LIMITED LIABILITY LIMITED LIABILITY PARTNERSHIP ACT 2008 PARTNERSHIP ACT 2008

& RULES 2009& RULES 2009

Priya Bhansali Priya Bhansali KUMBHAT & Co.,KUMBHAT & Co.,

Chartered AccountantsChartered Accountantswww.bhansali.inwww.bhansali.in

KUMBHAT & CO.,

AgendaAgenda

GenesisGenesis Salient FeaturesSalient Features Comparison between Comparison between

Partnership/LLP/Private Limited Co.Partnership/LLP/Private Limited Co. Chapters under LLP Act Chapters under LLP Act RulesRules LLP in Other CountriesLLP in Other Countries Certain IssuesCertain Issues

KUMBHAT & CO.,

GENESIS OF LLPGENESIS OF LLP

LLP – 1991 in Texas – Loan and savings LLP – 1991 in Texas – Loan and savings failuresfailures

Uniform Partnership Act 1996 - USAUniform Partnership Act 1996 - USA LLP Act 2000 – UKLLP Act 2000 – UK Abid Hussain Committee -1997Abid Hussain Committee -1997 Naresh Chandra Committee – 2003Naresh Chandra Committee – 2003 JJ Irani Expert Committee – 2005JJ Irani Expert Committee – 2005 Naresh Chandra 2Naresh Chandra 2ndnd Committee – July 2005 Committee – July 2005

KUMBHAT & CO.,

Concept PaperConcept Paper

Role of service sectorRole of service sector Limitation of Multi-disciplinary partnershipLimitation of Multi-disciplinary partnership Limitation of no. of PartnersLimitation of no. of Partners Litigation – joint liabilities in case of Litigation – joint liabilities in case of

partnershippartnership Hybrid between a Company and Hybrid between a Company and

PartnershipPartnership Profession as well as SME Profession as well as SME

KUMBHAT & CO.,

What is LLP What is LLP

LLP – separate legal entity with LLP – separate legal entity with unlimited capacity to do anything a unlimited capacity to do anything a natural person can do – UKnatural person can do – UK

Partnership formed under LLP Act Partnership formed under LLP Act 20082008

KUMBHAT & CO.,

Salient FeaturesSalient Features LLP for all kinds of businessLLP for all kinds of business Limited Liability Limited Liability Simple when compared to a CompanySimple when compared to a Company Minimum Partners 2 ; no limit for maximumMinimum Partners 2 ; no limit for maximum Legal Entity – Artificial Juridical PersonLegal Entity – Artificial Juridical Person Members & Mutual RightsMembers & Mutual Rights Designated PartnersDesignated Partners Unlimited Capacity – no main objects Unlimited Capacity – no main objects ConversionConversion

KUMBHAT & CO.,

Salient FeaturesSalient Features

Cannot be listedCannot be listed Incorporation DocumentIncorporation Document Flexibility on internal structure – No Flexibility on internal structure – No

BOD etcBOD etc MergersMergers Winding upWinding up

KUMBHAT & CO.,

FormationFormation of LLPof LLP Similar to that of formation of CompanySimilar to that of formation of Company Acquire – DSC and DPINAcquire – DSC and DPIN Register DSC and DPIN with LLPRegister DSC and DPIN with LLP Check name availabilityCheck name availability Download FormsDownload Forms File ElectronicallyFile Electronically Track StatusTrack Status Receive Certificate Receive Certificate Start Business Start Business

KUMBHAT & CO.,

AdvantagesAdvantages

Limited LiabilityLimited Liability Members cannot be responsible for the act of Members cannot be responsible for the act of

any other member – inter se agreement any other member – inter se agreement between membersbetween members

No Maximum No. of PartnersNo Maximum No. of Partners Easier Operations – PerpetualEasier Operations – Perpetual Compliances – SuccessionCompliances – Succession No BOD, meetings/minutesNo BOD, meetings/minutes Remuneration Remuneration

KUMBHAT & CO.,

DisadvantagesDisadvantages

Compliance – Annual Filings, Solvency, Compliance – Annual Filings, Solvency, DuplicationDuplication

