Limited Liability Partnership

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Limited Liability Partnership

Introduction

Limited Liability Partnership (LLP) is an alternative form of business organisation. It not only provides the benefits of limited liability but also allows its members the flexibility of organising their internal affairs as a partnership based on a mutually arrived agreement. Liability of the partners is not as limited as that of shareholder in a company. Further there could be unlimited liability on partners, in case that of certain other laws. In an increasingly litigious market environment, a need for a new corporate form providing an alternative to the traditional partnership, with unlimited personal liability on the one hand, and, the statute-based governance structure of the limited liability company on the other, was felt, in order to enable professional expertise and entrepreneurial initiative to combine, organise and operate in flexible, innovative and efficient manner. The Limited Liability Partnership Act, 2008 (the LLP Act), except for certain sections, became operative from 31st March, 2009. The Rules made under the LLP Act have been notified on 1st April, 2009. First LLP was registered on 2-4-2009. Sections 55 to 58 pertaining to conversion of a firm or a company to LLP and Rules pertaining to such conversion became operative from 31st May, 2009. Section 51 and sections 63 to 65 pertaining to winding up of an LLP have become operative from 10th July, 2012.

Salient Features

  • An LLP is a hybrid form of organisation having features of a partnership firm under the Partnership Act, 1932 and a company under the Companies Act, 1956/2013.

  • The LLP’s are administered by the Registrar of Companies.

  • Liability of partners is limited except where an Act is carried out by the LLP with intent to defraud creditors or any other person or for any fraudulent purpose.

  • LLP is a body corporate and a legal entity separate from its partners. It has perpetual succession. Thus, an LLP is capable, in its own name, of acquiring, owning, holding, disposing of property, whether movable, immovable, tangible or intangible. It can sue and can be sued, and is capable of doing and suffering other acts as a body corporate may do or suffer.

  • There is no limit on maximum number of partners.

  • Rights and duties of partners of an LLP and mutual rights and duties between an LLP and its partners are governed by the LLP Agreement between the partners or between the LLP and its partners.

  • Partners are agents of LLP but not the agents of other partners.

  • An individual or body corporate may become a partner in LLP.

  • LLP must have at least two individuals as Designated Partners. At least one of the Designated Partners must be resident in India. A body corporate partner of the LLP may nominate an individual as a Designated Partner.

  • LLP must maintain proper books of account. The accounts may be on cash basis or accrual basis.

  • Accounts of LLP are required to be audited. However, an LLP whose turnover in any financial year does not exceed ₹40 lakhs or the contribution (capital) does not exceed ₹25 lakhs is exempt from the provisions of audit.

  • LLP is required to file Statement of Account and Solvency and Annual Return in the prescribed form every year.

  • LLP is required to file information about the LLP Agreement, changes in the LLP Agreement and changes in particulars of designated partners and partners.

  • Right of a partner to share profits and losses is transferable.

  • A person representing himself (holding out) to be a partner or permitting himself to be represented as a partner of an LLP is liable to person giving credit the LLP relying on such representation.

  • Concept of ‘Whistle Blower’ is incorporated in the LLP Act.

  • A partnership under the Partnership Act, 1932 may be converted into an LLP. A private company or an unlisted public company may also be converted into an LLP provided there is no ‘security interest’ subsisting on the date of application for conversion.

  • Provisions made in the LLP Act for investigation into the affairs of an LLP by inspector to be appointed by the Central Government.

  • Provisions made in the LLP Act for Compromise, Arrangement or Reconstruction of an LLP and amalgamation of LLPs. For this purpose, application to be made to National Company Law Tribunal to be constituted under section 10FB of the Companies Act, 1956/ 408 of the Companies Act, 2013. Pending the constitution of such Tribunal under both Acts, application to be made to the High Court.

  • All filings under the LLP Act to be done electronically. Similarly, the Registrar may furnish information or provide copies and extracts certifying the same by affixing digital signature.

  • Heavy penalties have been provided in case of non-compliance of provisions of the LLP Act.

  • For the purposes of taxation, an Indian LLP is treated on par with a partnership firm under the Partnership Act, 1932.

Integration of LLP system with MCA-21

From June, 2012 LLP system has been integrated into MCA-21. Due to the integration there has been sync between LLP & Company filings.

