llp in india overview v2

8/8/2019 LLP in INDIA Overview v2

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Presentation onLIMITED LIABILITYPARTNERSHIP (LLP) ACT,

2008

- by CA. Sujit ModiS. T. MODI &CO.CHARTEREDACCOUNTANTS


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S. T. MODI &

CO.CHARTEREDACCOUNTANTS

Introduction

The Limited Liability Partnership (LLP) Act,2008 has come into force with effect from 9th

January 2009

This Act contains provision for formation &regulation of LLP & for matters connectedtherewith or incidental thereto

LLP is an alternative form of business structurethat bridges the gap between traditional form ofpartnership & limited liability company

It has combined advantage of organizational

flexibility based on a mutual agreement with


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Nature of LLP

An LLP is a body corporate having a legal entityseparate from its partners & shall haveperpetual succession

Any change in the partners of an LLP shall notaffect the existence, rights or liabilities of theLLP

An LLP can be formed to carry on a lawfulbusiness, which has been defined to include anytrade, business or profession

An LLP can sue, be sued, acquire, own, hold,

develop or dispose of property in its own name


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Partners

An individual capable of becoming a partner or abody corporate can become a partner in an LLP

A body corporate includes an LLP (Indian or

Foreign) & Company (Indian or Foreign) butspecifically excludes a Co-operative Society

Every LLP shall have at least two partners &

there is no restriction on the maximum numberof partners

There must be two `designated partners` whoare individuals & at least one of them should be

a resident in India


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Partners . contd

Every Designated Partner needs to obtain DesignatedPartner Identification Number ( DPIN ) from the CentralGovernment

Designated Partner is responsible for all compliances as

required under the LLP Act & is liable to penalty for anycontraventions

Every Designated Partner would be required to sign theAnnual Financial Statement, Annual Solvency Statement &

Annual Return

Cessation of Partnership shall be in accordance with theagreement or by giving thirty days prior written notice to allthe partners


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Incorporation

At the onset, the partners would be required toenter into a partnership agreement in writing,which would be filed with ROC

ROC would register the incorporation documents& issue Certificate of Incorporation withinfourteen days on completion of formalities

Every LLP shall have either the words limitedliability partnership or the acronym LLP as thelast words of its name

LLP being an independent & distinct entity

separate from its partners it can also have


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Partners & Their Relations

Every Partner of an LLP will be, for the purposes of thebusiness of the LLP, the agent of the LLP but not that ofother partners

The mutual rights & duties of partners inter se & that of LLP

& its partners would be governed by the LLP agreement

Revised agreement shall be filed with ROC to effect changesin name, object, place, business, partners admission orresignation, etc

In absence of LLP agreement , mutual rights & duties ofpartners would be determined as set out in the FirstSchedule to the Act


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First Schedule Key points

All partners of an LLP would be entitled to shareequally in the capital, profits & losses of the LLP

No partner would be entitled to remuneration foracting in the business or management of the LLP

Every partner may take part in the management

of the LLP No person may be introduced as a partner

without the consent of all the existing partners


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First Schedule Key points .contd

Any matter relating to LLP shall be decided by aresolution passed by majority of partners & eachpartner shall have one vote for this purpose

No change can be made in the business of LLPwithout consent of all the partners

Decisions taken by LLP shall be recorded in theminutes within thirty days of taking suchdecisions & shall be kept & maintained at theregistered office of the LLP


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Partners Liability

Unlike traditional form of partnership, the liabilityof each partner in LLP will be limited to theextent of the amount specified in the LLPagreement

A partner is not personally liable, directly orindirectly for an obligation of the LLP, whetherarising in contract or otherwise solely by reasonof being a partner of the LLP

A partner of LLP would not be liable for any otherpartners wrongful act or omission

Liabilities of LLP shall be met out of the property


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Accounts & Audit

LLP will be required to maintain certain books of accounts asmay be prescribed either on cash basis or accrual basis ofaccounting

The accounts of the LLP shall be audited in accordance with therules as may be prescribed under the Act

Annual Return will be filed with ROC within sixty days of the endof the financial year

Statement of Account & Solvency signed by designated partnerswill be filed with ROC within six months from the end of thefinancial year


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Assignment & Transfer ofRights

The rights of a partner to share in the profits &losses of the LLP & to receive distributions wouldbe transferable in accordance with the LLPagreement either wholly or in part

The transfer of any rights by any partner wouldnot by itself cause the disassociation of thepartner or a dissolution & winding of an LLP

The transfer of rights does not confer rights ofparticipation in the management, conduct ofactivities or access transactions to the transfereeor assignee


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Conversion Opportunity

Existing entities like partnership firms orcompanies may apply to convert to LLP

A firm may apply to convert to LLPprovided; all the partners of the firm become the partners of

LLP

A private or an unlisted publiccompany may apply for convertingitself into an LLP provided;

There is no security interest subsisting in assets of

the company at the time of making an


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Compromise, arrangementor reconstruction of LLP

LLP Act provides provisions for allowingcompromise or arrangement including mergersand amalgamations, winding up and dissolutionof LLP

These should be agreed by majority of members& creditors representing three-fourths in value &confirmed by National Company Law Tribunal(NCLT)

Winding up or Dissolution of LLP may be eithervoluntary or by the NCLT under circumstances,like;

Inability to pay debts Default in filin Statutor documents consecutivel


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Issues to resolve !!!

