Limited Liability Partnerships in ndia

This This PPT PPT is is prepared prepared by by PP.. GAMBHR GAMBHR && ASSOCATES ASSOCATES (PGA) (PGA) to to provide provide foreign foreign companies companies a a general general information information about about the the options options available available for for setting setting LLP LLP in in ndia ndia and and brief brief introduction introduction
of of its its regulatory regulatory and and tax tax aspects aspects.. t t contains contains relevant relevant rules rules prevailing prevailing in in ndia ndia in in March, March, 2009 2009..
The The information information contained contained in in this this article article is is not not our our comprehensive comprehensive or or exhaustive exhaustive study study but but for for the the general general information information of of the the readers readers.. t t is is not not meant meant to to address address any any particular particular set set of of
circumstances circumstances.. We We strongly strongly recommend recommend readers readers to to seek seek professional professional advice advice before before taking taking any any decision decision..
For any further information, please visit PCA at www.pgaindia.inor mail us at pargambhir@hotmail.comor info@pgaindia.in
lnLroducLlon
To stimulate growth of ndian economy, the
Government of ndia has recently introduced a new
form of Corporate Business Entity called the Limited
LiabiIity Partnership (LLP) by enacting the Limited
Liability Partnership Act, 2008 based on
UK/Singapore Models.
LLP is a new commercial vehicle that does away with the limitations of traditional
partnerships and combines the advantages of both partnership and company form of
organization. t is a statute based governed structure that provides flexibility in organizing
the internal affairs based on mutual agreement and at the same time provides corporate
shield of limited liability. LLP is a body corporate with perpetual succession and separate
legal entity, where the liability of partners is limited. ndividuals residing outside ndia and
Companies/LLP incorporated outside ndia may also form and become partners in ndian
LLP. Rules are being formulated, permitting foreign LLPs to establish business in ndia.
CA. Parveen Cambhir
2 P. CANBH!R S ASSOC!ATES 2003
overnlng Laws
LLPs in ndia are governed by the Limited Liability Partnership Act, 2008 that
confers powers on the Central Government to apply the provisions of the
Companies Act, 1956 to LLPs. t has been clarified that the provisions of the
ndian Partnership Act, 1932 shall not apply to LLPs. Ministry of Corporate
Affairs of Government of ndia shall administer the law.
P. CANBH!R S ASSOC!ATES 2003
eaLures of LL
O LLP is a body corporate.
O LLP has perpetual succession.
O LLP has a separate legal entity.
O Partners can manage the entity.
O For the purpose of business, partner is an agent of LLP but not of other
partners.
O Change in partners shall not affect the existence, rights or duties of LLP.
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LL name name 8eservaLlon
LLP Name
O LLP has the right to select its name but need to satisfy name guidelines.
O Name should reflect the business.
O LLP is required to get its name approved.
O LLP needs to have words 'Limited Liability Partnership' or 'LLP' as last
words of its name.
Name Reservation
O A foreign LLP or company can apply to the Registrar for the reservation
of a name.
O Such reservation is initially granted for three years which can be
renewed.
P. CANBH!R S ASSOC!ATES 2003
LL 8eglsLered Cfflce

LL AgreemenL/CharLer
LLP Registered Office
O LLP needs to have a registered office in ndia.
O LLP may change its registered office.
LLP Agreement/Charter
O Like partnership, LLP may have an agreement defining its name,
registered office, names of partners, designated partners, profit sharing
arrangement, rights and duties of partners, etc.
O n the absence of such an agreement, the provisions of Schedule 1 to the
LLP Act shall apply.
O Partners may amend the agreement as per rules.
P. CANBH!R S ASSOC!ATES 2003
arLners
O Needs to have at least two partners that may be individuals or body
corporate.
O No limit on maximum number of partners.
O Partners may consist of:
O Companies incorporated in or outside ndia.
O LLP incorporated in or outside ndia.
O ndividuals residing in or outside ndia.
O LLP shall have at least two individuals as Designated Partners; at least
one of them should be a resident in ndia.
O Designated Partners should obtain Designated Partner dentification
Number (DPN) from the Ministry of Corporate Affairs, Government of
ndia.
O At least one of the designated partners should have Digital Signature
Certificate (DSC) as forms relating to incorporation and thereafter are to
be filed online after being digitally signed.
P. CANBH!R S ASSOC!ATES 2003
LlablllLy of arLners
O Liability of partners is limited to their agreed contribution that may be
tangible or intangible in nature or both.
O Liability of LLP is not the liability of the partners.
O No partner is liable for an unauthorized act of other partners or their
misconduct.
O A partner acting to defraud others or for fraudulent purposes shall have
unlimited liability.
Jlndlng up
The winding up of LLP may be either voluntarily or by the order of the
Tribunal, to be established. Till the Tribunal is established, the powers shall
vest with the jurisdictional High Courts.
P. CANBH!R S ASSOC!ATES 2003
Nanagement S Control

Conversion of Existing Entities

anagement & ControI
W Shall be governed by LLP agreement, if no such agreement, Schedule 1 of
the Act will apply.
WLLP may appoint any partner as 'Managing/Executive Partner(s)'.
WOther partners may also join the management.
WDesignated partners have no implied authority to manage the affairs of LLP.
WDesignated partners are responsible for regulatory compliances.
Conversion of Existing Entities
WFirms, private limited companies and unlisted public limited companies are
allowed to be converted into LLP.
WCompromise and other arrangements possible like merger, amalgamations,
etc.
3 P. CANBH!R S ASSOC!ATES 2003
AccounLs AudlL
O Every LLP is to maintain proper books of account.
O Required to follow financial year from 1
st
April of a year to 31
st
March of the following
year.
O Required to prepare a Statement of Account and Solvency for every financial year in
the prescribed manner within six months from the end of each financial year and
such statement is to be signed by the designated partners.
O LLP to file the Statement of Account and Solvency with the Registrar.
O LLP accounts are required to be audited, if its turnover exceeds 4 Million NR, in any
financial year or shareholders contribution exceed 2.5 Million NR.
O Required to file an annual return with the Registrar of Companies.
O All accounts and other documents shall be available to public for inspection.
0 P. CANBH!R S ASSOC!ATES 2003
@ax Laws
O The Government of ndia is to notify applicability of various tax laws. The
coming budget should bring necessary notifications. Till such time, we need
to wait and watch how LLP and its partners are taxed.
O To our mind:
O LLP would be liable to pay Service Tax (presently @10.3%) on the value
of taxable services provided by it.
O t would be liable to pay income tax on its income at the rates, as may be
announced, including Minimum Alternate Tax (MAT) that is paid on the
book profits.
O t would be liable to pay Fringe Benefit Tax on the value of specified and
deemed fringe benefits provided by it to its employees.
O Rules relating to tax deduction and withholding taxes shall also apply to
LLPs.
O Rules relating to Transfer Pricing on cross border transactions between
associated concerns would also be applicable.
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AdvanLages
O Separate legal entity with perpetual succession.
O Liability of members is limited.
O Easy to form and wind up in comparison to subsidiaries.
O Partners can manage the affairs of LLP.
O Flexibility in operations.
O Partner not an agent of other partners.
O No requirement of minimum capital contribution.
O No limit on maximum number of partners.
O Thin Capital Rule applies.
O Personal assets of partners not exposed.
O Simple regulations.
2 P. CANBH!R S ASSOC!ATES 2003
.5<A
For further information, please visit
PGA at www.pgaindia.in
or E-mail: pargambhir@hotmaiI.com0r info@pgaindia.in
or contact us at:
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P. CANBH!R S ASSOC!ATES 2003