Presentation at Institute of Company Secretaries of India

Presentation on the Limited Liability

Partnership Act, 2008Sanjay Buch, Partner

Crawford Bayley & Co.31st January, 2010

IntroductionIntroduction• The Limited liability Partnership

(“LLP”) is viewed as an alternate Corporate Business vehicle that not only provides the benefits of limited liability but also allows its members the flexibility of organizing their internal structure as a partnership based on a mutually agreed Agreement.

LLPs : Journey So FarLLPs : Journey So Far• The LLP Bill, providing for establishment of LLP

in India was first introduced in Rajya Sabha in 2006. This bill was referred to the Standing Committee, which presented its report to the Parliament in 2007. The revised LLP Bill, 2008 was tabled before the Rajya Sabha in October 2008.

• The LLP Bill 2008, having been passed by both the Houses of the Parliament received the Assent of the President of India on 7th January, 2009.

• The LLP Act, 2008 was thereafter notified in the Official Gazette on 9th January 2009.

• Majority of the provisions of the Act have been brought into force on 31st March, 2009.

• The Central Government has also notified the LLP Rules which are effective since 1st April, 2009

What is an LLP?What is an LLP?A BODY CORPORATE• Formed by registration under the Limited LiabilityPartnerships Act Has legal personality separate from that of its partners Has perpetual succession• the existence, rights or liabilities of the LLP are not affected by any change in partnersHas the necessary capacity in its own right to:• sue and be sued • acquire, hold and deal with property

What does having “Limited What does having “Limited Liability” in an LLP Mean?Liability” in an LLP Mean?

• Obligation of the LLP remains “solely the obligation of the limited liability partnership”.

• Liabilities incurred by the LLP are to be satisfied solely out of the property of the LLP.

• No partner is personally liable, directly or indirectly, for an obligation of the LLP solely by reason of being a partner of the LLP.

Authority of partners to Authority of partners to bind the LLPbind the LLP

• Each and every partner is an agent of the LLP • The LLP is legally bound by the actions of each

partner• Exception– partner has no/insufficient authority for the

action; and– the third-party dealing with partner knows

this.• Authority of partner to bind LLP does not cease

upon the partner ceasing to be a partner, unless the third party has notice of this or notice thereof has been delivered to the Registrar.

Relationship of Partners in Relationship of Partners in an LLPan LLP

• The mutual rights and duties of the Partners and an LLP inter se and those of the LLP and its Partners shall be governed by the Agreement between the Partners or between the LLP and the Partners, subject to the provisions of the Act

• Flexibility in devising such an Agreement as per the choice of the parties has also been provided.

Setting up the LLPSetting up the LLP•Mode of formationBy registration under the LLP Act.•Composition every LLP shall have atleast 2 general partners and 2 individuals as designated partners, of whom atleast one shall be a resident of India. the obligations of the designated partners shall be as follows:

Designated PartnersDesignated Partners• Every designated partner will obtain a Designated

Partner Identification Number (DPIN) from the Central Government.

• A designated partner shall be responsible for the doing of all acts, matters and things as are required to be done by the LLP in respect of compliance of the provisions of this Act including filing of any document, return, statement and shall be liable to all penalties imposed on the LLP for any contravention of those provisions.

• LLP will be required to appoint a designated partner within 30 days of a vacancy. However, if no designated partner is appointed, or if at any time there is only one designated partner, each partner shall be deemed to be a designated partner.

INCORPORATION• Incorporation Document (Sec. 11)• Two or more persons associated for carrying on a lawful

business with a view to profit are required to subscribe their names to an incorporation document.

• The incorporation document be in the prescribed format and should -– (a) state the name of the LLP– (b) State the proposed business of the LLP– (c) State the address of the registered office of the LLP– (d) State the names and addresses of the partners of the LLP on

incorporation– (e) State the name and address of the designated partners– (f) Contain such other information as may be prescribed.

