1. LIMITED LIABILITY PARTNERSHIP [LLP] BILL, 2008  Revised LLP Bill 2008 passed in Rajya Sabha on October 24, 2008.

2. LIMITED LIABILITY PARTNERSHIP [LLP] BILL, 2008 SYNOPSIS I.LLP – the Concept II.Comparison between LLP, Partnership Act & Companies Act III.Contents of LLP Bill :  Key Definitions under LLP  Nature of LLP  Designated Partners Incorporation of LLP Incorporation of LLP Partners & their Relations Partners & their Relations Extent and Limitation of Liability of Partners and Contribution Extent and Limitation of Liability of Partners and Contribution Financial disclosures Financial disclosures Assignment and Transfer of Partnership Rights Assignment and Transfer of Partnership Rights Conversion to LLP & Foreign LLPs Conversion to LLP & Foreign LLPs Compromise, Arrangement or Reconstruction of LLP Compromise, Arrangement or Reconstruction of LLP Investigation Investigation Whistle Blowing & Compounding of Offences Whistle Blowing & Compounding of Offences Winding Up and Dissolution Winding Up and Dissolution Miscellaneous Miscellaneous IV. Advantages of LLP – A Hybrid Vehicle V. New Areas of operations for Company Secretaries VI.Grey Areas

3. LLP – the Concept  Defined in the LLP Bill as –  A partnership formed and registered under this Act. [Clause 2(n)]  LLP – A hybrid business entity combining the features of both a Partnership and a Company:  Organizational flexibility of Partnership : No dependence on any statute for the internal management of affairs.  Incorporates the limited liability attribute of a Company.  In simpler terms, LLP is a partnership, having a legal entity distinct from its partners.

4. COMPARISON KEY AREAS LLP Bill PARTNERSHIP ACT COMPANIES ACT RegistrationCompulsoryOptionalCompulsory Minimum no. of Partners/ Members2 Designated Partners – At least 2, out of which one of them to be resident in India 2 2 – in case of Pvt. Co. 7 - in case of Public Ltd. co. Maximum no. of Partners/ Members No limit 10 in case of banking business, 20 in case of other business 50 - in case of Pvt. Co. No limit – in case of Public Co. Perpetual Succession Yes The Partnership Firm would be dissolved upon the death of a partner/partnership at Will. Yes Separate Legal Entity from Partners/ MembersYesNoYes LiabilityLimitedUnlimitedLimited Management As per LLP Agreement/ First Schedule. As per LLP Agreement/ First Schedule. All partners are entitled to take part in the management of the business. Management of the affairs is vested in the Board.

5. COMPARISON - CONTD. KEY AREAS LLP PARTNERSHIP ACT COMPANIES ACT Charter LLP Agreement/ First Schedule in absence of LLP Agreement. Partnership Deed. Memorandum & Articles of Association (MoA & AoA). Incorporation Documents Only two Documents required: -Incorporation Document -Statement from a professional. -LLP Agreement to filed with RoC after incorporation. Partnership Deed. -MoA & AoA -Form 32 -Form 18 -Form 1 -Power of Attorney Principal Agent Relationship -A partner acts as an Agent of the LLP only, not other partners. Each partner has implied authority to bind his co-partners by acts done within ordinary course of business. No such relationship exists. Transfer of interest Partner can be ceased to act as such by virtue of an agreement with the partners/ giving 30 days notice in writing to other partners. No such provision exists. Pvt. Co. – Not Freely transferable Public Co. - Freely Transferable

6. COMPARISON - CONTD. KEY AREAS LLP PARTNERSHIP ACT COMPANIES ACT Remuneration/ Profit Sharing As per First Schedule to the Act, no remuneration to partners is to be paid. No provision for payment of remuneration to partners. Only profit/ Loss sharing is there. Remuneration to Directors governed by provisions of the Act. Audit To be mandatory carried out on an annual basis. Tax Audit is required only in case of partnership whose total turnover exceeds Rs. 40 lacs. It is mandatory. It is mandatory. Transactions by Partners/ Directors Partners are entitled to freely transact with the LLP. Permissible. Restrictions are imposed on Directors for transactions with the Company. Annual Filing A Statement of Account and Solvency, to filed within the time as may be prescribed. Annual Return to be filed wuithin 6o days from the end of the Financial Year. No such provisions exist. Balance Sheet and Profit & Loss Account and Annual Return to be filed within 30 days & 60 days from the date of AGM, respectively.