Designated Partners

Every LLP must have at least two individuals as the designated partners. At least one of the designated partners must be resident in India (i.e., person who has stayed in India for not less than 182 days in the immediately preceding one year). A body corporate may appoint an individual to act as a designated partner. The incorporation document may specify who will be the designated partners. Any partner may become a designated partner or cease to be a designated partner in accordance with the LLP Agreement. Every designated partner must obtain DPIN. MCA has vide its notification dated 5th July, 2011 (w.e.f. 9th July, 2011), amended the Limited Liability Partnership Rules, 2009. Now instead of DPIN, every partner who will be appointed as Designated Partner, will need to apply for DIN and not DPIN. Individuals holding both DPIN and DIN, their DPIN stands cancelled. For obtaining DPIN the individual has to apply in Form DIN-1 under Companies (Director Identification Number) Rules, 2006. Pursuant to this LLP Forms 7 & 10 are cancelled. An individual has to give prior consent to become a designated partner and LLP to file consent in Form 4 has to be filed with the Registrar. Any change in particulars filed in erstwhile Form 7 or DIN-1 for allotment of DPIN, intimate such changes in Form DIN-4 within 30 days of such changes. An LLP may appoint a designated partner within 30 days of vacancy arising for any reason. If there is no designated partner, or if at any time there is only one designated partner, each partner is deemed to be a designated partner. Designated partners are responsible for doing all acts, matters and things that are required to be done for complying with the provisions of the LLP Act. They are liable to all penalties imposed on the LLP.

Formation of LLP

Step I Pre-incorporation

• Identify designated partners

• Register user on MCA Portal

• Apply online for DIN for designated partners (DPIN has been integrated into DIN). DIN application needs to be signed by professional.

• Acquire Digital Signature (class 2 or class 3) of the proposed designated partners

Step II Approval of Name

• Check availability of name using name search facility on MCA Portal

• Apply name reservation in Form 1

• Rule 18 of LLP Rules provides cases in which name will not be reserved

• The name should not be one prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950

Step III Incorporation

• Apply for incorporation of LLP in Form 2

• Submission of Incorporation Document and Subscribers statement along with various required information& documents

• Form 2 to be signed by designated partner and also to be certified by Advocate/CA/CS/Cost Accountants in practice

Step IV Incorporation

• Track online and rectify deficiency if any, pointed.

• Registrar after satisfying himself about completeness in documents and various compliances, issue certificate of incorporation in Form 16, within 14 days of submission of Form 2

Step V Post incorporation compliance

• Simultaneously at the time of filing Form 2 or within 30 days of the incorporation, file Form 3 — LLP Agreement & Form 4 details of Partners

• Further every time any changes occur Forms 3 & 4 need to filed within 30 days of changes

Post incorporation LLP is required to file Forms 8 & 11 for every Financial Year

All LLPs registered up to 30th September of the financial year have to mandatorily close the financial year as on last day of the financial year. E.g.

A. LLPs registered between 1-4-2015 and 30-9-2015

o Have to close financial year on 31st March, 2016

o File Annual Return of LLP in Form 11 by 30th May, 2016 and Statement of Accounts & Solvency in Form 8 by 30th October, 2016.

B. LLPs registered between 1-10-2015 and 31-3-2016

  • Have option either to close financial year as on 31-3-2016 or 31-3-2017 and to file Forms 8 & 11 accordingly.

If LLP fails to file Forms 8 & 11 within time, an additional fee of ₹100/- per day is payable, till the date of actual filing. However tax laws may require closure of financial year on 31st March, irrespective of the date of formation of LLP.

Broad essential clauses of the LLP Agreement

LLP is largely governed by the agreement amongst the partners. Hence drafting of LLP agreement is crucial and it is necessary to cover various aspects governing business and relation amongst partners and between LLP and its partners.

  • Definition/interpretation clause

  • Names of designated partners

  • Lawful business clause

  • Registered Office clause

  • Capital & contribution clause

  • In case of conversion of partnership/Company into LLP appropriate clauses for such takeover

  • General terms amongst the partners inter se

o Admission of new partner retirement of partner

o Cessation of partner

o Resignation of partner

o Expulsion of partner

o Sharing of profit

o Sharing of loss

o Meetings of partners

o Voting rights and its determination

o Rights & duties of partners

o Restriction on partners authority

o Acts requiring consent of requisite number of percentage of the partners

o Indemnity

o Interest & remuneration

o Appointment of auditors

o Removal of auditors

o Signatory to bank accounts, agreement, etc.

o Share in goodwill

o Assignment monetary interest of partners

o Rights of legal representative

o Duration of the LLP

o Voluntary winding up

o Meeting, recording in meeting, etc.

o Changes/amendment in agreement

o Arbitration clause for settlement of disputes

o Address for service of documents

o Changes that may occur in future and the procedure for the same.