Ministry of Corporate Affairs is yet to notify theRules for carrying out the provisions of the Act

LLP Act is silent on the taxability of LLP hence

appropriate amendment to the Income Tax Act1961 to provide guidance

Synchronization between Partnership Actadministered by State Government with LLP Actwhich is a Central legislation

Exchange Control Guidelines may be amended toinclude Foreign Companies in such form of

organization structure


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Company vs LLPDistinction

Company LLP

Memorandum is to be filed with ROCIncorporation Document is required to be

filed.

Memorandum should contain State inwhich incorporated.

Incorporation Document is not required tocontain State in which incorporated. Thus,registered office can be changed to anyplace in just by informing ROC subject to

prescribed conditions.Name to contain 'Limited' or 'Private

Limited' as suffixName to contain 'Limited Liability

Partnership' or 'LLP' as suffix

Articles are to be filed at the time ofincorporation. Private company must have

Articles. In case of public company,provisions of Table A apply if there are no

Articles.

LLP Agreement is required to be filed later.In absence of LLP Agreement, mutual

rights and duties will be as specified infirst schedule to LLP Act. Thus, practically,

each LLP must have LLP Agreement,though not mandatory.

Managing Director and Wholetime Directorto look after day to day administration..

Designated Partner to look after statutorycompliances. Otherwise, all partners canlook into affairs of the LLP. However, LLPcan delegate powers to some partnerswho may be designated as 'Managing

Partner', or 'Executive Partner' or anyother name.


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Company vs LLPDistinction contd

Company LLPIndividual director or member does nothave authority in conduct of business of

company.

Every partner has authority to conductbusiness of LLP, unless the LLP Agreement

provides to contrary.

Restrictions on remuneration to director asper Companies Act

No restriction on remuneration to partner.Remuneration should be provided in LLP

agreement.

Notice of change of director is to be givenby company.

A partner who has resigned from LLP canhimself file notice of his resignation to

ROC.

Share, share certificate, register ofmembers, transfer and transmission of

shares etc. required.

No requirement of share and sharecertificate. Hence, no question of its issue,allotment, transfer, rectification of register

etc.

Board meetings, general meetings arerequired.

No provision for regular meeting of Boardand members. Partners can decide whenand how to meet, delegation of powersetc. Provision is made that LLP should

maintain minute book


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Company vs LLPDistinction contd

Company LLP

Charges are required to be registered No provision for registration of charges.

Elaborate records and registers arerequired to be maintained

No records and registers have beenprescribed.

Restrictions on Board regarding somespecified contracts, contracts in which

directors interested, investments, loansand guarantees to other companies

Partners are free to enter into anycontract.

Disclosures required of contracts wheredirectors are interested

No requirement of disclosures required ofcontracts where partners are interested,

unless specified in LLP Agreement.

Elaborate provision relating to redressal incase of oppression and mismanagement

No provision relating to redressal in caseof oppression and mismanagement

Specific provisions relating to nidhis, NBFCNo specific provisions relating to nidhis,

NBFC


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Company vs LLPSimilarities

Company LLP

Limited liability and perpetual succession Limited liability and perpetual succession

Must have common seal Common seal is optional

Provision of approval of name, change ofname are similar.

Provision of approval of name, change ofname are similar.

ROC is the administrative authority ROC is the administrative authority

Provisions of name, its approval andchange are similar.

Provisions of name, its approval andchange are similar.


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Company vs LLPSimilarities contd

Company LLPNo personal liability of individual directoror member [except of director of privatecompany in some cases like income tax

and sales tax dues].

No personal liability of partner, except incase of fraud.

Complicated procedure for change of

registered office, particularly when changeis to other State

Simple procedure to change registered

office of LLP anywhere in just by informingROC and following prescribed conditions.

Registrar of Companies (ROC) is theadministrating authority.


Memorandum and Articles, details ofdirectors, accounts, annual return, specialresolutions etc. filed by LLP with ROC will

be available for public inspection

Incorporation document, details ofpartners, accounts, statement of solvencyand annual return filed by LLP with ROC

will be available for public inspection[clause 36 of LLP Bill, 2008]Powers to Central Government to inspect

records of company and to orderinvestigation

Powers to Central Government to inspectrecords of company and to order

investigation


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Company vs LLPSimilarities contd

Company LLP

Provisions of compromise, arrangement orreconstruction of companies are similar

Provisions of compromise, arrangement orreconstruction of LLP are provided in Act

Company can be would up voluntarily or

by order of Court

LLP can be would up voluntarily or by

order of Court

ROC can strike off name of defunctcompany.