7. KEY DEFINITIONS UNDER LLP BILL Body Corporate : Clause 2(d) - A Company as defined in sec. 3 of the Companies Act, 1956 & includes – (i) (i)A LLP registered under this Act; (ii) (ii)A LLP incorporated outside India (iii) (iii)A Company incorporated outside India but excludes   Corporation sole (Not defined in this Act)   Co-operative society registered under any law for the time being in force   Any other body corporate (not being a company as defined in Section 3 of the Companies Act, 1956 or a LLP as defined in this Act), which the Central Government may, by Notification in the Official Gazette, specify in this behalf. Foreign Limited Liability Partnerships : Clause 2(m) – A LLP incorporated or registered outside India which establishes a place of business within India. Limited Liability Partnership Agreement : Clause 2(o) - Any written agreement between the partners of the LLP or between the LLP and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that LLP. Partner : Clause 2(p) - Any person who becomes a partner in the LLP in accordance with the limited liability partnership agreement. Tribunal : Clause 2(u) – NCLT constituted under Section 10FB (1) of the Companies Act, 1956.

8. NATURE OF LLP (CHAPTER II – CL.3-6)  A Body corporate incorporated under this Act.  Separate Legal Entity.  Perpetual Succession.  Indian Partnership Act, 1932 shall not apply to LLP.  Any individual or body corporate may be a partner in LLP.  Minimum No. of Partners : 2 - In case no. of partners reduced below 2, appointment of partners should be made within 6 months; - In case no. of partners reduced below 2, appointment of partners should be made within 6 months; - In case no such appointment is made & business carried on for more than 6 months, then remaining partner shall be personally liable for obligations incurred during this period. - In case no such appointment is made & business carried on for more than 6 months, then remaining partner shall be personally liable for obligations incurred during this period.

9. DESIGNATED PARTNERS (CHAPTER II – CL.3-6)  At Least 2 Designated Partners who are individuals and at least one of them shall be Resident in India. -In case of Bodies Corporate being partner, its nominees to act as Designated Partners. -In case of Bodies Corporate being partner, its nominees to act as Designated Partners.  A Partner shall act as Designated Partner - By virtue of the Incorporation Document - By virtue of the Incorporation Document - In accordance with the LLP Agreement. - In accordance with the LLP Agreement.  Prior Consent of the Designated Partner necessarily required to act as such and his particulars should be filed with Registrar of Companies (RoC) within 30 days of his appointment.  Every Designated partner shall obtain a Designated Partner Identification Number (DPIN) from the RoC. (Provisions of Section 266A to 266G of Companies Act, 1956 shall apply)  Designated partner shall be responsible for compliance w.r.t. provisions of this Act including filing of document, return, statement and also liable for penalties imposed on LLP for any contravention of those provisions.  Any vacancy created in the office of Designated Partner shall be filled within 30 days.  If no designated partner appointed or at any time, only one designated partner is there, each partner deemed to be a designated partner.

10. INCORPORATION OF LLP [CHAPTER III (Cl. 11 to 21)]  Two or more persons shall be the subscribers to Incorporation Document. Subscribers to the Incorporation Document shall be its partners. Any other person may also become a partner of LLP in accordance with LLP Agreement.  An Application for name availability at the time of incorporation/ change of name, to be made to RoC in the form and manner as may be prescribed. Reservation of name for 3 months from the date of intimation by RoC.  Incorporation Document to be filed with the RoC in which Registered Office of LLP is to be situated.  A Statement in the prescribed form made either by CS/CA/CWA/Advocate engaged in formation of LLP along with any one of the subscriber.  Within 14 days, RoC shall register the Incorporation Document and issue a Certificate of Incorporation.  LLP to have a Registered Office (RO) at which all notices would be addressed.  RO can be changed by LLP and notice of such change shall be filed with the RoC.  LLP shall be incorporated with the words Limited Liability Partnership or the acronym “LLP” as the last words of its name.

