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The Limited Liability Partnership Act, 2008

The Limited Liability Partnership Act, 2008. 28.2.2009. Choosing the type of organisation structure for SMEs is a challenge Selection of orgnisation structure is influenced by many factors Type of organisation structure determines personal liability of owners

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The Limited Liability Partnership Act, 2008

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  1. The Limited Liability Partnership Act, 2008 28.2.2009

  2. Choosing the type of organisation structure for SMEs is a challenge • Selection of orgnisation structure is influenced by many factors • Type of organisation structure determines personal liability of owners • The owners of SMEs are personally liable for business failure occurring in the normal course unless operating as a Limited Liability Company • Large number of SMEs operate as Partnerships for operational felxibility • SMEs registered as private companies are subject to rigours of compliance under the Companies Act, 1956 Introduction 28.2.2009

  3. There has been long felt need for a simple legislation for SMEs to carry on • business as a body corporate with limited liability obligation • The LLP Act 2008 has addressed this need • A Snapshot of characteristic features of Partnership Firm, LLP, Private Company and Public Company are given in the following tables Introduction 28.2.2009

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  24. The concept of LLP was first introduced informally in Italy in the 7th Century • France was the first country to enact LLP legislation in the year 1673 • In UK the LLP Act was passed in the year 1867.It was replaced in the year 1907 • and a comprehensive LLP legislation was passed with a new Act in the year 2000 • In Singapore the concept of LLP is very recent and LLP Act was passed on 25th January 2005 • Impetus for enacting LLP Act in India was due to pressure from WTO for opening up of multi-disciplinary professional services to the multinational professional firms History 28.2.2009

  25. CG first brought out a Concept Paper on LLP and placed it in the public domain • in November 2005 for comments and suggestions • The LLP Bill 2006 was introduced in Rajyasabha on 15th December 2006 and • was referred to Standing Committee on Finance. • Based on the recommendations the Bill was withdrawn for further improvements • A new LLP Bill 2008 was introduced by the CG in the year 2007 with over 35 • major changes and insertion of 8 new sections and other modifications • Finally, the LLP Bill 2008 has culminated into ‘The Limited Liability Partnership • Act, 2008’ with gazette notification on 9th January 2009 • The LLP Act 2008 is divided into 14 Chapters containing 81 Sections and Four • Schedules • The concept Rules numbering 40 have been put on public domain for comments History 28.2.2009

  26. Chapter I titled “Preliminary” • Contains 2 Sections • Section 1: Describes the title, jurisdiction and effective date of the Act • Section 2: Contains definitions of terms used in the Act Chapter I 28.2.2009

  27. Chapter II titled “Nature of Limited Liability Partnership” • Contains 8 Sections • Section 3: LLP is a separate legal entity and it is a body corporate • Section 4: Partnership Act 1932 is not applicable to LLPs except as provided • Section 5: Who can and who cannot be partners of an LLP • Section 6: Min. no. of Partners and Personal Liability if the number falls below 2 • Section 7: Designated Partners – Requirements for appointment etc • Section 8: Responsibilities and Obligations of Designated Partners Chapter II 28.2.2009

  28. Chapter II titled “Nature of Limited Liability Partnership” • contd…. • Section 9 : Filling up of vacancy in Designated Partners and consequences of • failure • Section 10: Penalty for contravention of provisions of Section 7 (1), (4), (5), • Section 8 and Section 9 Chapter II 28.2.2009

  29. Chapter III titled “Incorporation of LLP and Matters Incidental thereto” • Contains 11 Sections • Section 11: Incorporation of LLP, procedure for incorporation and penalty • Section 12: Registration of LLP by Registrar and Certificate of Incorporation • Section 13: Registered Office and other office of LLP and changes thereof • Section 14: Effect of Registration and Powers of LLP • Section 15: Use of words Limited Liability Partnership or acronym ‘LLP’ as last • words in the name • Section 16: Application for approval and reservation of name of LLP • Section 17: CG’s power to direct change of name by a LLP already registered Chapter III 28.2.2009

  30. Chapter III titled “Incorporation of LLP and Matters Incidental thereto” • contd…. • Section 18: Application by a Company, LLP or Entity to Registrar for directing • change of name of LLP registered with similar name • Section 19: Change of name by LLP on own volition • Section 20: Penalty for misuse of words LLP in the name • Section 21: Publishing of name, address and registered number in invoices etc. Chapter III 28.2.2009

