Limited Liability Partnership. Emerging Corporate Form

Transcription

1 Limited Liability Partnership Emerging Corporate Form

2 What is Limited Liability Partnership? Hybrid of Corporate & Partnership business Form. Limits liability of partners to the extent of their contribution. provides flexibility without imposing detailed (and costly) legal and procedural requirements. The organization and operations are on the basis of an mutual agreement.

3 LLP Act-New Features Mandatory imprisonment with penalty for false statement, fraud and non-compliance of order of Tribunal/CLB/Court [(Section-11(3),37,30,73)]. Un-limited Liability of Partners and LLP in event of business are carried out with intent of defraud its creditors or third parties (Sec-30). Waiver of penalties and protection against future vindictive action to whistle blowers (Employee/Partner) (Sec-31). LLP is liable to third party to the extent of credit received by it or any financial benefit derived on falsely holding out of a person as partner of LLP (Sec-29). Central Govt. by Notification may apply/extend any provisions of Companies Act, 1956 (With or without modifications) to LLPs (Sec-67).

4 Merits of LLP (as business model for SMEs and service providers) Separate legal entity & body corporate. Low compliance burden & cost (more flexibility than company). Limited Liability of partners except in fraud. For Business Purposes partners are agent of LLP, not of other Partners. LLP is liable to the extent of its assets. Right of partners can be assigned to third party. No Minimum Contribution and withdrawal of capital with the decision of partners.

5 Merits of LLP (as business model for SMEs and service providers) Easy to exit/ winding up. Allows Multi-disciplinary professionals combination which provides level playing field against their international professional firm. Availability of solvency position in public domain increases the credit worthiness as compared to unregistered entity. Taxation benefits as compare to company.

6 Contribution Share Capital Contribution Each partner shall bring contribution in LLP and nature & amount shall be disclosed in the Accounts of LLP. Contribution can be in tangible, movable, immovable or intangible Form. In case of tangible/intangible (other than cash) Form of contribution or contribution by way of service contract it shall be valued by a practicing Chartered Accountant/Cost Accountant/Approved Valuer.

7 Formation/Conversion of LLP I Deciding the Partners & Designated Partners II - Obtaining DIN (DIN-1) for Designated Partner Identification Number III - Reservation of Name for LLP (Form-1) IV - Filing of Incorporation Document (Form-2) + Form-18/17 incase of conversion. V - Certificate of Incorporation/ conversion. VI Filing of LLP Agreement (Form-3) VII Filing of Consent of partners/designated partners (Form-4)

8 Filing of LLP Agreement (Form-3) Execution of LLP Agreement is mandatory (Section-23). In absence of Agreement as to any matter, Schedule 1 will be applicable. Filing of details of LLP Agreement through e Form 3 within 30 days of Incorporation. Stamp duty on LLP agreement to be paid as per State Stamp Act. Under Income Tax, interest paid and remuneration or commission paid to partners will be allowed as deduction if payment is authorized by written LLP Agreement.

9 Features of Schedule 1 All partners entitled to share equally in the Capital and Profits/losses. Indemnity to the partners on personal liability in proper conduct of business. Every Partner shall take part in management No partner shall be entitled to remuneration. No partner introduced without consent of all partners. All decisions with majority of partners consent Minutes to be recorded within 30 days Render True Accounts All Disputes will be referred to Arbitration Act

10 Compliances of LLP With Registrar Form-3, Form-4, Form-5, Form-15 Form-8 and Form-11

11 Annual Compliance of LLP Maintenance of Books of Accounts of LLP and filing of Annual Returns Maintenance of proper Books of Accounts on cash basis or on accrual basis and according to the Double Entry System of Accounting. Maintained at registered office and to be preserved for at least 8 years. Audit is compulsory if turnover exceeds Rs.40 lakhs or contribution of LLP exceeds Rs.25 lakh. Form-11 (Filing of Annual Return) within 60 Days of closure of Financial Year. Form-8 (Filing of Statements of Accounts & Solvency) Within 30 days from the end of 6 months from the closure of Financial Year.

12 Conversion of LLP Who can Convert? Partnership Firm Private Company Unlisted Public Company All the Members of the Company/partners of the firm shall be the Partners in LLP (and no one else) with the same capital/contribution ratio. Consent of all Members of the Company/partners of the firm shall be obtained. No security interest on the assets shall be subsisting or in force on the date of application by company.

13 Foreign LLP [LLP Incorporated Outside India (LIOI)] Section 59 of LLP Act, 2008 contain provisions regarding establishment of the place of business by Foreign Limited Liability Partnership within the India for carrying on their business. Filing of Form-27 within 30 days from establishment of place of business in India. Permission/approval of Reserve Bank of India (RBI) required for establishment of place of business in India. Filing fees for Form-27 - Rs.5000/- Compliance of special Act, If the business is regulated by special Act.

14 Compromise & Arrangement LLP Partners Creditors Application is to be made to Tribunal by LLP or creditor or partners for compromise or arrangements. In case of LLP is under winding up, the application can be made by the liquidator. Tribunal orders for meeting of creditors or partners for decision/resolution by 3/4 th in value of creditors or partners agreeing to any compromise or arrangement. Tribunal may order sanctioning a compromise or an arrangement. Till the time tribunal is constituted application will be made to High Court.