11. PARTNERS AND THEIR RELATIONS [CHAPTER IV (Clause 22 to 25)]  Mutual Rights and Duties of a partner of LLP and those of its Partners and LLP shall be governed by LLP Agreement which has to be filed with RoC in the prescribed manner.  In absence of LLP Agreement, provisions of First Schedule of the Act will apply.  Main provisions of First Schedule:  Equal sharing of capital, profits/ losses  Indemnification by LLP to Partners in the ordinary course of business.  Indemnification by Partners to LLP in the case loss caused to LLP by his fraudulent action.  Each partner shall take part in Management of LLP, with no entitlement to remuneration.  Appointment of new partner with the consent of the existing partners.  Decisions to be taken on the basis of majority voting by the partners, which shall be recorded in the minutes within 30 days and kept at the Registered Office.  Disputes between Partners arising out of LLP Agreement shall be referred for Arbitration under the Arbitration & Conciliation Act, 1996.  Cessation of Partner – either by virtue of an agreement with other partners or by giving a notice of minimum 30 days to other partners.  Partner to inform the LLP about changes in his names/address within 15 days of change.  LLP shall inform RoC about changes in names/address of partner or in the event of becoming/ceasing of the partners within 30 days.  Any partner who ceases to be partner may file with the RoC the notice of his cessation if he has reasons to believe that LLP may not file the notice and in such case the Registrar shall obtain a confirmation to this effect from LLP.

12. EXTENT AND LIMITATION OF LIABILITY OF LLP & PARTNERS (CHAPTER V) AND CONTRIBUTIONS (CHAPTER VI)  Every Partner is an agent of LLP but not of its partners.  Liabilities of the LLP shall be met out of the property of LLP.  LLP shall not be liable for ultra-vires act of the partners.  Partner is not personally liable except in case of wrongful acts or omission committed by him.  In case any act is carried out by LLP or its partners with an intention to defraud its creditors or for any fraudulent purpose, the liability of LLP and its partners who acted in such manner, shall be unlimited for all its debts and liabilities of LLP.  The obligation of a partner to contribute money or other property or other benefit or to perform services for a LLP shall be as per the LLP Agreement.

13. FINANCIAL DISCLOSURES [CHAPTER VII (Clause 34 to 41)]  Books of accounts to be maintained at Registered Office.  A Statement of Account and Solvency as at the last day of financial year shall be prepared within 6 months from the end of financial year and such statement shall be signed by the designated partners of LLP and filed with RoC within prescribed time. (No format & filing time of these documents have been prescribed )  Accounts to be audited in accordance with prescribed rules. (Rules are yet to be prescribed )  Annual Return to be filed within 60 days from the end of the financial year. (This provision seems to be contrary to the earlier provision of preparing Statement of Account and Solvency within 6 months)  Inspection with RoC - Incorporation Document, Names of Partners and changes, Statement of Account & Solvency & Annual Return filed with the RoC shall be available for inspection on payment of fees.

14. ASSIGNMENT & TRANSFER OF PARTNERSHIP RIGHTS [CHAPTER VIII (Clause 42)]  Right of a partner to share the profits and losses of the LLP are transferable either wholly or in part in favour of any partner or other persons.  Transfer of any right by any partner does not itself cause his disassociation or dissolution and winding up of LLP.  Transferee shall not have a right to participate in the management or access information w.r.t transactions of LLP.

