Limited liability partnerships

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BANGALORE Suite 920, Level 9,

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Bangalore - 560 001.Tel: +91 - 80 - 65462400

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Coimbatore – 641018.Tel: +91 - 422 - 6552921

HYDERABADFlat No. A-701,

Brindavan Apartments,Niloufer Hospital Road,

Redhills, Hyderabad - 500034. Tel: +91 - 40 - 60506009

COCHINSuite 49, 8th Floor, Centre A,

Alapatt Heritage Building,MG Road, Cochin – 682035

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WEBSITEwww.altacit.com

SUSHMA SOSHA PHILIP

LIMITED LIABILITY PARTNERSHIPSAn Overview



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


Introduction

• LLP - alternative corporate business entity – hybrid.

• Benefits of limited liability of a company - allows its members the flexibility of organizing their internal management on the basis of a mutually-arrived agreement - as in a partnership firm.

• Useful for small and medium enterprises, enterprises in the service sector – including professionals’



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


Origin• USA – early 1990’s due to the collapse of real

estate and energy prices• The failure led to bank and saving loan

failures in turn• Since the amount recoverable from banks

were small – efforts were made to recover these assets from lawyers and accountants

• To prevent personal liability – LLP concept devised



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


LLPs In India

• Limited Liability Partnership Act, 2008• First LLP in India – incorporated in 2009• “A corporate business vehicle that enables

professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.”



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


Salient Features/ Characteristics• LLP – Separate Legal Entity from the partners • Minimum of two partners requires• There must be at least two designated partners in every

LLP of whom one shall be resident in India.• No requirement as to minimum capital contribution• Available to use by any enterprise• Perpetual succession• Mergers and acquisitions of LLPs may take place• Winding up - either voluntary or by the Tribunal to be

established under The Companies Act, 1956.• The LLP Act 2008 enables the Central Government - apply

the provisions of the Companies Act whenever appropriate - must issue notification to that effect provided



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


LLP Agreement

• It is a written agreement between the partners.• Determines mutual rights and duties of the partners

and their rights and duties in relation to the LLP• It is not necessary to enter into an LLP agreement as

per LLP Act,2008• In the absence of LLP agreement, the mutual rights

of partners & rights in relation to LLP will be determined as per Schedule I of the LLP Act,2008 – power to expel not provided herein

• Advisable to create suitable LLPs depending on the type of business



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


Formation:



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


Comparison:PARTICULARS PARTNERSHIP COMPANY LLP

Registration Optional Mandatory Mandatory

Creation Contract Law Law

Cost of Formation Nominal High – Rs. 6000/- and above

Moderate – Between Rs. 500/- and Rs. 5000/-

Distinct Entity Not a separate entity

Separate Legal Entity

Separate Legal Entity

Perpetual Succession

No Concept There is Perpetual Succession

There is Perpetual Succession

Legal Proceedings Only registered partnership may sue a third party

Can sue and be sued

Can sue and be sued

Foreign Nationals Cannot be Partners Can be members Can be Partners

Liability of Partners

Unlimited Limited to shares of the members

Limited except in certain cases

Transfer of Shares Not Transferable Transferable Governed by the LLP Agreement

Whistle Blowers No provision for protection in the Act

No provision for protection in the Act

Protection is provided



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


Conversion of Pvt. Ltd. Co./ Partnership into LLP • A firm, private company or an unlisted public company - option to convert into LLP. • Upon conversion - Registrar issues certificate to that effect. • After issuance of a certificate, all the property of the firm or the company, all assets, rights, obligations relating to the company shall be vested in the LLP - the firm or the company stands dissolved. • The Income tax law - modified - bringing the taxation aspects of conversion of Private Company or unlisted Public Company into an LLP. • There are no tax implications on conversion of a partnership firm into an LLP.



