WORKSHOP ON THE LIMITED LIABILITY PARTNERSHIP

1. WORKSHOP ON THE LIMITED LIABILITY PARTNERSHIP CA D R Venkatesh Bcom, LLB, FCA Partner - MSSV & Co Bangalore

2. DISCUSSION • Introduction • LLP – An overview • Incorporation of LLP • Financial disclosures • Investigation • Conversion to LLP • Foreign Limited Liability Partnership • Winding up and Dissolution

3. Business Structure • Proprietorship • Partnership • Companies - Private - Public • Co-operative Societies • Trusts

4. INTRODUCTION • Background • Naresh Chandra & JJ Irani committee • Concert paper on LLP 2005

5. Indian Partnership Act was passed in 1932 ‘Partnership’ is the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all Indian Partnership Act, 1932

6. Persons who have entered into partnership with one another called individually “Partners” and collectively “a firm” Unlimited Liability of Partners Partnership Firm is not a legal entity Firm legal entity for purpose of taxation Indian Partnership Act, 1932

7. Partners are mutual agents Oral or written agreement Sharing of profit necessary Sharing of losses is not an essential condition Contribution of capital is not essential Partners can be Minors, HUFs, Companies Indian Partnership Act, 1932

8. Number of partners: Minimum  2 Maximum - General  20 Banking Business  10 Mutual agency is the real test Partnership at Will Particular partnership Determination of rights and duties of partners by contract between the partners Indian Partnership Act, 1932

9. Every partner has right to take part in business Partner to be agent of the firm Implied authority of partner as agent of the firm Partners jointly and severally liable acts of the firm Registration of firm Indian Partnership Act, 1932

10. Companies Act, 1956 • The Companies Act, 1956 • Registration Compulsory • Legal entity separate from that of its directors / members • Perpetual succession • Liability Limited • Meeting - Board Meeting - AGM - EAGM

11. Companies Act, 1956 • Directors / Shareholders • Company funds • Filing of documents • Complex procedures • Taxation - Dividend Tax - MAT

12. LLP Bill 2008 14 - Chapters 81 - Clauses 4 - Schedules LLP Bill 2006 14 - Chapters 73 - Clauses 4 - Schedules Rajya Sabha - 24.10.2008 Lok Sabha - 12.12.2008 Limited Liability Partnership – On overview

13. LLP Bill 2008 Chapter Particulars Section I Preliminary - 1 & 2 II Nature of LLP - 3 to 10 III Incorporation of LLP & Matters incidental thereto - 11 to 21 IV Partners & their relations - 22 to 25 V Extent and limitation of liability of LLP & Partners - 26 to31 VI Contribution - 32 & 33 VII Financial Disclosures - 34 to 41

14. LLP Bill 2008 Cont….. Chapter Particulars Section VIII Assignment and transfer of partnership rights - 42 IX Investigation - 43 to 54 X Conversion to LLP - 55 to 58 XI Foreign LLP - 59 XII Compromise, arrangement or Reconstitution of LLP - 60 to 62 XIII Winding up and Disclosure - 63 & 65 XIV Miscellaneous - 66 to 81

15. First Schedule Second Schedule Third Schedule Fourth Schedule Provisions regarding matters relating to mutual rights and duties of partners and LLP and its partners applicable in the absence of any agreement on such matters Conversion from Firm into LLP Conversion from Private company into LLP Conversion from Unlisted public company into LLP LLP Bill 2008 Cont…..

16. LLP (Concept ) Rules and Forms 2008 • 40 Rules • Annexure - A Form 1 to Form 29 • Annexure - B Fees • Annexure - C Document - period of preservation (Permanent) • Annexure - D Document – period of preservation (5 years) • Annexure - E Date of and mode of destruction of documents of LLP by Registrar

17. Draft LLP (Winding up and Disclosure) Rules 2008 • 310 Rules

18. The Salient features of the LLP • Chapter – II • Clause 3 to 10 • LLP • Body Corporate • Legal Entity • Separate from that of its partners • Perpetual succession • Any change in the partners of LLP will not affect the existence, assets or liabilities of LLP

19. The Salient features of the LLP • Provisions of Indian Partnership Act, 1932 will not apply to LLP • Any individual or body corporate may be a partner in LLP • Every LLP should have at least two partners • Every LLP should have at least two designated partners

20. The Salient features of the LLP • LLP will be an alternative corporate business vehicle • LLP structure would be available for use by any enterprises • LLP shall not be any upper limit on number of partners • An LLP shall be under obligation to maintain annual accounts reflecting the true and fair view of its affairs • Provisions have been made in to bill for corporate actions like mergers, amalgamation etc., • Winding up and dissolutions of LLP’s - provided by way of rules under the act

21. Financial Disclosures • Chapter - VII • Clauses - 34 to 41 • Rules - 24 to 26 Accounts • LLP shall maintain such proper books of account as may be prescribed • Cash basis or accrual basis and according to the double entry system of accounting • Every LLP shall keep the accounting records which are sufficient to show and explain the LLP’s transactions • Disclose with reasonable accuracy at any time

22. The accounting records shall in particular contain • entries from day to day of all the sums of money received and expended • Record of the assets and liabilities • Statement of cost of goods purchased, inventories, work in progress, finished goods and cost of goods sold • Any other details which the partner may decide • Accounting records shall be preserved for Eight years • Statement of accounts and Solvency • File in Form No.8 - Period of 30 days from the end of six months from the financial year • LLP’s Statement of accounts and solvency shall be signed on behalf of the LLP by designated partners

23. Fees to be paid to Registrar • Contribution does not exceed Rs.1 lakh - Rs.50 • Contribution exceeds Rs.1 lakhs but does not exceeds Rs.5 lakhs - Rs.100 • Contribution exceeds Rs.5 lakhs but does not exceeds Rs.10 lakhs - Rs.150 • Contribution exceeds Rs.10 & above - Rs.200

24. Auditing • Rule 24(9) – The accounts of LLP for the financial year shall be audited • Exempted from the audit - if turnover does not exceeds Rs.40 lakhs or its contribution does not exceed Rs.25 lakhs • Rule 24(13) - An auditor or auditors of LLP shall be appointed for each financial year of the LLP • Rule 24(14) - An auditor or auditors must be appointed with in 30 days before the end of the financial year • Rule 24(15) - The designated partners may appoint the auditor or auditors

25. Rule 24(15) - The designated partners may appoint the auditor or auditors • At any time for the first financial year but before the end of the first financial year or • with in 30 days before the end of the each financial year or • To fill a casual vacancy in the office of auditors or • To fill up the vacancy caused by removal of an auditor • Rule (16) The partners may appoint an auditor or auditors - if designated partner fails to do so

26. Rule 24(17) - An auditor of an LLP shall be a Chartered Accountant in practice • Rule 24(23) - An auditor of an LLP may resign his office by depositing a notice in writing to that effect at the LLP’s registered office: • The notice is not effective unless it is accompanied by the statement of the circumstances connected with his ceasing to hold the to hold office • LLP fails to comply the above provisions relating to accounts and auditing shall be punishable with fine which shall not be less than Rs.25,000/- but which may extend to Rs.5,00,000/- and every designated partner shall be punishable with fine which shall not be less than Rs.10,000/- but which may extend to Rs.1,00,000/-