Emerging Business Vehicle Limited Liability Partnership CA Sudhir

“Emerging Business Vehicle” Limited Liability Partnership CA Sudhir Bhansali, Jaipur 1

Index • What is LLP? • Why LLP? Overview • How to Form LLP? • Compliance ? • Who Can Convert as LLP? Formation , Compliance and Conversion • Comparison between different business forms. Comparison 2 CA Bhansali Sudhir 9413801080

Overview • 2003: Naresh Chandra Committee Report highlighted need for LLPs & suggested application of LLPs to Service industry, Chartered Accountants, Lawyers, Architects, etc. • 2005: J J Irani Expert Committee on Company Law recommended introduction of LLPs-suggested small enterprises be included in scope of LLP & there should be a separate LLP Act • 2006: LLP Bill introduced in Parliament • 2007: Bill referred to Parliamentary Standing Committee (PSC) for examination • 2008: Lok Sabha passes New LLP Bill as revised by PSC 3 CA Bhansali Sudhir 9413801080

Overview - LLP Act-2008 Lok Sabha on 12. 2008 President assent on 07. 01. 2009 LLP Rules-2009 Notified on 01. 04. 2009 - Constituent of LLP Act, 2008 81 Section 14 Chapters 4 Schedules Schedule 1 : Mutual Rights and Liabilities in the absence of any matter in LLP Agreement. Schedules 2, 3, 4: Relating to conversion. - LLP Rules- 2009 Chapter- 16 Rules - 40 Forms- 31 Annexure-03 4 CA Bhansali Sudhir 9413801080

What? - Contributions can be tangible, intangible, movable or immovable. - Firm, Private Company and unlisted public Company may be converted into LLP - Limit liability of partners to the extent of their contribution. - Provides flexibility without imposing detailed requirements and on the basis of an mutual agreement. 5 CA Bhansali Sudhir 9413801080

Highlights of LLP Body Corporate Section 2(1)(d) Perpetual Succession Section 3(2) Minimum 2 Partners and Max. -No Limit Section -6 Only with Profit Motive 6 Separate Legal Identity Section 3(1) Non applicability of Partnership Act. Section-4 CA Bhansali Sudhir 9413801080

WHY? - Unlimited No. of Partners - Separate legal entity & body corporate. - Limited Liability of Partners - LLP is liable to the extent of assets. - No Liability of a partner for the wrongful act of other partner. - No exposure to the personal assets of partners except in case of fraud. - Harsh New Companies Act 2013 7 CA Bhansali Sudhir 9413801080

Why? -Easy to Form, Run , manage and to Winding up. - Allows Multi-disciplinary professionals like International professional firm. - Governance through mutual agreement. -No Minimum Contribution - Low compliance burden & cost - Taxation like general partnership. - No wealth Tax. 8 CA Bhansali Sudhir 9413801080

Partners (Sec. -5) / Designated Partners (Sec. -7) Partners (Sec. -5) Any Individual or/and body corporate may be partner including foreigner. Designated Partners (Sec. -7) - Designated partner : - - At least two - Individuals and at least one of them shall be resident in India. - Managing the affairs and ensuring the compliance of laws. - Requirements for Designated Partners : - - Designated Partner identification Number (DPIN) - Only Individual can be the Designated Partners. - One should be resident of India. - In case of Body corporate their nominees can be Designated Partners. 9 CA Bhansali Sudhir 9413801080

Contribution Sec-32 & 33 - Each partner shall bring contribution in LLP - Contribution can be by way of movable, immovable, tangible or intangible. -“Contribution by way of service contract” or “tangible/Intangible (other than cash)” it shall be valued by a Practicing CA/CWA/Approved Value. 10 CA Bhansali Sudhir 9413801080

Rights and Liability of Partner Rights : -Right to participate in Management -For Business Purposes Agent of LLP, not of other Partners. -Ethical duty to comply with all provisions of LLP Act and LLP Agreement. Liability -Limited to the Extent of their Contribution -Not Liable for the wrongful Acts of other Partners -Not Liable for Obligation of LLP arising out of a contract -Unlimited Liability of Partners in case of Fraud. 11 CA Bhansali Sudhir 9413801080