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


LLP Advantages

• Liability of each partner limited to share as per the LLP Agreement

• Low Cost of Formation• Easy to form• Partners – not held liable for the acts of each

other • Less restrictions and compliance enforced on LLPs

by the Government• Can sue and be sued in its name – partners are

not liable to be sued for dues against the LLP



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


LLP Disadvantages

• Cannot raise money from the public as a company does – cannot be formed for charitable purposes

• Any act of the partner without the consent of other partners can bind the LLP.

• Because of the hybrid form of the business, it is required to comply with various rules & regulations and legal formalities.

• Difficult to wind up - Limited Liability Partnership (Winding Up and Dissolution) Rules provide for a very lengthy and expensive procedure.



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


Taxation & FDI for LLP

• Limited Liability Partnership will be treated as Partnership Firm for the purpose of Income tax.

• The Income of LLP will be charged to tax in the hands of the LLP only and not in the hands of individual partners.

• Remuneration to partners will be taxed as “Income from Business & Profession” and share of profit in the hands of the partner is exempt from tax u/s 10(2A).

• Foreign Direct Investment in Limited Liability Partnership is allowed, with the specific approval of the government, in those sectors/activities where 100% FDI is otherwise allowed under the automatic route

• No FDI-linked performance related conditions.



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


Evanston Insurance Company v. Dillard Depatment Stores Inc. 602 F. 2d 610 (5th Cir. 2010)

• Dillard Department Stores, Inc. sued a law firm, Chargois & Ernster, L.L.P., in 2003 for federal and state trademark infringement, cyber piracy, and various business torts based on the law firm’s use of the Dillard’s name and logo on a website developed by the law firm to solicit clients with claims against Dillard’s.

• The law firm was registered as a Texas LLP• However, in 2004, while the suit was ongoing, the partners

entered into a separation agreement and did not renew the LLP registration

• In Nov. 2004 – judgment was pronounced against “Chargois & Ernster, LLP” but since they were no longer in existence, Dillard’s was unable to collect the judgment



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Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


• Dillard’s sought summary judgment that the partners were personally liable on the judgment against the law firm – this was granted by the courts.

• The partners appealed stating that under the Texas Revised Partnership Act and principles of LLP – a partner is not liable for a debt or obligation of the partnership incurred while the partnership is an LLP

• The partners argued that the debt was incurred when the firm was still an LLP

• The court recognized the partners argument and further noted that a partner in an LLP cannot be held personally liable for ‘errors, omissions, negligence, incompetence or malfeasance’ committed by another partner while still an LLP.



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


• However, the court noted that the debt accrued only in 2004 when the LLP was not in existence any longer citing the reason that before this date the debt was not truly in existence as various alternate scenarios could have played out, such as the judgment could have declared the LLP innocent, Dillard’s could have withdrawn the suit, etc.,

• As the Act and the underlying principle of an LLP only applied during existence of the LLP, the partners were held to be liable.



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


Edlinger v. United States, No. 3:10-cv-148, 2010 WL 1485951(N.D.N.Y. April 14th, 2010)

• In this case – summary judgment in favor of the partner

• No evidence of misconduct on the part of the partner in question

• Partnership agreement did not limit the statutory protection provided by the LLP to its partners regarding limitation of liability

• Thus the partner in question was not held liable



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


Websites Referred:

• http://www.caclubindia.com/articles/an-overview-of-limited-liability-partnership-llp-in-india-15620.asp

• http://www.charteredclub.com/what-is-a-limited-liability-partnership-llp/

• http://economictimes.indiatimes.com/small-biz/legal/why-it-makes-sense-to-go-for-llp/articleshow/49070161.cms

• http://www.madaan.com/llpindia.html• Picture on Slide 7 from -

http://taxguru.in/wp-content/uploads/2012/11/LLP-1.jpg



Tel: +91 - 44 - 24984821



Bangalore - 560 001.Tel: +91 - 80 - 65462400


Coimbatore – 641018.Tel: +91 - 422 - 6552921






Tel: +91 - 484 - 6506216

[email protected]


THANK YOU

Limited liability partnerships

Law

Transcript of Limited liability partnerships