ROC can strike off name of defunct LLP


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Traditional PartnershipFirm vs LLP

DistinctionsTraditional Partnership LLPUnlimited personal liability of each partnerfor dues of the partnership firm. Personal

property of each partner also liable.

No personal liability of partner, except incase of fraud.

Written agreement not essential. Incorporation document essential.

Partnership can be registered underPartnership Act. Registration is not

mandatory.

LLP is incorporated under LLP Act.Incorporation is mandatory.

Not a legal entity separate from itspartners It is a legal entity separate from itspartners, having perpetual succession

Property cannot be held in name ofpartnership firm.

Property can be held in name of LLP.


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Distinctions contdTraditional Partnership LLP

Partnership deed/agreement is executed.Even verbal agreement is valid.

'Incorporation Document' is required to beexecuted. In addition, LLP Agreement is

required in almost all cases, though suchLLP agreement is not mandatory.

Documents are required to be filed withRegistrar of Firms (of respective State)


Death of partner dissolves a firm, inabsence of agreement

Death of partner does not dissolve LLP.

Minimum two and maximum twentypartners Minimum two partners. No limit onmaximum number of partners

Each partner can take part in business offirm.

Each partner can take part in business offirm, but LLP Agreement can provide to

the contrary.


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Distinctions contdTraditional Partnership LLP

All partners are liable for statutorycompliances under Partnership Act

Only designated partners are liable forstatutory compliances as are required

under LLP Act (not necessarily in respectof other Acts).

Partner cannot enter into business withfirm, though he can give loan to firm.

Partner of LLP can enter into business withLLP. He can also give loans to LLP.

Every partner of firm is agent of firm andalso of other partners. He can bind

partnership firm as well as other partnersby his acts.

Every partner of LLP is agent of LLP butnot of other partners. Thus, he can bindLLP by his acts but not other partners.However, LLP agreement can restrict

powers of individual partner.

Filing of accounts, statement of solvencyand annual return not required.

Filing of accounts, statement of solvencyand annual return not required.

Partnership can be 'at will' i.e. any partnercan resign or dissolve firm

Individual partner can resign but cannotdissolve the LLP.


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Distinctions contdTraditional Partnership LLPDeath of partner dissolves partnership

unless there is contract to contraryDeath of partner does not dissolve LLP.

Public notice is required for retirement of apartner.

Filing of return of retirement of partner

with ROC is required, but no provision forpublic notice of retirement of partner.

Partnership firm can be dissolved. LLP can be would up.

No specific provision to enter intocompromise, arrangement, amalgamation,

reconstruction etc. This can be done onlyunder civil laws.

LLP can enter into compromise,

arrangement, amalgamation,reconstruction etc.

Minor can be admitted to benefit ofpartnership.

There is no specific provision to admitminor to benefit of partnership. It is

doubtful if this can be done.


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SimilaritiesTraditional Partnership LLP

Partner is not employee of firm Partner is not employee of LLP.

Liability of a person for 'holding out', i.e.representing himself as partner, though heis not

Liability of a person for 'holding out' i.e.representing himself as partner, though heis not

Partner of firm entitled to remunerationonly if partnership agreement so provides

Partner of LLP entitled to remunerationonly if LLP agreement so provides

New partner can be introduced only withconsent of all existing partners

New partner can be introduced only with

consent of all existing partners, unless LLPAgreement provides otherwise.

Insolvent person cannot continue aspartner of firm.

Insolvent person cannot continue aspartner of LLP.


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Similarities contdTraditional Partnership LLPInsolvent person cannot continue as

partner of firm.Insolvent person cannot continue as

partner of LLP.

Rights of partnership can be assigned. Rights of partnership can be assigned.

Partner liable to firm for any personalprofits made by him by use of property,

name or business connection of firm.

Partner liable to LLP for any personalprofits made by him by use of property,

name or business connection of LLP

Partner cannot undertake competingbusiness without consent of other partners

Partner cannot undertake competingbusiness without consent of LLP.

Otherwise, liable to account for and payprofits to LLP

Partner liable to firm if he commits fraud. Partner liable to LLP if he commits fraud.


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Disclaimer

The information in this document is private and confidential and is onlyintended for use by the addressee and access to this document by anyoneelse is unauthorized

Any unauthorized disclosure, reproduction, distribution, copying, use ordissemination either in whole or in part is strictly prohibited

Due care has been taken in compiling the information & preparing thisdocument, however S. T. MODI & CO. does not accept any liability forerrors & omissions arising in the document

Reader is advised to take action contained in this presentation only afterconsultation with an advisor


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