15. CONVERSION TO LLP (Chapter X) & FOREIGN LLP (Chapter XI) (Cl.55 to 59)  A Firm, Private Company and an Unlisted Company may be converted into a LLP after complying with the provisions of this Act read with Schedules II, III & IV to the Act respectively.  In order to convert itself into a LLP, all the existing partners of a firm/ shareholders of a Company, as the case maybe, must be the partners in the resulting LLP.  In addition to the documents required at the time of incorporation of a LLP, a Statement by all partners/ shareholders, containing name and registration no. of the firm/ Company, as the case maybe, and the date on which the firm/ Company was registered.  RoC, on being satisfied, shall issue a Certificate of Registration.  LLP shall inform the concerned Registrar of Firms/ RoC, as the case may be, within 15 days of registration, about such conversion in such form and manner as may be prescribed.  Upon such conversion,  the Partners of Firm or Shareholders of Pvt. Co./ Unlisted Co., the LLP and the partners of the LLP, shall be bound by the provisions of the Schedules as applicable to them.  All assets and liabilities of such Firm or Company, shall be transferred and vest in the name of LLP from the date of registration specified in the Certificate. FOREIGN LLP Foreign LLP has been defined in the Act as a LLP incorporated or registered outside India which establishes a place of business within India The Central Government may make rules regarding establishment of place of business by Foreign LLP and carrying on business within India. Foreign LLP has been defined in the Act as a LLP incorporated or registered outside India which establishes a place of business within India The Central Government may make rules regarding establishment of place of business by Foreign LLP and carrying on business within India.

16. COMPROMISE, ARRANGEMENT OR RECONSTRUCTION [Chapter XII (Clause 60 to 62)]  Compromise/ Arrangement can be made between a LLP and its Creditors or LLP and its Partners. (The purpose and matters of Compromise/ Arrangement are yet to be defined)  The Tribunal may, on an application made by LLP/ Creditors/ Partners/ Liquidator (in case of LLP being wound up), order a Meeting of the Creditors/ partners.  The Application to be accompanied by an Affidavit stating all material facts relating to the LLP, latest financial position and pendency of any investigation.  Such compromise/ arrangement shall be binding on the parties as stated above, if – - agreed by a majority of 3/4th in value of the creditors/partners, and - sanctioned by the Tribunal by an Order.  Order shall be filed by the LLP with ROC within 30 days of its passing and shall be effective only when the same is filed.  Provision for Amalgamation/ Reconstruction of LLPs is there to give effect to any Compromise/ Arrangement. Powers of Tribunal: Powers of Tribunal:  To supervise carrying out of the compromise or arrangement.  To give directions/make such modifications for the proper working of compromise or arrangement.  It can pass an order for winding up of the LLP, either suo motu or an Application made by any person interested in the affairs of LLP, where the compromise/ arrangement cannot be worked out, with or without modifications.

17. INVESTIGATION [CHAPTER IX (Clause 43 TO 54)]  Central Govt. to appoint one or more persons to investigate the affairs of LLP.  Investigation shall be ordered by Tribunal either suo motu or upon an application received from not less than 1/5th of the total partners alongwith supporting evidence and security as may be prescribed or upon an order of the Court.  No firm, body corporate or other association shall be appointed as an inspector.  The inspector can also carry out investigation of the affairs of related entities if he feels necessary to carry out his investigation of LLP after obtaining prior approval of Central Govt. (The Term ‘Related Entities’ is yet to defined)  Inspectors shall have power to inspect & seize Books of Accounts and other documents and to examine persons on oath, as may be necessary for proper conduct of investigation.  Central Govt., through any authorized person, may make a petition to Tribunal for winding up, if it is just and equitable for the LLP to be wound up.

18. Whistle Blowing & Compounding of Offences (Cl. 31 & 39)  Any penalty leviable against any partner or employee may be reduced or waived by the Court or Tribunal, if - Such partner or employee provides useful information during investigation; or - Such partner or employee provides useful information during investigation; or - Information given by any partner or employee (whether or not during investigation) leads to conviction of LLP or its partner/employee. - Information given by any partner or employee (whether or not during investigation) leads to conviction of LLP or its partner/employee.  CG may compound any offence under this Act punishable with fine only, from the suspected person by collecting a sum which may extend to maximum prescribed fine for the offence.