  31. Chapter IV titled “Partners and their Relations” • Contains 4 Sections • Section 22:How to become partners of a LLP • Section 23:Mutual Rights & Duties of Partners inter-se partners and LLP and its • partners etc. • Section 24:Cessation/Resignation of a partner • Section 25:Partner to report change in name and address to LLP etc. Chapter IV 28.2.2009

  32. Chapter V titled “Extent and Limitation of Liability of LLP and Partners” • Contains 6 Sections • Section 26: Partner is an Agent of LLP and not of other partners • Section 27: Liability of LLP when and how much • Section 28: Partner’s liabilities and extent of liability • Section 29: Person holding out to be a partner shall be liable to creditors • Section 30: Unlimited liability of partners and LLP under certain circumstances • Section 31: Whistle Blowing benefits to a partner and an employee Chapter V 28.2.2009

  33. Chapter VI titled “Contributions” • Contains 2 Sections • Section 32: Contributions by partners - by way of money, tangible and • intangible assets etc. • Section 33: Obligation of partners to contribute money or property or other • benefit shall be as per LLP Agreement Chapter VI 28.2.2009

  34. Chapter VII titled “Financial Disclosures” • Contains 8 Sections • Section 34: Maintenance of Books, preparation and filing of Statement of • Account and Solvency with the Registrar • Section 35: LLP to file Annual Return with the Registrar • Section 36: Public Inspection of documents filed by LLP with the Registrar • Section 37: Penalty for false return, statement or document required under the • Act • Section 38: Registrar right to call for information, statement, document etc Chapter VII 28.2.2009

  35. Chapter VII titled “Financial Disclosures” • contd…. • Section 39: Compounding of Offence committed - where punishable with fine • Section 40: Registrar to destroy documents filed in accordance with Rules • Section 41: Registrar may require filing of corrected or amended document etc. Chapter VII 28.2.2009

  36. Chapter VIII titled “Assignment and Transfer of Partnership Rights” • Contains 1 Section • Section 42: A Partner can transfer his rights to share in profits or receive • contributions and still continue to be a partner in a LLP etc. Chapter VIII 28.2.2009

  37. Chapter IX titled “Investigation” • Contains 12 Sections • Section 43: CG to appoint Inspectors under certain circumstances • Section 44: Partners application for ordering inspection by Tribunal should be • supported by evidence and deposit of security amount • Section 45: No Firm, Body Corporate or other Association can be appointed as • an Inspector • Section 46: Inspector can inspect the affairs of an associated entity also • Section 47: Duty of Designated Partners or partners to produce documents Chapter IX 28.2.2009

  38. Chapter IX titled “Investigation” • contd…. • Section 48: Inspector to approach First Class Magistrate or Judicial Magistrate • for order for confiscation of records or documents • Section 49: Inspector to make interim if required by CG and also make final • report to the CG • Section 50: CG may prosecute a person in relation to LLP or any other entity • whose affairs are investigated found to be guilty after conducting • inspection • Section 51: If it is that it is expedient to wind up as per the Order, the LLP shall • be wound up by order of Tribunal Chapter IX 28.2.2009

  39. Chapter IX titled “Investigation” • contd…. • Section 52: CG may bring proceedings for recovery of damages or property • Section 53: Initial expenses of investigation will be borne by CG but upon • conviction the person convicted shall bear the expenses • Section 54: The Inspectors Report will be will be admissible as evidence in any • legal proceeding Chapter IX 28.2.2009

  40. Chapter X titled “Conversion into Limited Liability Partnership” • Contains 4 Sections • Section 55: A Partnership Firm may convert itself into LLP • Section 56: A private company may convert itself into LLP • Section 57: An unlisted public company may convert itself into LLP • Section 58: Registration of LLP on conversion and duty of Partnership • Firm/Private Company/Unlisted Company to intimate the Registrar • of Firms/Companies etc. Chapter X 28.2.2009

  41. Chapter XI titled “Foreign LLPs” Contains 1 Section Section 59: Central Government’s power to formulate rules applicable to foreign LLPs establishing place of business in India Chapter XI 28.2.2009

  42. Chapter XII titled “Compromise, Arrangement or Reconstruction (CAR) of LLPs” • Contains 3 Sections • Section 60: Procedure for C or A and Order of Tribunal for C or A • Section 61: Tribunal shall have power to supervise carrying out of C or A • Section 62: Tribunal may approve C or A proposal and order the scheme for R • or amalgamation of 2 or more LLPs Chapter XII 28.2.2009

