CA. Kalyan Chakravarthy Vennety

Presentation onLIMITED LIABILITY PARTNERSHIP

3rd January, 2009Source: Article published in ICAI Journal Dec ’08 issue

Journey so far…

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Reasons for change…

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Formation…

Ltd. Co. LLP Non- Resident

Foreign Ltd.co

Foreign LLP

HUF Karta

Co-operative Society

Corporation Sole

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Dis-Qualifications…A Person with Unsound MindAn Undischarged InsolventPerson who has Applied to be adjudged as Undischarged

Insolvent & application pendingMinor : No mention in Act. Answer = General Law.

(A Minor can be admitted to the benefits of Partnership)

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Registration…ROCFile Incorporation Document with ROC office of the state Form & Prescribed Particulars (Name, address etc.)Inc-Doc to be signed by 2 or more PartnersFile with a Compliance Statement signed by :

Advocate or CA or CS or CWA engaged in formation, One of the Partners who has signed the Inc-Doc

Compliance Statement should state whether LLP Act, Rules complied with or not.

FeesRegistrar Reg’n Certificate issued within 14 days

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Status of Existence…

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Changes during Existence…Possible to change Name, Regd.Office, Partners via

Supplementary Agreement & ROC FilingProcedure for change in Name:

1. Apply to ROC with Fees2. ROC ensures name not identical or near resemblance3. No Central Database of Partnership Firm names (reason being Administration is done by States)4. Other entity with similar name can object to ROC

5. Time Limit=within 24months − ROC satisfied − Direct to LLP to change it’s name after opportunity of

Hearing

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20 Partners Condition…

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Relationship of Partners…Agreement in WritingDetermine Rights & Duties in respect to LLPWho can sign Agreement? ROC Filing of Agreement with FeesROC Filing of Details of Changes if any later in AgreementAgreement exists before Reg’n of LLP?

Change in name & address of Partners

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SCHEDULE I of LLP Act…If no written Agreement exists, the Relationship of Partners is governed by Schedule I. It says mutual Rights & Duties determined as under in absence of written Agreement.

1. All Partners entitled to share2. LLP to indemnify each Partner in respect of payments & liabilities 3. Every Partner to indemnify LLP for Losses caused by his fraud in conduct4. Every Partner to take part in management of the LLP5. No Partner shall be entitled to Remuneration for acting in business/mgt.6. No person to be introduced as a Partner without consent of all Partners7. Any Matter/issue Resolve by Majority One Vote Each

(For change of business Unanimous Majority)8. Record Decisions 30days Minute Book Keep at Regd.Office9. Each Partner render True Accounts, Full info about things affecting LLP,

other partners or his Legal Representatives.

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SCHEDULE I of LLP Act contd…10. If Partner carries on without consent of LLP, any business in the same

nature of & competing with LLP, Partner

11. Every Partner shall account to the LLP for any benefit derived by him without consent of LLP from

12. No Partner can expel any Partner Unless Power conferred by express Agreement

13. Unresolved Disputes Arbitration and Conciliation Act, 1996

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Joining, Retirement, Cessation…A person may join as Partner if all Partners agree to

admitCessation on Death, Retirement, W/up of Co., or LLP

which he is representing

If a Partner declared

Execute Fresh Agreement Record new Terms & Conditions of Revised Constitution

Intimate ROC 30days

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Payments to Partners…Agreement May provide for Interest on capital, Rem’n.It Will have to provide share of each in Profits/LossesThese conditions can be changed via amendment to

AgreementRights of the Partner to Share of Profits/Losses is

Transferable in whole or part.Implications of Transfer:

Does not cease to be PartnerDoes Not Entitle the Transferee to participate in

management or conduct of activities of LLPDoes Not Entitle the transferee any RTI on Tr’ns of LLP

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Limited Liability…Partner not Personally Liable LLP

• If Liability arises out of own

If Liability arises out of one Partner’s

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Agency & Contribution…Partner is Agent of LLP but not of other PartnersLLP not bound by anything done by Partner with 3rd Party

If the Partner is not Authorised to act & The 3rd Party is aware of this fact

LLP is liable to meet during the course of business, Trade, profession or service

Contribution As per AgreementLiability To the Extent specified in Agreement

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DESIGNATED PARTNERS…At Least 2 IndividualsAppointment governed by AgreementVacancy due to Death, Retirement or otherwise

Appoint Another Designated Partner 30 daysROC Filing Particulars, changes etc.

