage and to Winding up.
- Allows Multi-disciplinary professionals like International professional firm. - Governance through mutual agreement. No Minimum Contribution - Low compliance burden & cost - Taxation like general partnership. - No wealth Tax. CA Bhansali Sudhir

9 Partners (Sec.-5) / Designated Partners (Sec.-7)
Partners (Sec.-5) Any Individual or/and body corporate may be partner including foreigner. Designated Partners (Sec.-7) - Designated partner : - - At least two - Individuals and at least one of them shall be resident in India. - Managing the affairs and ensuring the compliance of laws. - Requirements for Designated Partners : - - Designated Partner identification Number (DPIN) - Only Individual can be the Designated Partners. - One should be resident of India. - In case of Body corporate their nominees can be Designated Partners. CA Bhansali Sudhir

10 Contribution Sec-32 & 33 - Each partner shall bring contribution in LLP Contribution can be by way of movable, immovable, tangible or intangible. “Contribution by way of service contract” or “tangible/Intangible (other than cash)” it shall be valued by a Practicing CA/CWA/Approved Value. CA Bhansali Sudhir

11 Rights and Liability of Partner
-Right to participate in Management -For Business Purposes Agent of LLP, not of other Partners. -Ethical duty to comply with all provisions of LLP Act and LLP Agreement. Liability -Limited to the Extent of their Contribution -Not Liable for the wrongful Acts of other Partners -Not Liable for Obligation of LLP arising out of a contract -Unlimited Liability of Partners in case of Fraud. CA Bhansali Sudhir

12 How- Formation ? Formation C- Name for LLP (Form-1)
A - Deciding the Partners & Designated partners B - Obtaining DPIN (Form-7) & Digital Signature C- Name for LLP (Form-1) D- Filing of Incorporation Document (Form-2) E- Certificate of Incorporation F – Filing of LLP Agreement (Form-3) CA Bhansali Sudhir

13 Decide about Partners & Designated partners
How -Step A Decide about Partners & Designated partners At least 2 Partners - Individuals or Nominee of Body Corporate - Minimum Two Designated Partners out of total no. of Partners –Individuals or Nominee of Body Corporate. -At least One Designated Partner to be Resident of India. CA Bhansali Sudhir

14 Obtaining DPIN (Form-7) & Digital Signature
How-Step B Obtaining DPIN (Form-7) & Digital Signature - DPIN – Designated Partner Identification Number of - 8 Digit Numeric Numbers. - File Online application in Form 7 for DPIN - Submission of the physical application along with Identity and Address Proof of applicant. CA Bhansali Sudhir

15 Name Availability for LLP (Form-1)
How-Step C Name Availability for LLP (Form-1) - e Form 1 to be filed with ROC -The word ‘LLP’ shall be the last word of name. -Not to be identical or nearly resembles to any other Firm, LLP, Body Corporate and trade mark name. (Section-15) - Not to be Prohibited under Emblems ‘Emblems and Names (Prevention of Improper use) Act, 1950 and Rule-18. -If business includes Banking, NBFCs activities, chit funds, Micro finance (A copy of in principle approval of appropriate authority to be obtained). CA Bhansali Sudhir

16 Filing of Incorporation Document
How –Step D Filing of Incorporation Document -e Form 2 – Incorporation Document along with Subscription Sheet and proof of address of registered office of LLP. - Total incorporation fees Documents Fee in Rs. Up to 1Lac Contrib. Fee in Rs Lac Contrib. Fee Rs Lac Contrib. Fee in Rs. More than10 Lac Contrib. Form 1 (Name Availability) 200/- Form 2 (Incorp. Document) 500/- 2000/- 4000/- 5000/- Form 3 (LLP Agreement Reg.) 50/- 100/- 150/- Form 4 (Partners Consent) Total Incorp. Fee 800/- 2400/- 4500/- 5600/- CA Bhansali Sudhir

17 Part E Certificate of Incorporation
-On Full Compliances – Registrar Issues Certificate of Incorporation. - Total and conclusive Evidence of Registration of “Limited Liability Partnership” CA Bhansali Sudhir

18 How STEP- F LLP Agreement
There should be agreement between the partners interested in forming the LLP. Forms the basis of the formation of LLP and lays down its founding structure. The LLP agreement is an agreement between the Partners and between the LLP & its partners. The basic contents of Agreement are : Name of LLP. Name of Partners & Designated Partners. Form of contribution. Profit Sharing ratio. Rights & Duties of Partners. If no matter in agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable. Every change made in agreement must be intimated ROC. CA Bhansali Sudhir

