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LIMITED LIABILITY PARTNERSHIP Act, 2008 –Legal and Tax Provisions

LIMITED LIABILITY PARTNERSHIP Act, 2008 –Legal and Tax Provisions. Deepak M Rindani Rajkot Branch; April, 24, 2010. Business Organizations. Business Organizations (Contd.). U : Unincorporated Entity I : Body Corporate . Partnership Firm vs LLP. Partnership Firm vs. LLP.

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LIMITED LIABILITY PARTNERSHIP Act, 2008 –Legal and Tax Provisions

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  1. LIMITED LIABILITY PARTNERSHIP Act, 2008 –Legal and Tax Provisions Deepak M Rindani Rajkot Branch; April, 24, 2010

  2. Business Organizations

  3. Business Organizations (Contd.) U : Unincorporated Entity I : Body Corporate

  4. Partnership Firm vs LLP

  5. Partnership Firm vs. LLP

  6. Partnership Firm vs. LLP

  7. Limited Company vs. LLP

  8. Limited Company vs. LLP

  9. Comparison

  10. Comparison (Contd.)

  11. Merits of LLP • No danger of sudden dissolution by notice only • No dissolution even if partner reduced to one • Defined /limited liability of partner in most events • More flexible and less regulated than Company

  12. Merits of LLP • More freedom of financial transactions compared to company • Partners in capital only, non-resident partners and other LLP/Co. can become partner in LLP • May be preferred by banks to avoid pitfalls of disputes in traditional firms

  13. Structure of LLP • Two or more persons can form • Individual, a limited company, a foreign company, another LLP, foreign LLP can be partner • Only bodies corporate can also be only partners • Separate legal entity from its partners with perpetual succession

  14. VI – Filing of LLP Agreement (if opted for) V - Certificate of Incorporation LLP Registration Steps(www.llp.gov.in) IV - Filing of Incorporation Document II - Obtain DPIN for all DPs & DS for at least one

  15. LLP INCORPORATION COST COMPARISION (in Rs. )

  16. Provisions re. Name of LLP [Sec. 15] • Every LLP to have either the words “limited liability partnership” or the acronym “LLP” as last words of its name • Name should not be undesirable, identical to that of other partnership firms or LLP or other body corporate or regd. trademark • Entities not registered as LLP are prohibited from using the word LLP in their business name

  17. Re. Name of LLP [Sec. 16 to 19] • Name of proposed LLP or change of name can be reserved for 3 months from intimation by ROC • Existing name can be changed • Govt. can direct the LLP to change its name within 3 months for certain reasons

  18. Re. Name of LLP [Sec. 16 to 19] • Any entity having name similar to that of LLP can apply for direction to ROC to have such name changed for given reasons • Change of name request by other entity shall be entertained by ROC only within 24 months from date of registration of LLP

  19. Mutual Rights and Duties of Partners • To be governed by agreement between partners or between LLP and its partners • In absence of agreement, First Schedule to the Act deemed to be adopted by partners • Every partner is agent of LLP but not agent of other partners, unlike in IP Act, 1932 • LLP is NOT a compendious name of its partners (because it’s a separate legal entity)

  20. Changes in Partners • Admission of new partner subject to Agreement between existing partners • Changes in partners to be registered with RoC • Former partner to be regarded as a continued partner if – notice of such change not delivered to RoC

  21. Changes in Partners (Contd.) • Former partner himself can also file notice to RoC; RoC to obtain confirmation from LLP; but if not confirmed by LLP in 15 days, notice will have to be registered by RoC

  22. Cessation of Partner’s Interest in LLP • Cessation to be as per terms of Agreement • In absence of agreement, cessation to be by notice of 30 days, or upon death, or upon insolvency or upon partner declared that of unsound mind • After cessation also, liability for past actions continues (unless agreed otherwise)

  23. Interest of partner in LLP • Has right to share in profits, losses and capital • Other rights and duties are subject to LLP agreement • Rights of partner are transferable and assignable to non-partners also

  24. Interest of partner in LLP (Contd.) • On transfer of rights, transferor continues as partner • The transferee by itself does not become entitled to participate in management of LLP or to access information re. LLP

  25. Limitation of Liabilities of LLP • LLP itself is liable to any person for contractual and other obligations undertaken by it • Liabilities of LLP shall be met out of the property of the LLP • LLP is liable to any person if any partner of LLP becomes liable to any person due to wrongful act or omission on his part in the course of business of LLP or in the course of use of his authority as partner

  26. Limitation of Liabilities of LLP(Contd.) • LLP is not bound by anything done by its partner if the partner in fact has no authority to act for the LLP in doing that particular act and the person knows that he has no such authority or does not know or believe him to be a partner of LLP

  27. Limited Liability of Partner of LLP - How much? • Partner is not personally liable, directly or indirectly, for any obligation of the LLP • Partner is not personally liable for any wrongful act or omission of any other partner of LLP • Partner is personally liable for his own wrongful act or omission

  28. Limited Liability of Partner of LLP - How much? (Contd.) • Partner by “Holding out” is liable to the person personally who has given credit to the LLP but if the LLP has received such credit, LLP is liable to the extent of such credit • LR or Estate of deceased partner is not liable for any act of LLP done after his death

