limited liability partnerships an overview · · 2014-11-13‘inrelation to limited liability...
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CA. Kamlesh Vikamsey
LIMITED LIABILITY PARTNERSHIPS
– AN OVERVIEW
Presented by : CA Kamlesh Vikamsey
Organized by : Bangalore Branch of SIRC
CA. Kamlesh Vikamsey
Indian history• 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
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CA. Kamlesh Vikamsey
Indian history• 2009: LLP Act, 2008 receives presidential assent & is published in Official
Gazette
• 2009: LLP Act, 2008 gets notified w.e.f March 31st, 2009
CA. Kamlesh Vikamsey
Different Chapters of the Act• Chapter I-Preliminary (Ss. 1 & 2)
• Chapter II-Nature of LLP (Ss. 3-10)
• Chapter III-Incorporation & Incidental Matters (Ss. 11-21)
• Chapter IV-Partners & their Relations (Ss. 22-25)
• Chapter V-Extent & Limitation of Liability of LLP & Partners(Ss. 26-31)
• Chapter VI-Contributions (Ss. 32 & 33)
• Chapter VII-Financial Disclosures (Ss. 34-41)
• Chapter VIII-Assignment & Transfer of Partnership Rights (S.42)
• Chapter IX-Investigation (Ss. 43-54)
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CA. Kamlesh Vikamsey
• Chapter X-Conversion to LLP (Ss. 55-58)
• Chapter XI-Foreign Limited Liability Partnerships (S. 59)
• Chapter XII-Compromise, Arrangement or Reconstruction of LLPs(Ss. 60-62)
• Chapter XIII-Winding Up & Dissolution (not notified as on date)(Ss. 63-65)
• Chapter XIV-Miscellaneous Provisions (Ss. 66-81)
• First Schedule-Mutual Rights & Liabilities of Partners & LLP
• Second Schedule-Conversion of Partnership Firm to LLP
• Third Schedule-Conversion of Private Company to LLP
• Fourth Schedule-Conversion of Unlisted Public Company to LLP
Different Chapters of the Act
CA. Kamlesh Vikamsey
Preliminary (Ch. I)• Short title, extent & commencement
This Act may be called the Limited Liability Partnership Act, 2008
It extends to the whole of India
All sections have been notified as on March 31st, 2009, vide notification no. S.O.891(E), except-
Clauses (c) and (u) of sub-section (1) of S. 2-Appellate Tribunal & Tribunal
Extent of applicability of Section 31 in respect of ‘Tribunal’
S. 51-Application by Central Government for Winding-up of LLP
Ch. X-Conversion to LLPs [Notified vide Notification no. S.O. 1323(E) dated May22nd, 2009]
Ch. XIII-Winding Up of LLPs
S. 72-Jurisdiction of Tribunal & Appellate Tribunal
Clauses (b), pertaining to its applicability to Ss. 51, 63 & 64; & (c) of S. 81
Second, Third & Fourth Schedule-Pertaining to Conversion of Firms & Companies(except Listed Companies) to LLPs [Notified vide Notification no. S.O. 1323(E)dated May 22nd, 2009]
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CA. Kamlesh Vikamsey
Preliminary (Ch. I)Important Definitions:
• Body Corporate [S. 2 (1) (d)]:‘means a company defined in section 3 of the Companies Act, 1956 and includes-
(i) a limited liability partnership registered under this Act;
(ii) a limited liability partnership incorporated outside India; and
(iii) a company incorporated outside India,
but does not include-
(i) a corporation sole;
(ii) a co-operative society registered under any law for the time being inforce; and
(iii) any other body corporate (not being a company as defined in section 3of the Companies Act, 1956 or a limited liability partnership as defined in thisAct), which the Central Government may, by notification in the Official Gazette,specify in this behalf’
CA. Kamlesh Vikamsey
Preliminary (Ch. I)• Business [S. 2 (1) (e)]:
‘includes every trade, profession, service and occupation’
• Financial Year [S. 2 (1) (l)]:
‘in relation to limited liability partnerships, means the period fromthe 1st day of April of a year to the 31st day of March of thefollowing year:
Provided that in case of a limited liability partnership incorporatedafter the 30th day of September of a year, the financial year mayend on the 31st day of march of the year next following that year’
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CA. Kamlesh Vikamsey
Preliminary (Ch. I)• Limited Liability Partnership Agreement [S. 2 (1) (o)]:
‘means any written agreement between the partners of the limitedliability partnership or between the limited liability partnership andits partners which determines the mutual rights and duties of thepartners and their rights and duties in relation to that limitedliability partnership’
• Registrar [S. 2 (1) (s)]:‘means a Registrar, or an Additional, a Joint, a Deputy or anAssistant Registrar, having the duty of registering companiesunder the Companies Act, 1956’
CA. Kamlesh Vikamsey
Preliminary (Ch. I)• S. 2 (2):
‘Words and expressions used and not defined in this Act defined inthe Companies Act, 1956 shall have the meanings respectivelyassigned to them in that Act’
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CA. Kamlesh Vikamsey
Nature of Limited Liability Partnership (Ch. II)
• LLP is body corporate formed & incorporated under LLP Act[S. 3 (1)]
• LLP is legal entity separate from its partners [S. 3 (1)]
• LLP has perpetual succession [S. 3 (2)]
• Existence, Rights & Liabilities of LLP not affected by change inpartners [S. 3 (3)]
• Indian Partnership Act, 1932 does not apply to LLPs [S. 4]
• Partners
Individuals / Body Corporate can be partners [S. 5]
Minimum two partners [S. 6 (1)]
Maximum unlimited partners
CA. Kamlesh Vikamsey
Nature of Limited Liability Partnership (Ch. II)
• If no. of partners fall below 2 for more than 6 months, and
• Remaining partner has knowledge of such no. of partnersfalling below two for period more than 6 months
• Then remaining partner will be personally liable for liabilitiesincurred by LLP [S. 6 (2)]
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CA. Kamlesh Vikamsey
Nature of Limited Liability Partnership (Ch. II)
• Designated Partners (DP) [S. 7 (1)]
At least two DPs
Only Individuals can be DPs
At least one resident in India
Every DP to obtain a Designated Partner Identification No. (DPIN)
• Responsibilities & Liabilities of DPs [S. 8]
Responsible for doing all acts, matters & things required to bedone by LLP w.r.t compliance of LLP Act including filing of anydocument, return, statement & like report under LLP Act & asspecified in LLP Agreement
Liable to all penalties imposed on LLP for any contravention ofabove
CA. Kamlesh Vikamsey
Nature of Limited Liability Partnership (Ch. II)
• Changes in DPs [S. 9]
LLP to appoint DP within 30 days of vacancy
If no DP is appointed or if, at any time, there is only 1 DP, eachpartner shall be deemed to be a DP
• Penalty for Contravention [S. 10]
For S. 7 (1): LLP & its every partner shall be fined > Rs. 10,000(Maximum Rs. 5 Lacs)
For Ss. 7 (4) & (5), 8 & 9: LLP & its every partner shall be fined >Rs. 10,000 (Maximum Rs. 1 Lac)
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CA. Kamlesh Vikamsey
Nature of Limited Liability Partnership (Ch. II)
• Disqualifications of DPs
• R. 9 (1): No person can be DP of LLP, if-
He is adjudged as insolvent within preceding 5 years
He has suspended payment to his creditors & not made any composition with them within preceding 5 years
He is convicted by Court for any offence including moral turpitude & sentenced to imprisonment not less than 6 months
He is convicted by Court for offence under Section 30 of LLP Act
CA. Kamlesh Vikamsey
Incorporation & Incidental Matters (Ch. III)• Incorporation Document [S. 11]
Is among Prime Documents of LLP
Must be submitted to registrar in ‘Form-2’ [R. 11]
S. 11 (2) requires particular information to be contained in IncorporationDocument-
Name of LLP
Proposed Business of LLP
Address of Registered Office (RO)
Names & Addresses of Partners
Names & Addresses of DPs
Other Information as may be prescribed
• RO shall be place of all correspondence for LLP [S. 13 (1)]
On Contravening provisions relating to RO, LLP & its every partner shall bepunishable with fine upto Rs. 25,000 but not less than Rs. 2,000 [S. 13 (4)]
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CA. Kamlesh Vikamsey
• Effect of Registration [S. 14]: LLP will be able to, in its own name-
Sue & be sued
Acquire, hold & develop or dispose off any property
Have common seal
