LIMITED LIABILIABILITIES PARTNERSHIPS

AN INTRODUCTION TO

AGENDA1. WHAT IS A LLP?2. WHY LLP?3. LLP V/S LIMITED PARTNERSHIP4. MAJOR BENEFITS OF LLP5. MAJOR DRAWBACKS OF LLP6. LIMITING PERSONAL LIABILITY7. THE LIMITING VEIL8. SOME TERMINOLOGIES9. PERSONNEL10.FORMALITIES11.NAMES12.PROFIT SHARING13.TAX IMPLICATIONS

1. FOR PARTNERSHIP2. FOR PARTNERS

14.CONCLUSION

WHAT IS A LLP?

THE LLP

• An abbreviation for limited liability partnerships• Sometimes referred to as LLC’s (Limited Liability

Corporate) in countries like:

UNITED STATES (U.S.A)

LLP’s exhibit elements of both:

PARTNERSHIPS & CORPORATES

LLP CORPORATE BRIDGE

• In an LLP, some partners have a form of limited liability similar to that of shareholders.

• Partners have similar role as that of shareholders.• In some countries, LLP requires at least one partner with

unlimited liability.

LLP VERSUS CORPORATE

LIMITED LIABILITY PARTNERSHIPS

BODY CORPORATES

Partners can manage business directly.

Corporate shareholders, on other hand, elect a board of directors under

various state charters.

Streamlined business. More organized, have various professionals look into the

management of corporation

Different level of tax liability Different level of tax liability

GENERAL DEFINITION

• Like a general partnership, where all partners are given the right of entity control

• Unlike general partnerships, each partner provided with a limited liability.

• Only available to select group of professions (accounting and law):

WHY

LLP?

NEED OF LLP IN INDIA

• Indian economy growing, role of its entrepreneurs and industrialists have been internationally acknowledged.

• If entrepreneurship + knowledge + risk capital then Indian Economy

• Move was to provide alternative to general partnership.• To enable operation in a flexible manner with emphasis

on innovation and efficiency.• To provide partnerships with corporate nature, imbibing

those qualities which are essential.

LLP FEATURES

• Alternative corporate vehicle business.• Flexibility of organization• Mutually arrived agreement• Suitable for small enterprises and for investment by venture capital.• Keeping above things in mind, Parliament of India enacted the LLP

Act, 2008. Assent by President received on 7th January 2009.

SALIENT FEATURES OF LLP ACT

• LLP shall be a body corporate and a legal entity separate from its partners.

• Will have perpetual succession.• Subject to mutual agreement between partners or between LLP

entity and partners.• Separate legal entity liable to full extent of its assets with partner

liabilities being limited to their agreed contribution.• Shall have at least 2 partners and atleast 2 individuals as

Designated Partners, at least one should be resident of India.• Accounts shall be audited acc to rules applied to corporate.• Shall be obligated to maintain books of accounts.

SOME MORE FEATURES

• Central Government has powers to investigate into affairs of the LLP.

• Winding up may be voluntary or by order of tribunal to be established in accordance with the Companies Act, 1956.

• Till establishment, power resides with the High Court.• Indian Partnership Act, 1932 does not apply to LLP’s.

LLP - LIMITED PARTNERSHIPSA COMPARISON

LIMITED LIABILITY PARTNERSHIPS

LIMITED PARTNERSHIPS

General partnership with limited liability.

Similar to LLP

All partners have limited liabilities

At least one partner has unlimited liability.

MAJOR BENEFITS

ADVANTAGES?

• Partners have limited liability profession• Partners receive partnership tax treatment• Allows flexibility in splitting partnership profits and losses.• Management structure is more streamlined.

MAJOR DRAWBACKS

DISADVANTAGES

• Only available to a select group of professions.• All partners can take effective management role – may lead to

inefficiencies.• LLP must pay franchise tax.• LLP is regarded as an entity unlike general partnerships.

LIMITING PERSONAL LIABILITY• LLP partners play a similar role to interest holders in LLC’s or

shareholders in body corporate.• LLP partners not personally liable for debts and obligations of

partnership.

EXCEPTIONS TO THE RULE

• A LLP takes out a loan, partner personally guarantees the loan. • State and central governments can hold LLP partner responsible for

reporting and paying corporate taxes. Personally liable for penalties.• Partners can be found personally liable for breach of duty they owe

to LLP.

THE LLP VEIL• Creditors and litigants can attempt to impose personal liability on

principals in a LLP.• This process known as LLP Veil.

SOME TERMINOLOGIES

TERMS O TERMSName For Owners Limited Liability Partners

Name For Ownership Interest

Limited Liability Partnership Interests

Document That Creates The Entity

Certificate of Limited Liability Partnership /

Registration Statement

Documents That Determine Operating Procedure

Limited Liability Partnership Agreement

PERSONNEL

• LLP partners must be individuals licensed in the profession performed by LLP.

• Allowed to participate in partnership management without risking exposure to personal liability.

• What It Means: Chartered Accountants Can Practice with Company Secretaries, Cost Accountants Etc.

FORMALITIES

• Meetings: may be required depending upon State law. May also be required as per the agreement.

• Member Reports: Partners entitled to call for an accounting or inspect the financials of LLP. May also be entitled to Annual Reports.

• State Formalities: Many states require LLP’s to file annual reports with general information and compliance.

PARTNERSHIP NAMES

• Most states require the following words to be included in an LLP.

NAMES ABBREVIATIONS

LIMITED LIABILITY PARTNERSHIP

L.L.P.

PROFIT SHARING

• LLP partner may receive:– A percentage of LLP profits– A percentage of gross revenue– A percentage of LLP losses for tax reasons.– A percentage of revenue/profits/losses from particular revenue

stream of LLP.– A percentage of any combination of LLP revenue/profits/losses

from various revenue streams.

TAX IMPLICATIONS – FOR A LLP

• No tax at entry level• LLP required to file annual report with IRS stating how

much each member earned or lost.• Subject to a minimal franchise tax.

TAX IMPLICATIONS FOR LLP PARTNERS

• Income received by a partner from LLP must be stated in his/her individual tax return.

• Income/losses generally regarded as active income.

CONCLUSION

• LLP is a separate legal entity• Shares features of both corporate and partnerships.• Every partner has a limited liability.• Management structure gets streamlined.• Tax implications are minimal.• Restricted to professions of accounting and law. Sometimes

extended towards scientific institutions as per LLP Act, 2008.

BIBLIOGRAPHY

• http://www.startup-legal.com/Limited-Liability-Partnership-(LLP).htm• http://en.wikipedia.org/wiki/LLP• http://llp.gov.in/aboutllp.htm

ANY QUESTIONS?

THANK YOU