One person LLP concept absentOne person LLP concept absent Limitation of 2 member LLP – result in Limitation of 2 member LLP – result in

closure closure Documents available for public scrutinyDocuments available for public scrutiny Penalty for non compliancePenalty for non compliance Taxation - Tax like partnership – taxation Taxation - Tax like partnership – taxation

on converison not yet clear - on converison not yet clear -

KUMBHAT & CO.,

Regulatory Frame WorkRegulatory Frame Work

LegalLegal AdministrationAdministration TaxationTaxation

KUMBHAT & CO.,

Regulatory FrameworkRegulatory Framework

Legal –Legal –

LLP Act 2008LLP Act 2008 - - Companies Act 1956Companies Act 1956

- IT Act 2000- IT Act 2000

- Indian Partnership Act 1932 - Indian Partnership Act 1932

- General Clauses Act 1897- General Clauses Act 1897

- SEBI Act 1972- SEBI Act 1972

- CPC 1908- CPC 1908

- Other Acts - Professionals- Other Acts - Professionals

- Advocate Act 1961- Advocate Act 1961

- CA Act 1949- CA Act 1949

- CS Act 1980- CS Act 1980

- CWA Act 1959- CWA Act 1959

Administration Administration

- MCA- MCA - - ROCROC

- Tribunal- Tribunal

- Official Liquidator- Official Liquidator

KUMBHAT & CO.,

ComparisonComparison

Applicable LawApplicable Law LiabilityLiability Perpetual ExistencePerpetual Existence Separate Legal EntitySeparate Legal Entity Minimum NumberMinimum Number Maximum Members Maximum Members Documents defining activitiesDocuments defining activities

KUMBHAT & CO.,

ComparisonComparison Document providing procedureDocument providing procedure ManagementManagement Compliance/Accounts/AuditCompliance/Accounts/Audit Minimum No. of DirectorsMinimum No. of Directors Transferability of sharesTransferability of shares ConversionConversion Common SealCommon Seal Change of Regd OfficeChange of Regd Office Change of NameChange of Name

KUMBHAT & CO.,

ComparisonComparison

Oppression & Mis-managementOppression & Mis-management Annual Filing Annual Filing E –filingE –filing

KUMBHAT & CO.,

Chapters under the ActChapters under the Act

PreliminaryPreliminary Nature of LLPNature of LLP Incorporation of LLP and matters Incorporation of LLP and matters

incidental theretoincidental thereto Partners and their relationsPartners and their relations Extent & Limitation of LLP and partnersExtent & Limitation of LLP and partners ContributionsContributions Financial DisclosuresFinancial Disclosures

KUMBHAT & CO.,

ChaptersChapters

Assignment & Transfer of partnership Assignment & Transfer of partnership rightsrights

InvestigationInvestigation Conversion to LLPConversion to LLP Foreign LLPForeign LLP Compromise, arrangement or Compromise, arrangement or

reconstruction reconstruction Winding up and dissolutionWinding up and dissolution Miscellaneous Miscellaneous

KUMBHAT & CO.,

SchedulesSchedules

First Schedule - matters relating to First Schedule - matters relating to mutual rights and duties -like Table Amutual rights and duties -like Table A

Second Schedule – Conversion of firm Second Schedule – Conversion of firm into LLPinto LLP

Third Schedule – Conversion of Private Third Schedule – Conversion of Private Ltd Co into LLPLtd Co into LLP

Fourth Schedule – Conversion of Fourth Schedule – Conversion of Unlisted Public Co. into LLPUnlisted Public Co. into LLP

KUMBHAT & CO.,

LLP Rules LLP Rules

LLP Rules 2009 is notified, additions as LLP Rules 2009 is notified, additions as and when need arisesand when need arises

18 chapters, 41 Rules, 4 Annexures, 30 18 chapters, 41 Rules, 4 Annexures, 30 formsforms

Covers all the sections – Definitions to Covers all the sections – Definitions to Winding up, Compounding , Destruction Winding up, Compounding , Destruction of old records etcof old records etc

Concept LLP (Winding up and Concept LLP (Winding up and Dissolutions) Rules 200… Dissolutions) Rules 200…

KUMBHAT & CO.,

Designated PartnerDesignated Partner

To be specified in AgreementTo be specified in Agreement One must be a Resident of IndiaOne must be a Resident of India Responsible for all complianceResponsible for all compliance Body corporate Body corporate

KUMBHAT & CO.,

Audit and AccountsAudit and Accounts

Proper Books of AccountsProper Books of Accounts Cash or accrual basisCash or accrual basis Statement of Account and SolvencyStatement of Account and Solvency Audit – Not compulsory unless Turnover is > Audit – Not compulsory unless Turnover is >

Rs.40 lacs or Contribution > Rs.25.00 lacs, Rs.40 lacs or Contribution > Rs.25.00 lacs, conditions of R 24 conditions of R 24