Do & suffer such other acts & things as bodies corporate may lawfullydo or suffer
• Name of LLP must end with words ‘Limited Liability Partnership’ oracronym ‘LLP’ [S. 15 (1)]
• Change in name of LLP [S. 17]
• Penalty for improper use of words ‘Limited Liability Partnership’ or‘LLP’ [S. 20]
Punishable with fine of Rs. 50,000 but may extend upto Rs. 5 Lacs
• Publication of name, address of RO, Registration No. & Statement oflimited liability [S. 21]
Incorporation & Incidental Matters (Ch. III)
CA. Kamlesh Vikamsey
• Procedure for formation of LLP:
Check availability of name on site ‘llp.gov.in’
Acquire Digital Signature Certificate (DSC)
Acquire DPIN by applying in prescribed ‘Form-7’
Apply for Reservation of Name in prescribed ‘Form-1’
Apply for Incorporation Document in prescribed ‘Form-2’
Alongwith Incorporation Document, submit application for-
Information regarding LLP Agreement in ‘Form-3’
Appointment of Persons and their consent as such to act as Partners/ DPs in ‘Form-4’ & ‘Form-9’, respectively
Receive Form-2 duly signed by Registrar & certificate from registrarregarding incorporation, within 14 days of filing such documents
LLP is ready to function
Incorporation & Incidental Matters (Ch. III)
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CA. Kamlesh Vikamsey
Incorporation & Incidental Matters (Ch. III)
CA. Kamlesh Vikamsey
Partners & their Relations (Ch. IV)• Eligibility to be partner [S. 22]
Persons who subscribe to Incorporation Document
By LLP Agreement
• Relationship of partners [S. 23]
Rights & duties of partners with other partners & with LLP governed by LLPAgreement
In absence of any agreement, principles set out in First Schedule will apply
• Cessation of Partnership Interest
In accordance with LLP Agreement [S. 24 (1)]
By resignation notice in writing of 30 days [S. 24 (1)]
On death, dissolution of LLP, or if he is of unsound mind or insolvent asdeclared by court [S. 24 (2)]
• Liability of Outgoing Partner [S. 24 (4)]
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CA. Kamlesh Vikamsey
Partners & their Relations (Ch. IV)• Registration of changes in partners / details of partners to be
filed in prescribed time & in prescribed ‘Form-6’ [R. 22 (1)]
CA. Kamlesh Vikamsey
First Schedule (Ch. IV)Relates to mutual rights & duties between partners & LLP & its partners absence ofAgreement on such matters
• Partners of LLP entitled to share equally in capital & profits / losses
• Partners shall be indemnified by LLP in respect of payments made & liabilitiesincurred by him-
In ordinary & proper conduct of business of LLP
In anything necessarily done for Preservation of business or property of LLP
• LLP shall be indemnified by Partners for any loss caused by his fraud in conduct ofbusiness of LLP
• Partners may participate in management of LLP
• Partners shall not be entitled to any remuneration for acting in business ormanagement of LLP
• No partner may be introduced without consent of all other partners
• Any ordinary matter regarding LLP may be decided by resolution passed bymajority of partners
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CA. Kamlesh Vikamsey
First Schedule (Ch. IV)• However, change in nature of business may be decided only by consent of all
partners
• Every decision taken by LLP be recorded in minutes within 30 days of suchdecision
• Minute Book be maintained & kept at RO of LLP
• Partners must render true accounts & full information of all things affecting LLP toany partner or his legal representative
• Partners to account for & pay over all profits earned from business of similarnature & competing with LLP, to LLP if there is no consent from LLP in that respect
• Partners to account to LLP for any benefit derived by him without LLP’s consent,from any transaction concerning LLP or from use of name, property or businessconnection of LLP
• No partner may be expelled by a majority unless there is an express powerconferred by LLP Agreement to do so
• All disputes which cannot be resolved by LLP Agreement can be referred to forarbitration as per Arbitration and Conciliation Act, 1996
CA. Kamlesh Vikamsey