How- Formation ? Formation C- Name for LLP (Form-1) ADeciding the Partners & Designated partners BObtaining DPIN (Form -7) & Digital Signature D- Filing of Incorporation Document (Form-2) ECertificate of Incorporati on F – Filing of LLP Agreement (Form-3) 12 CA Bhansali Sudhir 9413801080

How -Step A -At least 2 Partners - Individuals or Nominee of Body Corporate - Minimum Two Designated Partners out of total no. of Partners –Individuals or Nominee of Body Corporate. -At least One Designated Partner to be Resident of India. 13 CA Bhansali Sudhir 9413801080

How-Step B Obtaining DPIN (Form-7) & Digital Signature - DPIN – Designated Partner Identification Number of - 8 Digit Numeric Numbers. - File Online application in Form 7 for DPIN - Submission of the physical application along with Identity and Address Proof of applicant. 14 CA Bhansali Sudhir 9413801080

How-Step C Name Availability for LLP (Form-1) - e Form 1 to be filed with ROC -The word ‘LLP’ shall be the last word of name. -Not to be identical or nearly resembles to any other Firm, LLP, Body Corporate and trade mark name. (Section-15) - Not to be Prohibited under Emblems ‘Emblems and Names (Prevention of Improper use) Act, 1950 and Rule-18. -If business includes Banking, NBFCs activities, chit funds, Micro finance (A copy of in principle approval of appropriate authority to be obtained). 15 CA Bhansali Sudhir 9413801080

How –Step D Filing of Incorporation Document -e Form 2 – Incorporation Document along with Subscription Sheet and proof of address of registered office of LLP. - Total incorporation fees Documents Form 1 (Name Availability) Form 2 (Incorp. Document) Form 3 (LLP Agreement Reg. ) Form 4 (Partners Consent) Total Incorp. Fee 16 Fee in Rs. Fee Rs. 5 -10 Up to 1 -5 Lac Contrib. 1 Lac Contrib. Fee in Rs. More than 10 Lac Contrib. 200/- 500/- 2000/- 4000/- 50/- 100/- 150/- 200/- 800/- 2400/- 4500/- 5600/- CA Bhansali Sudhir 9413801080

Part E Certificate of Incorporation -On Full Compliances – Registrar Issues Certificate of Incorporation. - Total and conclusive Evidence of Registration of “Limited Liability Partnership” 17 CA Bhansali Sudhir 9413801080

How STEP- F LLP Agreement There should be agreement between the partners interested in forming the LLP. Forms the basis of the formation of LLP and lays down its founding structure. The LLP agreement is an agreement between the Partners and between the LLP & its partners. The basic contents of Agreement are : Name of LLP. Name of Partners & Designated Partners. Form of contribution. Profit Sharing ratio. Rights & Duties of Partners. If no matter in agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable. Every change made in agreement must be intimated ROC. 18 CA Bhansali Sudhir 9413801080

How-Step G -Execution of LLP Agreement is mandatory (Section-23). -In absence of Agreement any matter, Schedule 1 will be applicable. -Filing of details of LLP Agreement through e Form 3 –in 30 days of Incorporation. - Stamp duty on LLP agreement as per State Stamp Act. -Under Income Tax, interest and remuneration or commission to partners will be allowed as deduction if payment is authorized by written LLP Agreement. 19 CA Bhansali Sudhir 9413801080

-All partners entitled to share equally in Capital/profit loss. - Indemnity to the partners on personal liability in proper conduct of business. - Every Partner shall take part in management - No partner shall be entitled to remuneration. - No partner introduced without consent of all partners. - All decisions with majority of partners consent - Minutes to be recorded within 30 days - Render True Accounts - All Disputes will be referred to Arbitration Act 20 CA Bhansali Sudhir 9413801080

Compliances nt Eve f sis o 4, 5, 15 a On B m – 3, For -All above forms to be filled in 30 days -Delay filing of Form - Rs. 100 per day up to 300 days beyond 300 days will attract additional fees and action against DP and LLP. 21 CA Bhansali Sudhir 9413801080 lar egu , 11 R -8 orm F