Appointment by DP, 30 days before closure of FYAppointment by DP, 30 days before closure of FY Financial year defined as April - MarchFinancial year defined as April - March Penalty – LLP – Rs.25K – Rs.5.00 lacs & DP – Penalty – LLP – Rs.25K – Rs.5.00 lacs & DP –

Rs.10K - Rs.1.00 lacRs.10K - Rs.1.00 lac

KUMBHAT & CO.,

Accounts & Annual ReturnsAccounts & Annual Returns

Statement of Account and Solvency Statement of Account and Solvency Statement to be prepared within 6 m of Statement to be prepared within 6 m of end of FY and file Form 8 within 30 days end of FY and file Form 8 within 30 days of end of 6 m periodof end of 6 m period

Authenticated by DPAuthenticated by DP Penalty for non- compliance – Rs.10K to Penalty for non- compliance – Rs.10K to

Rs 1.00 lac for each DP and LLP – Rs.25K Rs 1.00 lac for each DP and LLP – Rs.25K to Rs.5.00 lacs.to Rs.5.00 lacs.

Annual Return duly authenticatedAnnual Return duly authenticated

KUMBHAT & CO.,

AuditorsAuditors

Section 34(4)Section 34(4) & Rule 24(8) to 24 (19) & Rule 24(8) to 24 (19) Authority - Designated Partners – other Authority - Designated Partners – other

partners ?partners ? When the appointment to be made – 30 When the appointment to be made – 30

days before the end of each Financial yeardays before the end of each Financial year Term of appointment – till the next period Term of appointment – till the next period Audit exempted – if turnover < Rs.40 lacs Audit exempted – if turnover < Rs.40 lacs

oror contribution does < Rs. 25 lacs contribution does < Rs. 25 lacs

KUMBHAT & CO.,

Auditors (contd.)Auditors (contd.)

Re-appointmentRe-appointment RemunerationRemuneration Removal of an Auditor Removal of an Auditor

KUMBHAT & CO.,

Other CountriesOther Countries

USAUSA UKUK JapanJapan CanadaCanada ChinaChina SingaporeSingapore

KUMBHAT & CO.,

TAXATIONTAXATION

LLP and members will be taxed like LLP and members will be taxed like partnership and partners partnership and partners

Capital Gains on sale of LLP assetsCapital Gains on sale of LLP assets Receiving Share of accumulated profits?Receiving Share of accumulated profits? Transfer of Shares Transfer of Shares

KUMBHAT & CO.,

Taxation (contd.)Taxation (contd.)

UK – Income taxed in hands of partnersUK – Income taxed in hands of partners UK – Capital Gains on transfer of assets of LLP is UK – Capital Gains on transfer of assets of LLP is

also taxed in the hands of partners as if they own also taxed in the hands of partners as if they own the samethe same

US - reported in individual returns of the partnersUS - reported in individual returns of the partners Japan – Each member is directly subject to taxJapan – Each member is directly subject to tax Singapore – Personally taxed, taxed as self Singapore – Personally taxed, taxed as self

employedemployed China – passed through and attributed to partnersChina – passed through and attributed to partners

KUMBHAT & CO.,

IssuesIssues

Minors, HUF can they be partners?Minors, HUF can they be partners? Act is very small when compared to Act is very small when compared to

Co’s Act 1956 – but looks as if the Co’s Act 1956 – but looks as if the Rules/Notifications will rule the Act –Rules/Notifications will rule the Act –

General Names? Small Names ? General Names? Small Names ? Disclosure of Business in Name/ Disclosure of Business in Name/ ObjectionObjection

KUMBHAT & CO.,

Foreign LLPForeign LLP Section 59 Section 59 Establishment of place of Business in IndiaEstablishment of place of Business in India Business activity carried on in IndiaBusiness activity carried on in India Permission from RBI may be required under Permission from RBI may be required under

FEMAFEMA FLLP has to file certain documents, Accounts FLLP has to file certain documents, Accounts

and Solvency Statement in Englishand Solvency Statement in English Notice of cessationNotice of cessation Certification and Authentication from Notary Certification and Authentication from Notary

Public/Commissioner of Oaths in the Company Public/Commissioner of Oaths in the Company it is incorporatedit is incorporated

KUMBHAT & CO.,

Lots to examine and Lots to examine and explore !!explore !!

www.llp.gov.inwww.llp.gov.in

THANK YOUTHANK YOUwww.bhansali.in