  29. Liability of Partners • For any act by LLP or any of its partners with intent to defraud creditors, liability of LLP and such partner shall be unlimited • For any fraudulent act by any partner or employee, the LLP or other partners who suffered loss or damage by such conduct, can claim compensation from such other partner, apart from rights of criminal proceedings

  30. Liability of Partners (Contd.) • But the LLP itself shall not be liable, if such partner or employee acted fraudulently without knowledge of LLP • Whistle Blowing: Court may reduce or waive penalty on partner/employee/LLP if they have provided useful information during investigation [sec. 31]

  31. Designated Partners [Sec. 7] • Every LLP must have at least 2 “designated partners” (DP) • Only individuals can be DPs • If body corporate is a partner, its nominee can be a DP • DP must be resident in India (person who has stayed in India for at least 182 days in preceding 1 year)

  32. Designated Partners [Sec. 7] • A DP must give prior consent to act as DP • Name of DP to be intimated to ROC • DP can be changed from time to time • Name of DP to be intimated to ROC • DP can be changed from time to time • Every DP shall obtain Designated Partner Identification Number (DPIN) as per sections 266A to 266G of Cos. Act • LLP may appoint new DP within 30 days of a vacancy

  33. Designated Partners [Sec. 7] • If no DP is so appointed or if no. of DP falls to 1 only, each partner shall be deemed to be DP • DP shall be responsible for doing of all acts, matters and things required to be done by LLP in respect of compliance of provisions of LLP Act including filing of any document, return, statement, report, etc. as prescribed • DP shall be liable to pay all penalties imposed on the LLP for contravention of above provision

  34. Contribution (Capital) of Partner • Money, tangible, intangible, movable, immovable or other benefit or money, P notes, Contracts, etc. • Amount, extent etc. to be governed by the LLP agreement • Creditor of LLP relying on obligation of a partner to make contribution, may enforce it against the partner without notice of any compromise between partners • LLP registration fee slabs are based on amount of capital contribution

  35. Audit of LLP • Mandatory audit of accounts if - • Turnover exceeds Rs. 40 lacs or • Contribution exceeds Rs. 25 lacs • Auditors – to be appointed within 30 days before the end of each financial year

  36. Appointment of Auditors • Qualification • A person qualified as Chartered Accountant and in practice • No reference to the appointment of firms as auditors • Can be appointed by designated partners • In the first year anytime before end of F.Y. • Subsequent years within 30 days before end of financial year • To fill casual vacancy • To fill up vacancy on removal

  37. Appointment of Auditors • Appointment by other partners [rule 24(16)] • If designated partners do not exercise their right/fail to make appointment • Term of Office of Auditor • Ceases to hold office at the end of the next period for appointing auditor unless re-appointed before it.

  38. Re-appointment of Auditors [rule 24(19)] • Where no auditors appointed – auditor in office immediately before that time – deemed to be reappointed unless : • Partners give notice contrary to deemed re-appointment • Partners decide not to re-appoint present auditor • Designated partners have determined that no auditor should be appointed for the F.Y.

  39. Removal of Auditors rule 24(10)] • Can be removed by complying stipulations specified in LLP agreement • If such removal not mentioned in the agreement – can be removed only with consent of all the partners

  40. Resignation of Auditors [rule 24(21)] • Notice in writing at least 14 days before the last day of period allowed for appointment alongwith with statement of circumstances connected with his cessation of office • If he considers no circumstances need to be brought to notice of LLP - a statement to that effect

  41. Conversion of Partnership Firm into LLP • Existing firm can be converted subject to provisions of Second Schedule • Provided - • All the partners of the existing firm shall be the partners of LLP • No other person shall be the partner of LLP

  42. Effects of conversion • All property alongwith the undertaking of the partnership shall be transferred to LLP • All proceedings against the firm pending in any Court of law or authority on the date of registration will be enforceable against LLP. • All partners of a firm converted into LLP shall continue to be liable jointly with LLP for the liabilities of period prior to conversion

  43. Conversion of Pvt. Ltd. Co. and Unlisted Public Co. into LLP [Sec. 56 & 57] • Existing Co. can be converted subject to provisions of Third Schedule • All shareholders become partners in the LLP • There is no security interest on property of Co. at the time of conversion

  44. Winding up and Dissolution • Voluntary W/up, if 3/4th partners in value resolve • By LLP Tribunal under the following situations: • If LLP decided that it be wound up by Tribunal • For more than six months the number of partners is reduced below two

  45. Winding up and Dissolution (Contd.) • Unable to pay its debt • A default in filing statement of account and solvency or annual return for any five consecutive years • LLP tribunal is of the opinion that it is just and equitable • RoC given power of strike off defunct LLP

  46. Penalties / Fines under LLP Act, 2008

  47. Penalties / Fines under LLP Act, 2008 (Contd.)

  48. Penalties / Fines under LLP Act, 2008 (Contd.)

  49. Penalties / Fines under LLP Act, 2008 (Contd.)

  50. Penalties / Fines under LLP Act, 2008 (Contd.)

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