19 Registration of LLP Agreement
How-Step G Registration of LLP Agreement -Execution of LLP Agreement is mandatory (Section-23). In absence of Agreement any matter,Schedule 1 will be applicable. -Filing of details of LLP Agreement through e Form 3 –in 30 days of Incorporation. - Stamp duty on LLP agreement as per State Stamp Act. Under Income Tax, interest and remuneration or commission to partners will be allowed as deduction if payment is authorized by written LLP Agreement. CA Bhansali Sudhir

20 -All partners entitled to share equally in Capital/profit loss.
Features of Schedule 1 -All partners entitled to share equally in Capital/profit loss. - Indemnity to the partners on personal liability in proper conduct of business. - Every Partner shall take part in management - No partner shall be entitled to remuneration. - No partner introduced without consent of all partners. - All decisions with majority of partners consent - Minutes to be recorded within 30 days - Render True Accounts - All Disputes will be referred to Arbitration Act CA Bhansali Sudhir

21 Compliances On Basis of Event Regular Form – 3,4,5,15 Form -8,11
-All above forms to be filled in 30 days -Delay filing of Form - Rs. 100 per day up to 300 days beyond 300 days will attract additional fees and action against DP and LLP. CA Bhansali Sudhir 21

22 Filling on the Basis of Event
Compliance Consent of Designated Partners U/s Sec 7(3) Form 4 Change in Partners U/s Sec. 25(2) Form 3 / Form 4 LLP Agreement & Changes therein U/s Sec 23(2) Form 3 Shifting of Registered Office U/s Sec 13(3) Form 15 Change of Name U/S Sec. (19) Form 5 CA Bhansali Sudhir 22

23 Regular Maintenance of proper Books and Audit (Sec- 34 &35)
Double Entry System and preserved for at least 8 years at RO Audit of Accounts Turnover of 40 Lac or Contribution of 25 Lac and above) Form-8 (Statements of Accounts & Solvency) in 30 days from the end of 6 months (October) from the closure of Year. Form-11 (Annual Return) – Within 60 Days of closure of Year Means May every year. CA Bhansali Sudhir

24 Who Can Convert? Partnership Firm Private Company
Unlisted Public Company CA Bhansali Sudhir

25 Conversion of Company/Firm (Sec 55-58)
I - Deciding the Partners & Designated Partners II - Obtaining DPIN & Digital Signature III – Reservation of Name for LLP (Form-1) IV- Filing of Incorporation Document (Form-2) V - Filing of Conversion Application (Form )17/18 VI - Certificate of Conversion into LLP (Form 19) VII - Intimation of Conversion to ROC (Form 14) CA Bhansali Sudhir

26 Requirement for conversion
All the Members of the Company/partners shall be the in LLP with same capital or contribution ratio. Consent of all Members of the Company/partners. NOC from Unsecured creditors or from other authority (if required). Financial Statements certified by Auditor of not more than 30 days of date of the conversion application. All due returns of ROC/Tax authorities shall be filed. Conversion Certificate to be filed within 15 days with the ROC in Form 14 . CA Bhansali Sudhir

27 30 days from establishment of place of business in India.
Foreign LLP (Sec-59) and Incorporated Outside India (LIOI)] Section 59 contain provisions regarding establishment of the place of business by Foreign LLP within the India . Filing of Form-27 30 days from establishment of place of business in India. Permission/approval of RBI required for establishment of place of business in India. Filing fees ( Rs.5000/-) - Compliance of special Act, If regulated by special Act say Bank , NBFC,SEBI etc CA Bhansali Sudhir

28 Reservation and Renewal of Name by Foreign LLP
-Foreign LLP/Foreign Company can reserve its existing name by which it is registered in the Foreign Country. Form-25 - Filed with the fees of Rs.10,000/- Reservation of name valid for 3 years. - Renewal of name by filing fresh From-25 on payment of fees Rs.5,000/-. CA Bhansali Sudhir 28

29 Compromise & Arrangement (Sec-60,61,62)
-Application is to be made to Tribunal by LLP or creditor or partners for compromise or arrangements. -In case of under winding up, the application can be made by the liquidator. -Tribunal orders for meeting of creditors or partners for decision/resolution by 3/4th in value of creditors or partners agreeing to any compromise or arrangement. -Tribunal may order sanctioning a compromise or an arrangement.(Sec.61) -Till the time tribunal is constituted application will be made to High Court. CA Bhansali Sudhir

30 Taxation and winding up
S. 2 (23) of Income Tax Act, 1961 (IT Act) to include ‘LLP’ & its ‘Partners’ Partner’s share of profit will be exempt [S.10 (2A) of IT Act] Partner’s remuneration will be subject to newly proposed limits DPs must verify & sign on Income Tax Returns. In absence any partner.[S. 140 of IT Act] No Surcharge, Dividend Tax or MAT will be levied. . No Capital gain on conversion of partnership into LLP Winding up: Companies, LLP may be wound up either Voluntary or by the Order of Tribunal CA Bhansali Sudhir