15 Striking off LLP Name (Section-75 Read with Rule-37) Section-75 empowers Registrar to strike off the name of LLP on Suo moto basis Application by LLP Suo moto action of Registrar: - LLP shall be defunct for at least two years. Application by LLP (in form-24): - LLP shall be defunct for at least one year. NOC from concerned Govt. authority if regulated by them. Suo moto notice of ROL/application of LLP be placed on Ministry web-site for a period of one month before publication of notice in Official Gazette. LLP shall be dissolved w.e.f publication of notice in official Gazette.

16 Winding up of LLP Alike Companies, LLP may be wound up either Voluntary or by the Order of Tribunal. Substantive provisions of the companies Act, 1956 (Section-441 to 560 & Section-584 are made applicable to LLP with modification by way of notification U/S-67 of LLP Act. Detailed Provisions for winding up and dissolution of LLPs are prescribed by Central Govt. by way of the Rules Notified on (Section-65). Rules-emphasis on time bound and cost effective winding up process. Concept of insolvency practitioners is recognised in both winding up. Till the time Tribunal is constituted, application will be filed with High Court.

17 Taxation of LLP (as per the Finance Act, 2011) Ώ Profit will be taxed in hand of the LLP and not in the hands of Partners w.e.f assessment year Ώ No dividend distribution tax and Surcharge on LLP. Ώ No Capital gain on conversion of partnership firm into LLP Ώ No Capital gain on conversion of company into LLP if turnover/gross receipt in any of the 3 previous year does not exceed 60 lakh. Ώ No Minimum Alternate Tax and dividend distribution tax Ώ Alternative Minimum Tax (AMT) is now applicable w.e.f F.Y

18 Important Issues on LLP Ώ Business of LLP Ώ FDI into LLP Ώ Conversion of NBFC into LLP Ώ Conversion of company having secured loans Ώ Stamp Duty on LLP Agreement & Conversion Ώ Multidisciplinary professionals LLP Ώ Filing of Charges by LLP Ώ AMT vs MAT

19 Thank You Santosh Kumar Registrar-LLP

20 LLP Agreement Clauses Name of LLP Date of agreement. Address of LLP. Business. Designated Partner (DP) Name on Incorporation Whether each partner to be DP from time to time Acts, matters required to be done by DP

21 LLP Agreement Clauses Contd Name & address of initial partners. Conditions/qualifications for Admission. Registration Retirement Cessation and Expulsion of partners Obligation, rights, entitlement, etc on resignation, etc of partners.

22 LLP Agreement Clauses Contd Powers, duties, restriction and rights of each partner. Common seal. Contribution and conditions of its introduction & withdrawals. Interest on contribution. Remuneration of partners. Profit & Loss sharing Ratio.

23 LLP Agreement Clauses Contd Personal liabilities in case of fraud. Profit from use of property/name of LLP. Resolution passing vote requirement-matters thereto-all/majority/%. Manner in which consent is to be obtained. Procedure for meetings. Similar business by partners.

24 LLP Agreement Clauses Contd Dispute Resolutions - Arbitration. Mode/method of distribution of profits Rights over assets (tangible/intangible). Assignment & transfer of partnership rights Appointment/ reappointment / removal of auditors. Financial year-ending 31 st March Authorization for Banking transaction. Method of accounting.

25 LLP Agreement Clauses Contd Duration. Amendment in the LLP agreement. Other address for service of documents. Provision for change of Registered Office. Dissolution situations voluntary winding up.

26 CASE STUDIES

27 Share of Assignee Facts A B C A & B are partners in AB LLP 50% 50% assignment A & B earns share of profit from AB LLP of Rs 2 Lacs each B assigns his rights to share profits in the LLP to C Total A C AB LLP Accounting profit: Rs. 4 Lacs 2 Lacs 2 Lacs What is the taxability of Rs. 2 Lacs in the hands of B? What is the taxability of Rs. 2 Lacs in the hands of C? What rights does C have in AB LLP?

28 CAPITAL CONTRIBUTION Facts A B 50% 50% C A & B are partners in AB LLP C joins and contributes capital in the form of plant & machinery and land AB LLP Contribution in form of assets Particulars Plant & Machinery Cost of C Value LLP FMV 50 L 100 L 300 L Land 10 L 50 L 400 L What is the taxability for C on transfer of Plant & Machinery? What is the taxability for C on transfer of land? What is the relevance of valuation report prescribed under the LLP Rules?

29 Conversion of Firm to LLP A 50% B Facts A & B are partners in AB LLP 50% Conversion to firm Partnership is converted to a LLP Partners and the profit sharing ratio remains the same Partnership has accumulated losses of Rs. 10Cr. AB Partnership AB LLP Accumulated tax losses = 10 Cr. Whether conversion would be regarded as a taxable event? Whether the LLP can carry forward the losses?

30 CONVERSION OF COMPANY TO LLP A B Facts A & B are shareholders in AB Pvt. Ltd. 50% 50% Conversion to firm AB P. Ltd. AB LLP AB Pvt. Ltd is eligible for 10A benefits. Company is converted to a LLP Assets are transferred at their respective book values. Conditions for section 47 exemption are met. What are the implications on conversion for AB P. Ltd.? What are the implications for shareholders who become partners?