19. WINDING UP AND DISSOLUTION [Chapter XIII (Clause 63 to 65)]  LLP may be wound up either voluntarily or by the Tribunal.  LLP may be wound up by the Tribunal, if – - LLP decides to be wound up by the Tribunal. - number of partners is reduced below 2, for more than 6 months. - it is unable to pay its debts. - it has acted against the interests of the sovereignty and integrity of India, security of State or public order. - it has made a default in filing with the ROC, the Statement of Account and Solvency or Annual Return for any 5 consecutive financial years. - Tribunal is of the opinion that it is just and equitable that the LLP be wound up.  The Central Government may make rules in relation to winding up and dissolution of LLPs.

20. MISCELLANEOUS [Chapter XIV (Clause 66 to 81)]  A partner may lend money & transact other business with the LLP and shall have the same rights and obligations as that of a creditor.  Central Government may, by notification, direct the applicability of any of the provisions of the Companies Act, 1956, to any LLP with or without modifications.  Any document, electronically filed with the ROC, would be admissible in evidence to be true, unless evidence to the contrary is adduced.  Filing fee for the various documents to be filed with the RoC would be prescribed in due course.  Fee for Belated Filing: - upto 300 days from the due date : additional fee of Rs. 100 per day. - beyond 300 days : additional fees as specified in this section.  LLP, any partner/ designated partner of such LLP, who has committed any offence shall, for the second or subsequent offence, be punishable with imprisonment as provided, but in cases where fine is provided with or without imprisonment, punishable with twice the amount of fine for such offence.  Any person aggrieved by an order of Tribunal may prefer an appeal to the Appellate Tribunal.  Where no punishment is expressly provided for any provision, person guilty shall be liable to fine which may extend to Rs. 5 Lacs but shall not be less than Rs. 5,000 and a further fine which may extend to Rs. 50 per day in case of continuing contravention.  ROC may, after giving opportunity of being heard to the LLP, strike off its name from the Register of LLPs, where ROC has reasonable cause to believe that LLP is not carrying on the business or its operation in accordance with the provisions of this Act.

21. ADVANTAGES OF LLP – A HYBRID LEGAL VEHICLE  Internal rules and regulations shall be guided by the provisions contained in the LLP Agreement without involvement of any Statute.  Incorporates the limited liability attribute of a Company.  Synergies would be developed by the combination of two or more entities because of their respective expertise.  Lead to professional growth in a more flexible, innovative and efficient manner.  Small scale enterprises would also be inclined towards LLP structure because of its flexibility and ease of compliance.  No requirement to obtain any certificate in order to commence the operations of the LLP.

22. NEW AREAS OF OPERATIONS FOR COMPANY SECRETARIES  During incorporation of LLP, a Statement is required from a CS, CA, ICWA or Advocate certifying the compliance of all the requirements of this Act. [Cl.11]  Obtaining the DPIN – may require certification from CS, CA or ICWA, as the provisions of Section 266A to 266G of Companies Act, 1956 shall apply.[Cl. 7]  Authentication may be granted to CS, CA, ICWA or Advocate in respect to following documents:  Annual Return  Notice of Changes in Partners  Notice of Change in Name of LLP  Notice of Changes in Registered Office.

23. GREY AREAS  ROC, already burdened with the mammoth task of managing corporate structure, made the Regulatory Authority for LLPs. Regulatory Functions for LLPs & Cos. should be kept separate.  Inability to pay debts is made a Ground for winding up of LLP. However, no limits prescribed as to the amount of unpaid debt, time period of default or no. of creditors.  Annual return to be filed within 60 days from the end of the financial year. This provision seems to be contrary to the provision of preparing Statement of Account and Solvency within 6 months.  No limits on the no. of LLPs in which a person may become a Partner/ Designated partner.  No provisions specified for conversion of LLP to other forms of business.  Related Entities not defined.