Filling on the Basis of Event Compliance Consent of Designated Partners U/s Sec 7(3) Change in Partners U/s Sec. 25(2) Form 3 / Form 4 LLP Agreement & Changes therein U/s Sec 23(2) Form 3 Shifting of Registered Office U/s Sec 13(3) Form 15 Change of Name U/S Sec. (19) Form 5 22 CA Bhansali Sudhir 9413801080 Form 4

Regular Maintenance of proper Books and Audit (Sec- 34 &35) Double Entry System and preserved for at least 8 years at RO Audit of Accounts Turnover of 40 Lac or Contribution of 25 Lac and above) Form-8 (Statements of Accounts & Solvency) in 30 days from the end of 6 months (October) from the closure of Year. Form-11 (Annual Return) – Within 60 Days of closure of Year Means May every year. 23 CA Bhansali Sudhir 9413801080

Who Can Convert? Partnership Firm Private Company Unlisted Public Company 24 CA Bhansali Sudhir 9413801080

Conversion of Company/Firm (Sec 55 -58) I - Deciding the Partners & Designated Partners II - Obtaining DPIN & Digital Signature V - Filing of Conversion Application (Form )17/18 III – Reservation of Name for LLP (Form-1) 25 VI - Certificate of Conversion into LLP (Form 19) IV- Filing of Incorporation Document (Form 2) CA Bhansali Sudhir 9413801080 VII - Intimation of Conversion to ROC (Form 14)

Requirement for conversion All the Members of the Company/partners shall be the in LLP with same capital or contribution ratio. • Consent of all Members of the Company/partners. • NOC from Unsecured creditors or from other authority (if required). • Financial Statements certified by Auditor of not more than 30 days of date of the conversion application. • All due returns of ROC/Tax authorities shall be filed. • Conversion Certificate to be filed within 15 days with the ROC in Form 14. 26 CA Bhansali Sudhir 9413801080

Foreign LLP (Sec-59) and Incorporated Outside India (LIOI)] - Section 59 contain provisions regarding establishment of the place of business by Foreign LLP within the India. Filing of Form-27 - 30 days from establishment of place of business in India. - Permission/approval of RBI required for establishment of place of business in India. - Filing fees ( Rs. 5000/-) - Compliance of special Act, If regulated by special Act say Bank , NBFC, SEBI etc 27 CA Bhansali Sudhir 9413801080

Reservation and Renewal of Name by Foreign LLP -Foreign LLP/Foreign Company can reserve its existing name by which it is registered in the Foreign Country. - Form-25 - Filed with the fees of Rs. 10, 000/- Reservation of name valid for 3 years. - Renewal of name by filing fresh From-25 on payment of fees Rs. 5, 000/-. 28 CA Bhansali Sudhir 9413801080

Compromise & Arrangement (Sec-60, 61, 62) -Application is to be made to Tribunal by LLP or creditor or partners for compromise or arrangements. -In case of under winding up, the application can be made by the liquidator. -Tribunal orders for meeting of creditors or partners for decision/resolution by 3/4 th in value of creditors or partners agreeing to any compromise or arrangement. -Tribunal may order sanctioning a compromise or an arrangement. (Sec. 61) -Till the time tribunal is constituted application will be made to High Court. 29 CA Bhansali Sudhir 9413801080

Taxation and winding up S. 2 (23) of Income Tax Act, 1961 (IT Act) to include ‘LLP’ & its ‘Partners’ Partner’s share of profit will be exempt [S. 10 (2 A) of IT Act] Partner’s remuneration will be subject to newly proposed limits DPs must verify & sign on Income Tax Returns. In absence any partner. [S. 140 of IT Act] No Surcharge, Dividend Tax or MAT will be levied. . No Capital gain on conversion of partnership into LLP Winding up: Companies, LLP may be wound up either Voluntary or by the Order of Tribunal 30 CA Bhansali Sudhir 9413801080