Registration

• Effect of Registration (Sec. 14)• On registration a LLP shall, by its name, be

capable of –– Suing and being sued;– Acquiring, owning, holding and developing or

disposing of property;– Having a common seal, if it decides to have one; and– Doing and suffering such other acts and things as

bodies corporate may lawfully do and suffer.

Incorporation Procedure

* - Digital Signature Certificate

http://www.llp.gov.in/tolink/acquireDPIN.doc

http://www.llp.gov.in/home_llp.htm

http://www.mca.gov.in/MinistryWebsite/dca/dsc/certifying-new.html

http://www.mca.gov.in/DCAPortalWeb/dca/MyMCALogin.do?method=setDefaultProperty&mode=16

http://www.llp.gov.in/files/LLP_Form1.doc


































Accounts and recordsAccounts and records

The LLP is required to : Maintain annual accounts reflecting the

true and fair view of the state of affairs of the LLP,

File with the Registrar the statement of accounts and solvency every year in Form 8,

To get audited its accounts, subject to any class of LLPs being exempted from this requirement by the Central Government.

Assignment and Transfer of Assignment and Transfer of Partnership RightsPartnership Rights

•Rights of Partner to a share of profits & losses and receive distributions in accordance with the LLP agreement are transferable.•Transfer does not by itself:-dissociate the partner or dissolve and wind-up the partnership;-entitle assignee to participate in management of LLP or access information concerning the transactions of LLP

Conversion to LLPConversion to LLP•The Act also sets out the procedure for conversion of firms, private companies and unlisted public companies to LLP.As per the Second Schedule a firm may convert into an LLP only if Partners of the LLP comprise of all partners of the firm and no one else. The conversion amounts to dissolution of the firm and it is removed from the records of the Registrar of Firms All deeds, contracts, schemes, bonds, agreements, applications, instruments and arrangements subsisting before conversion continue as if the LLP were a party thereto.Upon such conversion all property of the firm all assets, rights, interests and liabilities of the firm vest in the LLP without further assurance, act or deed.

Conversion

• Conversion from firm into LLP

• Conversion from private company into LLP

• Conversion from unlisted public company into LLP

Conversion from Partnership firm

Obtaining the Designated Partner Identification Number (DPIN) and Digital Signature Certificates (DSC)

Checking Name availability with Registrar for LLP (Form 1)

Drafting of LLP Agreement

Filing of Incorporation Documents (Form-2 & 3)

Certificate of Registration (Form-19)

Filing of Conversion application (Form-17)

Inform the concerned Registrar for conversion into LLP (Form-14)

Conversion to LLPConversion to LLP The LLP has to ensure that for a period of

twelve months after conversion, every official correspondence of the LLP bears the following:

i) A statement that it was, as from the date of registration, converted from a firm into an LLP.

ii) The name and registration number, of the firm from which it was converted.

Contravention of the above provision shall make the LLP liable to a fine not less than Rs. 10,000/- but may extend to Rs. 1,00,000/-

Conversion from Private & Conversion from Private & Unlisted Public Company Unlisted Public Company

• As per the Third Schedule a Private company may convert into an LLP only if :i)There is no security interest in its assets.ii)The partners of the LLP to which it converts comprise the shareholders of the company and no one else.The obligations upon conversion of a Private Company to an LLP are the same as that in case of conversion of a firm to an LLP.

• The provisions setout in the Fourth Schedule for conversion of an Unlisted Public Company to an LLP are the same as in case of Private Companies.

Conversion from Private & Unlisted Public Company

Obtaining the Designated Partner Identification Number (DPIN) and Digital Signature Certificates (DSC)

Checking Name availability with Registrar for LLP (Form 1)

Drafting of LLP Agreement

Filing of Incorporation Documents (Form-2 & 3)

Certificate of Registration (Form-19)

Filing of Conversion application (Form-18)

Inform the concerned RoC for conversion into LLP (Form-14) within 15 days

Foreign Limited Liability Foreign Limited Liability PartnershipsPartnerships

• The Act permits foreign residents (whether individuals or body corporate) to become partners in LLPs in India.

