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Limited Liability Partnership ACT 2008 By AKHIL KHANNA B.COM(H) UNIVERSITY OF DELHI

Limited Liability Partnership 01111

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Page 1: Limited Liability Partnership 01111

Limited Liability Partnership

ACT 2008

By AKHIL KHANNAB.COM(H)UNIVERSITY OF DELHI

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International Experience

• FRANCE :- LLP brought under Regulation first in 1673

• UNITED STATES, - first introduced in New York in1822• Non Compliance of laws resulted in liability of partners becoming

unlimited.o Uniform Limited Partnership law was enacted for protectiono Hewlett- Packard are LLPs in operation

• UNITED KINGDOM: - LLP act passed in 1867. o Came into force in 1907o Not being popular in UK, was replaced by LLP Act, 2000o Act designated the constituents of LLP as members and designated

members as agents of LLP

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LLP background in India

• The Abid Hussain Committee recommended legislation on LLP in 1997.

• Naresh Chandra Committee Report II(2003) revived the idea of LLP by less regulatory impact of Companies Act.

• The J.J. Irani Committee(2005) recommended adoption of LLP as a new form of business.

• LLP Bill, 2006 was introduced in Rajya Sabha on 15th December,06.

• Later referred to Department Related Parliamentary Standing Committee on Finance.

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What is LLP?

Limited Liability Partnership is a• Partnership formed and registered under this Act• Legal entity separate from its partners

o with perpetual succession ando with limited liability of its partners

• Body Corporate with capacity to o acquire, hold & dispose property in its own nameo Sue and be sued independent of its partners

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Why LLP Act Passed?

• Potential for growth of the services sector

• Dominant role played by the professionals in the country’s economy

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Incorporation of LLP

• Two or more persons carrying a lawful business shall subscribe to an incorporation document.

• Name to have ‘Limited Liability Partnership’ or ‘LLP’ as the last words.

• Reservation of name in Form 1 – for 3 months• Name not to be identical or too nearly resembles

any other o Partnership Firm, o LLP, o Body Corporate o a registered trade mark – if resembles CG may direct to change the name – 3

months to change (Section 17)

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Partner in LLP• Any Individual who is

oof sound mindoSolvent or

• Body Corporate can become a partner of LLP.

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Body Corporate

Body Corporate includes• Company incorporated in & Outside India • LLP incorporated in India & outside India• Registered Cooperative Society

But does not include• Corporation Sole• Cooperative Society• Partnership firm or HUF

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Conversion into LLP• Application for Conversion

o Form 17 – From Partnership firm to LLP (Schedule II)o Form 18 – From Private company to LLP (Schedule III)o Form 18 – From unlisted public company to LLP (Schedule

III)• Incorporation documents also to be submitted • All partners required to apply for conversion• Registrar to give Certificate in Form 19• If rejected, appeal can be filed with NCLT• Intimation of conversion to be intimated to ROC in 14 days

in Form 14• Penalty for Non- Compliance

o Min. 10,000 o Max. 1,00,000

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Tax Treatment Benefits of Conversion of Private Limited Company into

LLP• Taxation LLPs are taxed like general partnership firms.

LLPs pay an effective tax of 30.9%. • They are exempted from 10% surcharge. LLPs tax

payment is lower than that of companies/firm, which pay a 33.99% tax on profits.

• The tax will be imposed only on 40% of the LLP.s income, since the firm will be allowed to pay the balance 60% to the partners as remuneration. This means, the partners will have to pay tax on the amount paid to them.

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No Audit requirement Audit is not required unless capital exceeding Rs. 25 lakh or turnover exceeding Rs. 40 lakh.

Unlike Companies, no requirement for payment of Corporation Tax on distribution of income among partners and shareholders.

there is no requirement as to Minimum Alternate Tax.

Automatic transfer ,All the assets and liabilities of the Company immediately before the conversion become the assets and liabilities of the LLP.

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No Stamp Duty -All movable and immovable properties of the company automatically vest in the LLP. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.

No Capital Gains tax shall be charged on transfer of property from Company to LLP.

The accumulated loss and unabsorbed depreciation of Company is deemed to be loss/ depreciation of the successor LLP for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor LLP.

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No Limit on number of shareholders/partners Unlike private limited companies (shareholders limited to 50), an LLP can have unlimited number of partners.

Minimal Compliance Level & Cost effective model There is no need of compliances related to meetings and maintenance of huge statutory records.

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Partnership vs. LLP

Partnership LLP

Legal Entity Not Separate Separate

Perpetual succession

No Yes

No. of members

Min. 2 Max. 20 Min2 , Max NA

Governing law

Indian Partnership Act

LLP Act….

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Partnership vs. LLP

Partnership LLP

Partner’s Identity

No legal requirement

DP to obtain DPIN

Liability Unlimited Limited to contribution

Names No regulation Regulated

Audit Only if turnover exceeds 40L – 44AB

Only if turnover exceeds 40L or contribution 25 L

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Company vs. LLP

Company LLP

Legal Entity Separate Separate

Perpetual succession

Yes Yes

Capital Requirement

1 Lakh for Pvt. & 5 Lakh for Public Ltd. Cos.

Contribution as per LLPA

No. of members

Pvt-Min2 Max 50Pub-Min3 Max NA

Min2 , Max NA

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Company vs. LLP

Company LLP

Names Regulation Regulated - other partnership names cannot be kept

Flexibility of business

Regulated by MOA & AOA

Regulated by LLPA

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Company vs. LLP

Company LLP

Most preferred by

Large businessesProfessionals

Listing Possible Not possible

Audit Compulsory Only if turnover exceeds 40L or contribution 25 L

Shareholders No consent required

Partners consent required

Meetings Regulated by Companies Act

Not mandatory

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Company vs. LLP

Company LLP

Suffix 'Limited' or 'Private Limited'

'Limited Liability Partnership' or 'LLP'

Common Seal Compulsory Optional

Flexibility of business

Regulated by MOA & AOA

Regulated by LLPA

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