Liability of LLP & Partners (Ch. V)• Just like partnership, every partner is an agent; not of other
partners but of LLP [S. 26]
• LLP not bound by unauthorized acts of partners in dealing withperson if that person knows that the partner had no authority ordid not know him to be partner of LLP [S. 27 (1)]
• LLP liable in respect of wrongful acts or omissions of partners incourse of its business or with its authority [S. 27 (2)]
• Obligation of LLP is solely an obligation of LLP & shall be met outof property of LLP [S. 27 (3) & (4)]
• Partners not personally liable [S. 28 (1)]
• Liability of partner(s) committing wrongful acts or omissions willbe unlimited [S. 28 (2)]
• Partnership by Holding out [S. 29]
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CA. Kamlesh Vikamsey
Liability of LLP & Partners (Ch. V)• Unlimited Liability in case of fraud [S. 30]
If fraud done with knowledge / authority of LLP, LLP’s & partner’sliability will be unlimited. LLP’s liability = Partner’s liability
Otherwise, LLP will not be liable
Imprisonment for 2 years & fine upto Rs. 5 Lacs
• Whistle Blowing [S. 31]
Court / Tribunal may reduce penalty if partner / employee assistsCourt / Tribunal
CA. Kamlesh Vikamsey
Contributions (Ch. VI)• Form of Contribution in any manner- in cash or in kind [S. 32 (1)]
• Accounting & Disclosure of Contribution must also involve thenature & amount of Contribution [S. 32 (2) & R. 23 (1)]
• R. 23 (2): Contribution in kind must be valued by practicing CA orCWA or approved valuer from panel maintained by CentralGovernment
• Obligation to Contribute as per LLP Agreement [S. 33 (1)]
• Creditor may enforce Original Obligation against partner in case ifhe was unaware of compromise between partners [S. 33 (2)]
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CA. Kamlesh Vikamsey
Financial Disclosures (Ch. VII)• Maintain proper books of accounts as prescribed in R. 24-
Must disclose all sums of money expended & received & matters pertaining thereto
Must record all assets & liabilities of LLP
State all purchases & sales & record all information regarding inventories
Other particulars which partners may decide
• Cash or Accrual; Double-Entry System of Accounting [S. 34 (1)]
• Maintain books at RO for period of 8 years as per R. 24 (3)
• Prepare ‘Statement of Accounts & Solvency’ in prescribed ‘Form-8’ within 6 monthsfrom end of FY & must be signed by DPs [S. 34 (2)]
• Must be filed with ROC alongwith prescribed fees
• Audit as per prescribed rules [R. 24 (8)]
• File annual return (Form-11) with ROC within 60 days from end of FY [R. 25 (1)]
• Must be accompanied by certificate issued by CS confirming veracity of particulars /statements in such return, if turnover exceeds Rs. 5 Crores or Contribution exceeds Rs.50 Lacs, else certificate must be issued by DP [R. 25 (2)]
CA. Kamlesh Vikamsey
Assignment & Transfer of Partnership Rights (Ch. VII)
• Right of partner to share profits is transferable / assignable (inwhole or in part) [S. 42 (1)]
• Transfer does not imply that transferor / assignor has ceased to bepartner [S. 42 (2)]
• Likewise, transferee / assignee does not have right to participatein management [S. 42 (3)]
• Transferee / assignee has no right to obtain any information oftransactions of LLP [S. 42 (3)]
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CA. Kamlesh Vikamsey
Investigation (Ch. IX)• [S. 43 (1) & (3)]: Central Government (CG) may appoint one or more inspector(s) to
investigate into affairs of LLP & report thereon, if-
Not less than 1/5 th of partners apply for investigation on payment of prescribedsecurity to Central Government
LLP applies for investigation
CG is of opinion that-
Business of LLP is with intent to defraud its Creditors, Partners or any otherPerson
Affairs of LLP are not being conducted in accordance with provisions of this Act
On receipt of Report of Registrar or any other Regulatory Agency, there existsufficient reasons that affairs of LLP ought to be investigated
• Inspector cannot be partnership firm, body corporate or other association [S. 45]