• It allows foreign limited liability partnerships to establish a place of business in India, in accordance with rules which are to be separately framed and notified by the Central Government.

Compromise, Arrangement Compromise, Arrangement and Reconstructionand Reconstruction

•The Act provides the procedure for compromise, arrangement, reconstruction, winding up and dissolution of LLPs.

•The aforesaid corporate actions are subject to the approval of the National Company Law Tribunal.

Powers of Central Powers of Central GovernmentGovernment

•The Central Government shall have the power to investigate into the affairs of a LLP, if required, by appointment of competent inspectors for the purpose. •The Act also confers power on the Central Government to make rules in relation to winding up and dissolution of LLPs.

Striking-Off of a Defunct LLPApplication to RoC under Form 24 [Rule 37]

Application + Affidavits & Undertaking by Partners

NOC from relevant authorities (e.g RBI, TRAI etc)

RoC to publish notice on website for 1 month

Notification in the Official Gazette

Registrar to ensure satisfaction of all liabilities

Registrar’s order on expiry of period of 1 month for striking-off name from Register

MiscellaneousMiscellaneous• A partner may lend money to LLP and do the

business with it and shall have the same rights and liabilities as a person who is not a partner.

• Document or return required to be filed, if is not filed in time provided therein, may be filed within a period of 300 days from the date within which it should have been filed on payment of additional fees of Rs. 100/- for every day of such delay.

• Only the Judicial Magistrate of the first class or the Metropolitan Magistrate shall have the power to impose punishment in respect of said offence under this Act.

• Central Government can make applicable any provision of Companies Act to LLP with suitable modification by a notification.

Taxation IssuesTaxation Issues• The Act does not contain provisions regarding taxability of

LLPs. The Finance Bill, 2009 has made provisions in this regard, pursuant to which the taxation scheme of LLPs has been introduced in the Income Tax Act.

• LLPs are taxed on the lines similar to general partnerships (EXCEPT for recovery purposes) under Indian Partnership Act, 1932, i.e. taxation in the hands of the entity and exemption from tax in the hands of its partners.

• Consequent changes in the definitions of Income-tax Act, 1961 like (i) the word ‘partner’ to include within its meaning a partner of a limited liability partnership, (ii) the word ‘firm’ to include within its meaning a limited liability partnership and (iii) the word ‘partnership’ to include within its meaning a limited liability partnership as these terms have been defined in the Limited Liability Partnership Act, have also been inserted in the Finance Bill, 2009.

Taxation Issues Taxation Issues (contd)(contd)•It is provided that the designated partner

shall sign the income tax return of an LLP, or, where, for any unavoidable reason such designated partner is not able to sign the return or where there is no designated partner as such, any partner shall sign the return.•that in case of liquidation of an LLP, every partner will be jointly and severally liable for payment of tax unless he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part.•that the conversion from a general partnership firm to an LLP will have no tax implications if the rights and obligations of the partners remain the same after conversion and if there is no transfer of any asset or liability after conversion. In case of violation of these conditions, the provisions of section 45 of Income-tax Act shall apply.•that the amendments will be effective from the 1st day of April 2010 i.e. assessment year 2010-11.

Comparison between Partnership, LLP & Companies

Point of Distinction Governing Act

Partnership Indian Partnership Act, 1932

LLP Limited Liability Partnership Act, 2008

Company Companies Act, 1956

Point of Distinction

Who can Incorporate

Partnership Any two or more persons willing to start a business may do so by entering into an agreement

LLP Any two or more persons may start a LLP by subscribing their names to the Incorporation document which is to be filed with the Registrar of Companies

Company In case of a private limited company any two or more persons and in case of a public limited company any seven or more persons may, by subscribing their name to the Incorporation document, form a Company.