31 Comparison between existing Business Forms and LLP Result
Category Partnership Company LLP Prevailing Law ‘The Indian Partnership Act, 1932’ ‘Companies Act, 1956’ ‘The Limited Liability Partnership Act, 2008’ Registration Registration is optional. Registration with ROC. Registration with Registrar of LLP. Formalities of Incorporation Partnership Deed filled with Registrar of firms with requisite fee the MOA & AOA are filled with ROC with prescribed fees The LLP Agreement are filed with the Registrar with the prescribed Fee. Name of Entity Any name as per choice Contain 'Ltd‘ or 'Pvt. Ltd‘ as case. Name to contain 'LLP' as suffix. Legal Proceedings Only registered partnership can sue third party A company is a legal entity can sue and be sued A LLP is a legal entity can sue and be sued CA Bhansali Sudhir

32 Cost More for Incorporation.
Category Partnership Company LLP Distinct entity No Yes Creation Created by Contract Created by Law Cost of Formation Negligible Cost Cost More for Incorporation. Formation of LLP is Rs. 800/- means lower cost Charter Document Partnership Deed MOA/AOA LLP Agreement Foreign Participation Foreign Nationals can’t form Foreign Nationals can be a member. Foreign Nationals can be a Partner. Perpetual Succession Common Seal Depends Remuneration of Managerial Personnel Can pay remuneration to its partners Can pay remuneration to its Directors subject to law. Depend upon LLP Agreement. CA Bhansali Sudhir

33 Rights / Duties / obligation of the Partners / Directors
Category Partnership Company LLP Rights / Duties / obligation of the Partners / Directors Partnership Deed. AOA and resolution passed by shareholders or directors. Governed by LLP Agreement. Ownership of Assets Partners have joint ownership of all the assets belong to firm Independent of the members has ownership of assets Independent of the partners has ownership of assets Number of Members Minimum members in case of Pvt. & Public Minimum 7 - no limitation Minimum 2 - no limitation Tax Liability Flat rate of 30% plus education cess as applicable. Flat rate of 30% Plus surcharge as applicable. Digital Signature No At least one Director At least one Designated Partner CA Bhansali Sudhir

34 Identification Number Not required to obtain any identification number
Category Partnership Company LLP Identification Number Not required to obtain any identification number Each director is required to have a DIN Each Designated Partners is required to have a DIN Dissolution By Agreement/ mutual consent/ by court order. Voluntary or by order of National Company Law Tribunal. Admission as partner / member As per the partnership Agreement By buying shares of a company. As per the LLP Agreement Liability of Partners/Members Unlimited. Partners are severally and jointly liable for actions of other partners and the firm. Generally limited to the amount required to be paid up on each share. Limited, to the extent their contribution, except in case of intentional fraud or wrongful act by the partner. CA Bhansali Sudhir

35 No provision in regard to holding of any meeting
Category Partnership Company LLP Statutory Meetings No provision in regard to holding of any meeting BOD and General Meetings are required to conducted. There is no provision in regard to holding of any meeting. Maintenance of Minutes No concept of any minutes BOD/ shareholders meetings are required to be recorded in minutes. Agreement may decide to record the proceedings of meetings of Partners /Designated Partners Annual Filing No return is required to be filed Annual Financial Statement and Annual Return is to be filed with the ROC every year. Annual Statement of accounts and Solvency & Annual Return is to be filed with Registrar of LLP every year. Share Certificate Partnership Deed, if any. Share Certificates are proof of ownership of shares held. The ownership evidenced by LLP Agreement. CA Bhansali Sudhir

36 Cessation as partner / member
Category Partnership Company LLP Cessation as partner / member A person can cease to be a partner as per the agreement. Member / shareholder can cease to be a member by selling his shares. Can cease to be a partner as per the LLP Agreement or by giving 30 days prior notice. Audit of accounts Tax audit of their accounts as per the Income Tax Act Required to get their accounts audited annually . If Turnover is Rs.40 Lacs or Rs.25 Lacs contribution in any FY are not required to get their accounts audited. Voting Rights partnership Agreement Decided as per the number of shares held by the members. Voting rights shall be as decided as per the terms of LLP Agreement. Contracts with Partners/ Director Partners are free to enter into any contract. Restrictions on Board regarding some specified contracts, in which directors are interested. CA Bhansali Sudhir

37 Thank you… CA Bhansali Sudhir

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