Introduction To Limited Liability Partnership (LLP)

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Introduction To Limited Liability Partnership
(LLP)
- Tushar Mittal
2
Introduction

• Limited Liability partnerships concept was
  introduced in order to adopt -
• a corporate form
• With Organizational Flexibility
• Tax Status of Partnership
• Limited Liability for its Partner.

3
Features

• Perpetual Succession
• Separate Legal Entity from its Partner
• Liability of LLP, to the full extent of its
  Assets
• Liability of Partners of LLP, limited to their
  agreed contribution in the LLP.
• Registered Body Corporate.

4
LLPs International Experiences

• United State 1990 with two states
• Get its legal status by Uniform Partnership Act,
  1996 with 40 states.
• United Kingdom- Limited Liability Act 2000
• Under this act the LLP has Fiscal Transparency.
• China- Special General Partnership
• Only for Knowledge based profession and technical
  service industry.

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LLPs International Experiences

• Also adopted by many well-known economies like-
• Japan
• France
• Romania
• Australia

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Introduction to LLPs In India

• The LLP Bill was tabled in Rajya Sabha on 15th
  Dec 2006
• By Ministry Of Company Affairs
• Bill is divided into XIV Chapters, having 73
  Sections Four Schedules.
• Broadly based on the UK and Singapore LLP Acts.

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Features of LLP Bill2006

• Bill defines LLP as a Partnership formed
  Registered under this Act.
• It stipulates two Requirements-
• A Partnership
• Registration under this act.

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Features of LLP Bill2006

• 1. LLP shall be-
• Body Corporate
• Separated From its Member
• Two or more person
• Carrying on a lawful business
• With a view to profit
• Having its Perpetual Succession

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Features of LLP Bill2006

• 2. The mutual rights and duties of partners of an
  LLP inter se and those of the LLP and its
  Partners shall be governed by an agreement
  between partners or between the LLP and the
  partners subject to the provisions of the
  propose legislation.

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Features of LLP Bill2006

• 3. LLP will be-
• a separate legal entity,
• liable to the full extent of its assets,
• with the liability of the partners being
  limited to their agreed contribution in the LLP.

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Features of LLP Bill2006

• 4. Number of Partners-
• At least two partners and,
• At least two individuals as Designated Partners,
• Of whom at least one shall be resident in India.

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Features of LLP Bill2006

• 5. The LLP shall be under obligation-
• to maintain annual accounts reflecting true and
  fair view of its state of affairs.
• to filed the statement of accounts and solvency
  with the Registrar every year.
• To get audited its accounts, subject to any class
  of LLPs being exempted from this requirement by
  the central government.

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Features of LLP Bill2006

• 6. The Indian Partnership Act, 1932 shall not be
  applicable to LLPs.
• 7. Other entities may convert themselves to LLP
  in accordance with provisions of law.
• 8. The Central Govt. shall have powers to make
  rules for carrying out the provisions of the
  proposed legislation.

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Taxation Issues

• The concept shows the way one to the following
  two implications in respect of tax treatment-
• First way-
• LLP will pay tax on its profit after deduction of
  business expenditure, salary and interest paid to
  partners.
• Partners will be liable to pay tax on salary and
  interest receipts, whereas the share in profit is
  exempt. (same as current provisions of Income Tax
  Act,1961)

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Taxation Issues

• Second way-
• The profit in the hands of the LLP partners will
  be taxed.
• The LLP will have Tax Transparency.
• In other words, LLP is not subject to taxation.
  Only the members are liable to taxation.

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Taxation Issues

• Out of these two options the second option
  appears to be logical and acceptable on account
  of the following two reasons-
• The Naresh Chandra Committee Report as well as
  Concept Paper on LLPs which was released by the
  Minister of Company Affairs had clearly
  recommended tax transparency for LLPs.

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Taxation Issues

• ii. The Bill has vide its first Schedule (Clause
  No. 5) prohibited partners of LLPs from accepting
  any remuneration.
• (This implies that they will be subject to the
  Income Tax in respect of their share of profits
  received by them.)

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CONCLUSION

• LLPs have been in trend in various other
  countries such as UK, USA, Australia, Singapore
  etc.
• It is the form of business entity, which allows
  individual partners to be restricted from joint
  liability of partners in a particular firm.
• This is a great relief to the partners,
  particularly professional like Company
  Secretaries, Chartered Accountants, Cost
  Accountants, Advocates and other professionals.

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CONCLUSION

• But it is necessary to made suitable changes in
  the provisions of income tax related to taxations
  issues, because taxation is one of the major
  motivational factor other than limited liability
  for the partner of LLPs as individual partner can
  take benefit of Slab Rates of income tax.
• The introduction of LLPs in the India is a good
  beginning towards a long journey.

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CONCLUSION

• The hybrid structure of LLP will facilitate
  entrepreneurs, service providers and
  professionals to organize and operate in an
  innovative and efficient manner for effectively
  competing in the global market.