Consent: DP LLP in 30 days ROC in 30 days

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Obligations of Designated Partner…Responsible for compliance of LLP Act & RulesLiable for all penalties of Contravention of LLP Act &

RulesEvery DP to sign Annual Fin.Stmts, Annual Solvency StmtEvery DP obtain DPIN like DIN in case of companiesIn case of

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Accounts & Audit…Maintain books as prescribedCash/Accrual Prepare

Signed by the Designated PartnersAudit as per Rules framed under the LLP Act Exemption Central Government has powerROC Filing of Statement in prescribed Form, Time, FeesROC Filing of Annual Return 60 Days from end of FY

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Conversion of Firm to LLP…1. Procedure laid down in SCHEDULE II

If & Only if All Partners of LLP = All Partners of Firm

Apply to ROC

2. ROC FilingA. Statement by all Partners containing Name & Reg’n no

and Date of Reg’nB. Inc-Doc along with Compliance Statement

3. ROC

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Conversion of Firm to LLP…4. On Certificate of Registration

LLP comes into existence Properties, Assets, Interests, Rights, Priveledges,

Liabilities, Obligations, of the Firm & whole undertaking gets transferred and vests to/in LLP without any further assurance, act or deed

Firm deemed to be dissolved. Removed from Register Inform ROC within 15 days

5. If any Property registered without authority, LLP take steps to notify the Authority of the Conversion and of particulars & details as the Authority may specify

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Conversion of Firm to LLP…6. Pending Proceedings of Firm in Court/Tribunal etc. to

be continued, completed or enforced by/against LLP7. Conviction/Ruling/Order/ Judgement of Firm by any

Court/Tribunal etc. to be ruled in favour or against LLP8. Every Agreement which Firm was party shall have effect

as if LLP was party instead of Firm Reference to Firm would mean Reference to LLP

9. All

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Conversion of Firm to LLP…10. Any Contract of Employment continue in force as if LLP

was Employer instead of Firm11. Any appointment in any role/capacity take effect &

operate as if LLP was appointed12. Any Authority/Power continue as if LLP was conferred

with13. Any Approval/License/Permit continue in name of

LLP(subject to relevant Law)14. Every Partner of Firm continue to be Jointly &

Personally Liable for prior liabilities & obligations15. In case of discharge of above liabilities by any Partner,

he shall be entitled to be fully indemnified by LLP

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Conversion of Firm to LLP…16. Every official correspondence for a period of 12 months

by LLP shall bear:A statement that it was w.e.f. the date of Reg’n

converted from a Firm to LLPName & Registration no. of erstwhile Firm

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Conversion of Company to LLP…Pvt. Ltd. Co. Section 56 & Third SCH of LLP ActPublic Ltd. Co. Section 57 & Fourth SCH of LLP ActProcedure is more or less identical to conversion of Firm

to LLPOne Extra condition:

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Conversion of Co. to LLP…What happens to Share Capital?

View= Credit to capital accounts in the ratio of shareholding (both Equity & Preference capital)

General & other Reserves:

After conversion, Firm & Co., need not follow Partnership Act & Companies Act respectively

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Winding up…Voluntary or by NCLTBy NCLT if:

LLP decides that it be wound up by the TribunalMin. no. of Partners remains < 2 for a period > 6 monthsLLP unable to pay it’s debtsLLP acted against interest of Sovereignty, Integrity of India

or Security of the state or Public OrderDefault in ROC Filing: Stmt of A/c, Stmt of Solvency, Annual

Return for 5 consecutive FYsTribunal Opines that it is Just & Equitable for LLP to be

wound up

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Procedural Points…1. ROC can inspect Documents2. ROC can call for information3. ROC can conduct Investigation4. Central Government make rules for Foreign LLP5. Central Government notify Companies Act Applicability6. Central Government make rules for E-Filing 7. Fine for Delay in Filing of Documents, Statements,

Annual Returns Rs.100 per day8. Reference to Tribunal: Companies Act provisions Apply9. Fine for Default in Filing of Documents, Statements,

Annual Returns Rs. 10,000 to Rs.50,00029

Procedural Points…10. ROC can strike off name of LLP for not carrying on

business as per Act11. The Act provides for Prosecution of Partners and

Designated Partners for offences commited12. Central Government make Rules13. Tribunal has powers sanction Compromise,

Arrangements, Reconstruction incl. Merger & Demerger and Compromise with creditors

14. Central Government can alter the contents of Schedules

15. Till the time Tribunal/Appellate Tribunal is constituted, Tribunal = CLB and Appellate Tribunal = High Court

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To Sum up…LLP enables small & medium org’ns & Family Partnerships

to expand by admitting outsiders with capital & SkillFinancial Liability is Limited. Therefore there is no danger

of Promoter Partner saddled with Personal LiabilityNo Danger of stoppage of business due to non-co-

operative attitude of PartnersAdvantage: In preference to companies, LLP has flexibility

in operation. No need to comply complicated provisions of Companies Act

Any Outsider cannot attach personal property of Partners for Debts pertaining to LLP

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To Sum up…

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End of Presentation.

Thank you…

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