partnereship limited libility

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Limited Liability Partnerships in India By Gyan Agnihotri

Governing Laws : 

Governing Laws LLPs in India are governed by the Limited Liability Partnership Act, 2008 that confers powers on the Central Government to apply the provisions of the Companies Act, 1956 to LLPs. It has been clarified that the provisions of the Indian Partnership Act, 1932 shall not apply to LLPs. Ministry of Corporate Affairs of Government of India shall administer the law. 2

Features of LLP : 

Features of LLP LLP is a body corporate. LLP has perpetual succession. LLP has a separate legal entity. Partners can manage the entity. For the purpose of business, partner is an agent of LLP but not of other partners. Change in partners shall not affect the existence, rights or duties of LLP. 3

LLP Name & Name Reservation : 

LLP Name & Name Reservation LLP Name LLP has the right to select its name but need to satisfy name guidelines. Name should reflect the business. LLP is required to get its name approved. LLP needs to have words ‘Limited Liability Partnership’ or ‘LLP’ as last words of its name. Name Reservation A foreign LLP or company can apply to the Registrar for the reservation of a name. Such reservation is initially granted for three years which can be renewed. 4

LLP Registered Office & LLP Agreement/Charter : 

LLP Registered Office & LLP Agreement/Charter LLP Registered Office LLP needs to have a registered office in India. LLP may change its registered office.   LLP Agreement/Charter Like partnership, LLP may have an agreement defining its name, registered office, names of partners, designated partners, profit sharing arrangement, rights and duties of partners, etc. In the absence of such an agreement, the provisions of Schedule 1 to the LLP Act shall apply. Partners may amend the agreement as per rules. 5

Partners : 

Partners Needs to have at least two partners that may be individuals or body corporate. No limit on maximum number of partners. Partners may consist of: Companies incorporated in or outside India. LLP incorporated in or outside India. Individuals residing in or outside India. LLP shall have at least two individuals as Designated Partners; at least one of them should be a resident in India. Designated Partners should obtain Designated Partner Identification Number (DPIN) from the Ministry of Corporate Affairs, Government of India. At least one of the designated partners should have Digital Signature Certificate (DSC) as forms relating to incorporation and thereafter are to be filed online after being digitally signed. 6

Liability of Partners : 

Liability of Partners Liability of partners is limited to their agreed contribution that may be tangible or intangible in nature or both. Liability of LLP is not the liability of the partners. No partner is liable for an unauthorized act of other partners or their misconduct. A partner acting to defraud others or for fraudulent purposes shall have unlimited liability. Winding Up The winding up of LLP may be either voluntarily or by the order of the Tribunal, to be established. Till the Tribunal is established, the powers shall vest with the jurisdictional High Courts. 7

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Management & Control & Conversion of Existing Entities Management & Control Shall be governed by LLP agreement, if no such agreement, Schedule 1 of the Act will apply. LLP may appoint any partner as ‘Managing/Executive Partner(s)’. Other partners may also join the management. Designated partners have no implied authority to manage the affairs of LLP. Designated partners are responsible for regulatory compliances. Conversion of Existing Entities Firms, private limited companies and unlisted public limited companies are allowed to be converted into LLP. Compromise and other arrangements possible like merger, amalgamations, etc. 8

Accounts & Audit : 

Accounts & Audit Every LLP is to maintain proper books of account. Required to follow financial year from 1st April of a year to 31st March of the following year. Required to prepare a Statement of Account and Solvency for every financial year in the prescribed manner within six months from the end of each financial year and such statement is to be signed by the designated partners. LLP to file the Statement of Account and Solvency with the Registrar. LLP accounts are required to be audited, if its turnover exceeds 4 Million INR, in any financial year or shareholders contribution exceed 2.5 Million INR. Required to file an annual return with the Registrar of Companies. All accounts and other documents shall be available to public for inspection. 9

Tax Laws : 

Tax Laws The Government of India is to notify applicability of various tax laws. The coming budget should bring necessary notifications. Till such time, we need to wait and watch how LLP and its partners are taxed. To our mind: LLP would be liable to pay Service Tax (presently @10.3%) on the value of taxable services provided by it. It would be liable to pay income tax on its income at the rates, as may be announced, including Minimum Alternate Tax (MAT) that is paid on the book profits. It would be liable to pay Fringe Benefit Tax on the value of specified and deemed fringe benefits provided by it to its employees. Rules relating to tax deduction and withholding taxes shall also apply to LLPs. Rules relating to Transfer Pricing on cross border transactions between associated concerns would also be applicable. 10

Advantages : 

Advantages Separate legal entity with perpetual succession. Liability of members is limited. Easy to form and wind up in comparison to subsidiaries. Partners can manage the affairs of LLP. Flexibility in operations. Partner not an agent of other partners. No requirement of minimum capital contribution. No limit on maximum number of partners. Thin Capital Rule applies. Personal assets of partners not exposed. Simple regulations. 11

Thanks : 

Thanks 12