  43. Chapter XIII titled “Winding Up and Dissolution” • Contains 3 Sections • Section 63: Voluntary Winding up and/or through Order of the Tribunal • Section 64: Circumstances under which Tribunal may order winding up • Section 65: CG may make rules in relation to winding up of LLPs Chapter XIII 28.2.2009

  44. Chapter XIV titled “Miscellaneous” • Contains 16 Sections • Section 66: A partner may lend money or transact business with LLP • Section 67: CG’s power to notify that provisions of Companies Act, 1956 may • apply with or without modifications to LLPs • Section 68: Filing of documents in Electronic Form, copy of any document or • extract of any document filed with Registrar shall be admissible • as evidence etc. • Section 69: Document required to be filed with Registrar if not filed within due • date can be filed within 300 days on payment of additional fees and • beyond 300 days also • Section 70: Imprisonment of partner or designated partner for 2nd and • subsequent offences and levy of fine upto twice the amount • prescribed Chapter XIV 28.2.2009

  45. Chapter XIV titled “Miscellaneous” • contd…. • Section 71: Provisions of this Act shall be in addition and not in derogation of • provisions of any other law • Section 72: Tribunal may exercise such powers conferred on it by this Act or any • other Law in force • Section 73: Failing to comply with order of the Tribunal shall attract imprisonment • upto 6 months and shall also be liable to fine of not less than • Rs.50,000/- • Section 74: If the Act is silent on fines, the person can be punishable with fine • with Min. of Rs.5,000/- and Max. of Rs.50/- per day of default (subject • to Maximum amount of Rs.5,00,000/-) Chapter XIV 28.2.2009

  46. Chapter XIV titled “Miscellaneous” • contd…. • Section 75: Registrar’s power strike off name of LLP if LLP is not carrying • on business • Section 76: Punishment of Partners/Designated Partners/LLP for Offences • committed • Section 77: Jurisdiction of Courts • Section 78: CG’s power to alter the provisions of Schedules to the Act • Section 79: CG’s power to make Rules for carrying out provisions of this Act Chapter XIV 28.2.2009

  47. Chapter XIV titled “Miscellaneous” • contd…. • Section 80: CG’s power to make provisions to remove difficulties but the power • cannot be exercised after 2 years from the date of commencement of • the Act • Section 81: Transitionary provisions until Tribunal is constituted under Companies • Act, 1956 Chapter XIV 28.2.2009

  48. Implications under Stamp Duty • What should be stamp duty for LLP Agreement? • LLP Agreement attracts stamp duty as per State Stamp Act. • For clarity on stamp duty payable for LLP Agreement State Stamp Act needs • amendment • Implications under Income Tax Act 1961 • Whether capital gains tax under Section 45 is attracted on conversion of Partnership Firm/Private Company/Unlisted Public Company into LLP? • On conversion of Partnership firm/private company/unlisted public company • into LLP as per Second/Third/Fourth Schedule all the assets etc. of the firm • shall be transferred toandvest in the LLP • The word ‘convert’ in relation to firm/private company/unlisted public company • means transfer of property • The above situation is different from that of registration of a partnership firm as • a company under part IX of the Companies Act, 1956. Issues under a few important Enactments 28.2.2009

  49. Under Part IX property belonging to or vested in a Registered Partnership Firms • shall on registration under Part IX pass toandvest in the company incorporated • under the Companies Act, 1956. As per Andhra High Court, on such vesting there • is no capital gains tax on the partnership firm. • Whether benefits under Section 72A of the Income Tax Act is available to the Amalgamated LLP in case of Amalgamation of LLPs ? • As per Section 72A of the Income Tax Act carry forward losses and unabsorbed • depreciation of Amalgamating Company is allowed in the hands of Amalgamated • Company subject to certain conditions stipulated therein. • Unless Section 72A is amended to include LLPs also, the benefits will not be • available to LLPs in case of Amalgamation. • Implication under Industrial Policy and FEMA regulations for FDI in a LLP Whether FDI is permitted into a LLP ? • A foreign LLP or a foreign Company can become a Partner of a Indian LLP. The • existing Industrial Policy and FEMA need amendment for making contributions Issues under a few important Enactments 28.2.2009

  50. Cost Advantage of LLP over a company • Maximum registration fee in the case of a LLP is Rs.5,000/- • Maximum registration fee for a company having share capital is Rs.2 Crores Registration Fees 28.2.2009

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