• Investigator has power to investigate in matters of any entity which has beenassociated, or is associated, to LLP unless it is irrelevant to do so [S. 46 (1)]
Investigator must obtain prior approval of CG [S. 46 (2)]
CA. Kamlesh Vikamsey
Investigation (Ch. IX)• [S. 47 (1)]: It shall be duty of DPs & Partners to-
Preserve & produce before investigator all documents relating to LLPor, as case may be, any other entity
Give assistance to investigator in connection to investigation
• Investigator has power to keep such documents in custody upto 30days [S. 47 (3)]
• Failure to comply with requirements as above will result in punishmentof person in default with fine upto Rs. 25,000 but not less than Rs.2,000 & further fine of upto Rs. 500 but not less than Rs. 50 foreveryday of default [S. 47 (5)]
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CA. Kamlesh Vikamsey
Investigation (Ch. IX)• [S. 48]: Investigator has power to seize documents relating to LLP, if he
believes that such documents may be-
Destroyed
Mutilated
Altered
Falsified or
Secreted
• Investigator shall make reports (Interim & Final) to CG & such reportsuch act as evidence in any legal proceeding [S. 49 & 54]
• Application by CG for Winding-up of LLP pursuant to investigation [S.51]
• Expenses of Investigation [S. 53]
CA. Kamlesh Vikamsey
Conversion of Firm to LLP (Ch. X)This part is governed by Section 55 & Second Schedule & is notified videnotification no. S.O. 1323(E)w.e.f May 31st, 2009
• All partners of LLP must be partners of original firm & no one else
• On such conversion-
All assets & liabilities of firm would get vested in LLP
Firm stands dissolved
Will be removed from records of Registrar of Firms
Every partner will continue to be personally liable jointly & severally withLLP, for liabilities prior to conversion / arising out of contract entered priorto conversion
Partner to be indemnified by LLP in respect of such liability subject toanything contrary in LLP Agreement
• Every official correspondence of LLP for 1 year, must bear a statement that itwas, from the date of registration converted from a firm into an LLP alongwithname & registration, if applicable, of firm from which it was converted
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CA. Kamlesh Vikamsey
Conversion of Firm to LLP (Ch. X)• Partnership Firm proposing to convert to LLP must apply to ROC in
prescribed ‘Form-17 (Part A)’ alongwith Statement of Partners in‘Form-17 (Part B)’ [R. 38 (1)]
• ROC must issue certificate of registration in ‘Form-19’ [R. 32 (1)]
• Upon receipt of ‘Form-19’, LLP must apply, within 15 days ofregistration, to Registrar of Firms to strike-out name of Firm inprescribed ‘Form-14’ [R. 33 & 38 (3)]
For ‘Conversion of Firm to LLP’, the relevant Rule 38 is notified videNotification no. S.O. 1324(E) dated May 22nd, 2009 w.e.f May 31st, 2009
CA. Kamlesh Vikamsey
Conversion of Companies to LLP (Ch. X)This part is governed by Section 56 (for private companies) & Section 57 (for unlistedpublic companies)
• Governed by Third Schedule in respect of Private Companies
• Governed by Fourth Schedule in respect of Unlisted Public Companies
• Company can be converted into LLP provided-
All partners of LLP must be shareholders of that company & no one else
There is no security interest in its assets
• Upon conversion, all assets & liabilities get vested in LLP and principally all otherprovisions are similar as that for firms
• Listed Public Company cannot be converted into LLP
• Application for conversion to be made to ROC in prescribed ‘Form-18 (Part A)’alongwith Statement of Shareholders in ‘Form-18 (Part B)’ [R. 39(1) & 40(1)]
• Same procedures as regards conversion of Firms
Above referred Sections & Relevant Schedules are notified vide notification no. S.O.1323 (E) w.e.f May 31st, 2009
For ‘Conversion of Companies to LLP’, the relevant Rules 39 & 40 are notified videNotification no. S.O. 1324(E) dated May 22nd, 2009 w.e.f May 31st, 2009
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CA. Kamlesh Vikamsey
Foreign LLPs (Ch. XI)• Foreign Limited Liability Partnerships [S. 59]