Point of Distinction CostsPartnership Bare minimum

incorporation cost about Rs. 5000/-

LLP Minimum incorporation cost ranging from Rs. 500/- to Rs. 5000/- being payment of fee to the Registrar and other expenses

Company Incorporating a company is an expensive affair because the registration fee is based on the authorized share capital


Point of Distinction Source of Finance

Partnership Limited

LLP More than partnership but it cannot take contribution / capital from the public

Company No restrictions as it has the opportunity to raised funds through a public offer


Point of Distinction CharterPartnership Partnership Deed

LLP Limited Liability Partnership Agreement or Schedule I of the LLP Act

Company The Memorandum and Articles of Association of the Company or Table A as the case may be


Point of Distinction Maximum number of partners / members

Partnership Maximum of 10 persons in case of banking business and 20 in case of any other business

LLP No maximum limit on number of members

Company In case of private company maximum number is 50 and in case of public company there is no limit


Point of Distinction Separate Entity

Partnership A partnership firm being a sum total of individual does not acquire a legal personality

LLP A LLP on being registered acquires a legal status separate from its partners

Company A company on its incorporation acquires a legal status separate from its members




Limited Liability

Partnership The partner’s liability is unlimited. Not only are the assets of the partnership but also the private property of each individual partners liable for satisfaction of the debts of the partnership

LLP The liability of the partners in a LLP is limited to the extent of their capital contribution. The LLP property is liable for the debts of the partnership except in case of fraud committed by a partner in which case his personal property becomes liable.

Company The liability of a shareholder of a limited company is limited to the extent of unpaid shares or to the tune of unpaid amount guaranteed by a shareholder.

Point of Distinction PropertyPartnership In case of a partnership the

property of the firm belongs to the partners who are collectively entitled to it.

LLP In case of an LLP the property belongs to the LLP and not to the partners individually.

Company In case of a company the property belongs to the company and not to the members.



Agent

Partnership A partner is an agent of the firm and also an agent of other partners

LLP In an LLP the partner is an agent only of the LLP and not of any individual partner

Company The members are not agents of the Company


Point of Distinction Contract with Partners / Directors

Partnership No restrictions

LLP No restrictions

Company A member/director may enter into a contract with the company subject to the provisions of Sec. 297 of the Companies Act, 1956



Accounts / Audit

Partnership There is no compulsion for a partnership firm to keep prescribed books of accounts and get them audited except in case of certain large firms for income tax audit purposes.

LLP LLPs are required by the Act to maintain proper books of accounts and get them audited and submit the statement of solvency every year to the Registrar. However small LLPs have been exempted from the prescribed auditing requirement

Company The company is also bound by law to maintain books of accounts and get the accounts audited and filed with the Registrar


Comparison between Partnership, LLP & CompaniesPoint of Distinction Taxation

Partnership Individual partners are taxed

LLP Same Treatment as other partnerships

Company The company is taxed.


Death of a Partner / Member

Partnership In the event of death of a partner, unless there is a contract to the contrary, the partnership firm is dissolved

LLP The LLP has perpetual succession and the death of a partner does not affect the existence of the LLP

Company A company has perpetual succession. Members come and members go but the company goes on forever



Winding Up

Partnership The partnership firm dissolves at the will of the partners or on the happening of a certain event stated in the agreement. The winding up / dissolution is very simple

LLP The LLP Act provides for the winding up procedure of a LLP after which it is dissolved. It is complicated and costly

Company The Companies Act provides for the winding up and dissolution procedure to be followed by a company. It is much more complicated and very costly


ConclusionConclusion The regime of LLP will provide a platform

to small and medium enterprises and professional firms of Company Secretaries, Chartered Accountants, Advocates, etc. to conduct their business / profession efficiently which would in turn increase their global competitiveness. It will eventually foster the growth of services sector.

Conclusion

LLP form or organisation would be the best form of organisation for professionals like us where the capital requirement is not huge but at the same time the personal liability needs to be limited so that the professionals can give the best of their services without the fear of being liable for the acts done in good faith and with due diligence.

THANK YOU FOR THANK YOU FOR PARTICIPATING…PARTICIPATING…

Presentation at Institute of Company Secretaries of India

Documents

Transcript of Presentation at Institute of Company Secretaries of India