Comparison between existing Business Forms and LLP Result Category Partnership Company LLP Prevailing Law ‘The Indian Partnership Act, 1932’ ‘Companies Act, 1956’ ‘The Limited Liability Partnership Act, 2008’ Registration is optional. Registration with ROC. Registration with Registrar of LLP. Formalities of Incorporation Partnership Deed filled with Registrar of firms with requisite fee the MOA & AOA are filled with ROC with prescribed fees The LLP Agreement are filed with the Registrar with the prescribed Fee. Name of Entity Any name as per choice Contain 'Ltd‘ or 'Pvt. Ltd‘ as case. Name to contain 'LLP' as suffix. Legal Proceedings Only registered partnership can sue third party A company is a A LLP is a legal entity can sue and be sued 31 CA Bhansali Sudhir 9413801080

Category Company LLP Distinct entity No Yes Creation Created by Contract Created by Law Cost of Formation Negligible Cost More for Incorporation. Formation of LLP is Rs. 800/- means lower cost Charter Document Partnership Deed MOA/AOA Foreign Participation Foreign Nationals can’t form be a member. be a Partner. Perpetual Succession No Yes Common Seal No Yes Depends Remuneration Can pay of Managerial remuneration to Personnel its partners Can pay remuneration Depend upon LLP to its Directors subject Agreement. to law. 32 Partnership CA Bhansali Sudhir 9413801080 LLP Agreement

Category Partnership Rights / Duties / Partnership Deed. obligation of the Partners / Directors Company LLP AOA and resolution passed by shareholders or directors. Governed by LLP Agreement. Ownership of Assets Partners have joint Independent of the ownership of all members has the assets belong ownership of assets to firm Number of Members Minimum 2 - 20 Tax Liability Flat rate of 30% Plus plus education surcharge as cess as applicable. Flat rate of 30% plus education cess as applicable. Digital Signature No At least one Designated Partner 33 CA Bhansali Sudhir 2 - 200 members in Minimum 2 - no case of Pvt. & Public limitation Minimum 7 - no limitation At least one Director 9413801080 Independent of the partners has ownership of assets

Category Partnership Company Identification Number Not required to Each director is obtain any required to have identification number a DIN Each Designated Partners is required to have a DIN Dissolution By Agreement/ mutual consent/ by court order. Voluntary or by order of National Company Law Tribunal. LLP Admission as As per the partner / member partnership Agreement By buying shares As per the LLP of a company. Agreement Liability of Unlimited. Partners/Members are severally and jointly liable for actions of other partners and the firm. Generally limited to the amount required to be paid up on each share. CA Bhansali Sudhir 9413801080 Limited, to the extent their contribution, except in case of intentional fraud or wrongful act by the partner. 34

Category Partnership Statutory Meetings No provision in BOD and General There is no provision in regard to holding of Meetings are required regard to holding of any meeting to conducted. meeting. Maintenance No concept of any of Minutes minutes Company BOD/ shareholders meetings are required to be recorded in minutes. Annual Filing No return is Annual Financial required to be filed Statement and Annual Return is to be filed with the ROC every year. Share Certificate 35 LLP Agreement may decide to record the proceedings of meetings of Partners /Designated Partners Annual Statement of accounts and Solvency & Annual Return is to be filed with Registrar of LLP every year. Partnership Deed, if Share Certificates are The ownership any. proof of ownership of evidenced by LLP shares held. Agreement. CA Bhansali Sudhir 9413801080

Category Partnership Cessation as A person can partner / cease to be a member partner as per the agreement. Company LLP Member / shareholder can cease to be a member by selling his shares. Can cease to be a partner as per the LLP Agreement or by giving 30 days prior notice. Audit of accounts Tax audit of their Required to get their accounts as per accounts audited the Income Tax Act annually. Voting Rights partnership Agreement Contracts with Partners/ Director Partners are free to Restrictions on Board Partners are free to enter into any regarding some enter into any contract. specified contracts, in which directors are interested. 36 CA Bhansali Sudhir 9413801080 If Turnover is Rs. 40 Lacs or Rs. 25 Lacs contribution in any FY are not required to get their accounts audited. Decided as per the Voting rights shall be number of shares as decided as per the held by the members. terms of LLP Agreement.

Thank you… 37 CA Bhansali Sudhir 9413801080