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Limited Liability Partnerships

Limited Liability Partnerships. Scenario, Advantages & Expectations. Presentation Schema. Salient Features Limitation of Liability Conversion to LLPs FDI in LLPs LLPs- Global Scenario Taxation of LLPs Expectations. Salient features. Separate legal entity

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Limited Liability Partnerships

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  1. Limited Liability Partnerships Scenario, Advantages & Expectations

  2. Presentation Schema • Salient Features • Limitation of Liability • Conversion to LLPs • FDI in LLPs • LLPs- Global Scenario • Taxation of LLPs • Expectations

  3. Salient features • Separate legal entity • Liability limited to the assets of the LLP • Minimum two partners • No limits on the maximum number of members • No minimum capital limits

  4. Salient features • Partners can be individuals or body corporates • Body corporates include (LLP, foreign LLP, Indian/ Foreign companies) • Possibility of merger and amlagamation of LLPs • Complete flexibility on internal arrangements

  5. Salient features • Accounting standards are not mandatory for an LLP • Audit is required only if: • Contribution exceeds Rs 25 lakhs or • Turnover exceeds Rs 40 lakhs

  6. Limitation of Liability • Every partner is an agent of the LLP and not of other partners • Concept of “jointly and severally liable” does not apply to an LLP • Liability is unlimited in the case of fraud • Designated partner is liable for penalties for non compliance under LLP Act

  7. Limitation of Liability • Liability of the LLP shall be restricted to the extent of available property • Liability is however unlimited under Income Tax Act – Sec 167C

  8. Conversion to LLPs • LLP Act with Sch and Rules provide for: • Conversion of Pvt Ltd into LLP • Conversion of Unlisted Pub Ltd into LLP • Conversion of Partnership firm into LLP

  9. FDI in LLPs • Foreign companies and non residents can become partners in LLP • At present FEMA regulations and FDI rules do not permit FDI in LLP

  10. LLPs- Global Scenario • Most preferred route for professional firms • Operational provisions of LLP Act are very similar to LLP regime in: • US • UK • Singapore

  11. LLPs- Global Scenario • In US & UK, LLPs are regarded as transparent structures for the purpose of taxation.

  12. Taxation of LLPs • LLPs are taxable as partnership firms • Prevailing tax rates are 30% + 3% cess • No surcharge is applicable • Business loss of an LLP can be carried forward for a period of 8 years • Allowable partner’s remuneration is restricted to limits specified

  13. Taxation of LLPs • Share of LLP profits received by partners are fully exempt • Interest and remuneration received by partners are taxable as business income • LLPs are not eligible for presumptive taxation u/s 44AD and 44AE

  14. Alternate Minimum Tax • Tax payable by LLPs claiming: • Deduction u/s 80IA to 80IE • Deduction u/s 10AA (SEZ) Shall be higher of: • Tax as per regular provisions or • 18.5% on total income without claiming above deductions

  15. Alternate Minimum Tax • Excess tax paid can be carried forward over 10 successive years • Carry forward of AMT credit in case of conversion of LLP to Pvt Ltd Co??

  16. Tax benefit on conversion • No capital gains tax in the event of: • Conversion of Pvt Ltd Co into LLP • Conversion of Unlisted Pub Ltd Co into LLP • Conditions: • All assets and liabilities are transferred • All shareholders become partners • Consideration is given only in the form of stake in LLP

  17. Tax benefit on conversion • Shareholders hold 51% in profit share for 5 years • Accumulated profits are not distribution for 3 years • Turnover of the predecessor should not exceed Rs 60 lakhs in any of the 3 prior years

  18. Carry forward of losses & LLP • Conversion to LLP u/s 47(xiiib), loss can be carried forward for fresh 8 years • Change in constitution of LLP- proportionate loss cannot be carried forward – Sec 78

  19. Tax Edge- LLP over Pvt Ltd • No dividend distribution tax • Deemed dividend u/s 2(22)(e) not applicable • Possibility of structuring remuneration to partners based on profitability • Partner’s remuneration is not subject to TDS

  20. Tax Edge- Pvt Ltd over LLP • Tax planning through amalgamation • Reasonable change in share holding (upto 49%) will not affect carry forward of losses

  21. Expectations • Change in set off and carry forward of losses of LLP (change in constitution issues) • Provisions for Amalgamation and Demerger of LLPs to be provided under Income Tax Act • Inclusion of LLPs within the purview of 44AD and 44AE

  22. Expectations • Exemption from capital gains on: • Conversion of Partnership into LLP • Conversion of sole proprietary concerns to an LLP • Transfers between holding and subsidiary LLPs • Turnover limit of Rs 60 lacs to be enhanced if not removed

  23. Expectations • LLPs to be treated at par with Companies for the purpose of FDI • Legislative framework for Multi Professional LLP

  24. Thank YouDivakar Vijayasarathy & AssociatesChennai and Bangalorewww.dvsca.comdivakar@dvsca.com

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