LLP Act gives power to CG to make rules for establishment of place ofbusiness of Foreign LLPs & conduct of business
Rules regarding setting up of Foreign LLPs in India is provided inChapter XI of LLP Rules, 2009
• R. 18 (3) provides that Foreign LLPs may reserve name by which they areknown in their country by application in ‘Form-25’
This reservation will be valid for 3 years & must be renewed
• R. 34 (1) provides for application to be filed with ROC alongwithprescribed documents in prescribed ‘Form-27’ within 30 days fromestablishment of business in India
• Every Foreign LLP must file Statement of Accounts & Solvency in ‘Form-8’ within 30 days from end of 6 months of FY [R. 34 (4)]
CA. Kamlesh Vikamsey
Compromise, Arrangement or Reconstruction of LLPs(Ch. XII)• Compromise or Arrangement of LLPs [S. 60]
• Power of Tribunal to enforce Compromise or Arrangement [S. 61]
• Provisions for Reconstruction or Amalgamation of LLPs [S. 62]
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CA. Kamlesh Vikamsey
Winding Up and Dissolution (Ch. XIII)This Chapter has not been notified as yet
• Winding Up and Dissolution [S. 63]
• Circumstances of Winding Up [S. 64]
• Rules relating therein [S. 65]
CA. Kamlesh Vikamsey
Miscellaneous (Ch. XIV)• Transactions of Partner with LLP [S. 66]
Partner who transacts or lends money to LLP has same rights &obligations as aperson who is not partner
• Application of provisions of Companies Act [S. 67 & Q. 55 of FAQs]
• E-Filing of Documents [S. 68]
• Payment of Additional Fee [S. 69]
• Enhanced Punishment [S. 70]
• Application of Other Laws not barred [S. 71]
• Jurisdiction of Tribunal & Appellate Tribunal [S. 72]
• Offences & Penalties [Ss. 73, 74 & 76]
• Powers of Registrar to Strike-off names of Defunct LLPs [S. 75 & Q. 53 of FAQs]
• Jurisdiction of Courts [S. 77]
• Miscellaneous Powers to make Rules, amend Schedules & remove difficulties [Ss. 78,79 & 80]
• Transitional Provisions [S. 81]
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CA. Kamlesh Vikamsey
Some Issues• Companies can apply for conversion only if there is no Security
Interest on its assets
• Why introduce a restrictive clause in case of Companies?
CA. Kamlesh Vikamsey
Some Issues• According to S. 71, provisions of LLP Act will not be in derogation
to provisions of other Acts
• The question which arises is as to whether CAs are allowed toform LLPs or convert their firms into LLPs?
• As per Chartered Accountants Act & Regulations, at variousplaces, the words ‘partnership’ & ‘firm’ are used withoutassigning any particular meaning to it
• Will a LLP meet the requirements of CA Act & Regulations?
• This would require amendments to certain Acts which arerelevant to professional services [Q. 56 of FAQs]
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CA. Kamlesh Vikamsey
Some Issues• If firm of CAs convert into LLP, what will be auditee’s stand?
• Does conversion amount to ‘Casual Vacancy’ as per CompaniesAct?
• Would another resolution be required to appoint an LLP asauditors?
• As per Clause 14 of Second Schedule, appointment of firm in anyrole or capacity shall operate as if LLP was appointed
Effect of such Clause?
• Some clarifications / amendments are required in the CompaniesAct
CA. Kamlesh Vikamsey
Some Issues• S. 36 of LLP Act provides for inspection of all documents including
Statement of Accounts & Solvency filed by LLP with ROC, by anyperson
• Question arises as to whether this is acceptable to ProfessionalFirms like lawyers, CAs, CWAs, etc?
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CA. Kamlesh Vikamsey
Some Issues• The LLP Act has incorporated procedures for conversion of
companies to LLP by way of Third & Fourth Schedules
• However, there is no procedure for LLPs to be converted tocompanies
• Amendments required to be made in this regard in Companies Act[Q. 46 of FAQs]
CA. Kamlesh Vikamsey
Some Issues• As per Clause 5 of Second Schedule, LLP, upon receipt of ‘Form-
19’ from ROC must submit an application to concerned Registrarof Firms in prescribed ‘Form-14’ for striking-out name of Firmfrom its Records
• Is this required in case of Unregistered Firms?
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CA. Kamlesh Vikamsey
Some Issues• Whether Stamp Duty is payable on Incorporation of LLPs?
• If so, how much?
• Whether Companies & Firms will be exempt from Stamp Dutiesupon conversion to LLPs?
• It must be noted that Stamp Duties are legislations of respectiveStates & therefore clarity is needed from them [Q. 47 of FAQs]
CA. Kamlesh Vikamsey
Comparison with CompaniesBasis Company LLP
Governing Law Companies Act, 1956 Limited Liability Partnership Act,2008
Name Must contain suffix ‘Ltd’ or ‘PvtLtd’
Must contain suffix ‘LLP’
Common Seal Common Seal is compulsory Common Seal is optional
OrganizationalStructure
Rigid & governed by CompaniesAct
Flexible & governed by LLPAgreement
Appointment ofAuditors
Specific Resolution required forappointment of auditors at everyAGM
Auditors shall be deemed to be re-appointed in case no specificappointment is made (unlessotherwise decided)
Audit All companies are subject to auditof accounts
Only LLPs having turnover of morethan Rs. 40 Lacs or contribution ofmore than Rs. 25 Lacs are subject toaudit of accounts
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CA. Kamlesh Vikamsey
Comparison with Partnership FirmsBasis Partnership Firms LLP
Governing Law Partnership Act, 1932 Limited Liability Partnership Act,2008
Registration Not Compulsory; but is preferred Compulsory
Creation By partnership Agreement By Law
Legal Status Partners collectively known as‘Firm’; no separate legal status
LLP has separate legal status apartfrom partners
Succession Firm would cease to exist onchange in partnership, unlessotherwise provided in agreement
LLP would not be affected on changein partnership (PerpetualSuccession)
Ownership ofAssets
Partnership cannot own assets inits name; assets must be in nameof Partners
LLP can own assets in its own name
Liability of Partners
Unlimited Limited
Minor’s Position Minor can be admitted to benefitsof Partnership
Law silent on position of Minors
CA. Kamlesh Vikamsey
Taxation of LLPs• Tax treatment of LLPs to be same as that of ‘Partnership Firms’
• 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 of DPs, anypartner must sign & verify [S. 140 of IT Act]
• In case LLP is wound up, every partner will be liable for payment of taxesdue unless he can prove that non-recovery cannot be attributed to hisacts [S. 167C of IT Act]
Slab of Book Profit Remuneration Allowable
On first Rs. 3 lacs or in case of loss Rs. 1.5 lacs or 90% of book profits, whichever is higher
On balance of book profit 60% of book profits
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CA. Kamlesh Vikamsey
Taxation of LLPsTax implications on conversion of partnership firm / company to LLP
• No specific provision introduced in Income-tax Act for this
• Memo explaining Finance (No.2 Bill) 2009 mentions that:
As a LLP & a general partnership firm is being treated as equivalent(except for recovery purposes) in the Act, the conversion from ageneral partnership firm to LLP will have no tax implications if :
the rights and obligations of the partners remain the same afterconversion &
if there is no transfer of any asset or liability after conversion
No mention on tax implications on conversion of company into LLP
CA. Kamlesh Vikamsey
Taxation of LLPs• Provisions in IT Act, 1961 relating to companies are not applicable
to LLPs:
LLPs not liable to DDT u/s 115-O
LLPs not liable to MAT u/s 115JB
Deemed Dividend u/s 2 (22) (e) is not applicable
S. 79 on ‘Carry forward & Set-off of Losses in certain cases’ isnot applicable
• LLPs not liable to pay surcharge on income tax like firms
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CA. Kamlesh Vikamsey
Recent Notification
• Company Law Board notified to address all appeals against refusalto register LLPs upon conversion till such time National CompanyLaw Appellate Tribunal (NCLAT) is constituted
[vide Notification no. G.S.R. 385 (E) and 386 (E) dated June 4th,2009]
CA. Kamlesh Vikamsey
In case of any difficulty…Office of the Registrar
Limited Liability Partnerships
Ministry of Corporate Affairs,
3rd Floor, “Paryavaran Bhawan”,
CGO Complex, Lodhi Road,
New Delhi (India)- 110003
Phone - +91-11-24362189
Email: [email protected], [email protected]