Partners and their Relations

Persons who subscribe their names to the ‘Incorporation Document’ are the first partners of the LLP. Any other person may become partner in accordance with the LLP Agreement. It is clarified that as per section 5 of LLP Act, 2008 only an individual or body corporate may be a partner in a Limited Liability Partnership. An HUF cannot be treated as a body corporate for the purposes of LLP Act, 2008. Therefore, a HUF or its Karta cannot become designated partner in LLP. Said clarification leaves scope for interpretation whether HUF through its Karta can become partner in the LLP or not. Mutual rights and duties of partners and mutual rights and duties of LLP and its partners are governed by the LLP Agreement between the partners, or between the LLP and its partners. Information relating with regard to the LLP Agreement and any changes therein is required to be filed with the Registrar in Form 3. In case the LLP Agreement is silent on any matter, provisions in the First Schedule to the LLP Act relating to that matter will apply. It may be noted that First Schedule is not very comprehensive to cover various situations and hence it is necessary to cover various aspects in the LLP agreement. A person may cease to be a partner of the LLP in accordance with the agreement with the other partners or by giving a notice in writing of not less than 30 days. A person also ceases to be a partner on his death, dissolution of LLP, if he is declared to be of unsound mind or applies to be adjudged as an insolvent or is declared as an insolvent. Right of a partner to share profits and losses is transferable. However, the transferee, on account of transfer, does not get right to participate in the management of the LLP or right to access information. The transfer by itself does not result in dissociation of the partner from the LLP or dissolution of the LLP.

Extent of Liability of LLP and its Partners

Every partner of an LLP for the purpose of its business is an agent of the LLP but is not an agent of other partners. Obligations of LLP are solely its obligations and liabilities of LLP are to be met out of properties of LLP. LLP is not bound by anything done by a partner in dealing with another person if the partner had no authority to do the act on behalf of the LLP and the person either knows that the partner had no authority; or did not know or did not believe him to be a partner of the LLP. LLP is liable for wrongful act or omission of a partner done in the course of business or with the authority of the LLP. A partner is not personally liable for obligations of the LLP. However, he is liable for his own wrongful act or omission. A person who represents (holds out) himself to be a partner or knowingly permits himself to be represented as a partner is liable to any person who, based on such representation, has given credit to the LLP. The LLP receiving the credit is liable to the extent of the credit received or any financial benefit derived thereon. If an LLP or any of its partners act with the intent to defraud creditors of the LLP or any other person or for any fraudulent purpose, then the liability of the LLP and the concerned partners is unlimited. However, where the fraudulent act is carried out by a partner, the LLP is not liable if it is established by the LLP that the act was without the knowledge or authority of the LLP.Where the business is carried out with fraudulent intent or for fraudulent purpose, every person who was knowingly a party is punishable with imprisonment and fine. Also the LLP, its partners and designated partners or employees conducting its affairs in a fraudulent manner are liable to pay compensation.

Contributions

The obligation of a partner to contribute shall be as per the LLP Agreement. Contribution may consist of tangible or intangible, movable or immovable property or other benefit to the LLP including contract of services performed or to be performed. The contribution of each partner along with the nature of contribution has to be disclosed in the accounts of the LLP. The monetary value of the non-monetary contribution is to be valued by a Chartered Accountant or a Cost Accountant or an Approved Valuer. A creditor of an LLP, who extends credit relying on the obligation of the partner to make contribution as recorded in the LLP Agreement, may enforce such obligation against the partner.

Accounts and Audit

LLP is required to maintain proper books of account which may be on cash basis or on accrual basis and according to the double entry system of accounting. The books of account should disclose the financial position, particulars of money received and expended, record of assets and liabilities, cost of goods purchased, inventories, work-in-progress, finished goods and cost of goods sold. Books of account should enable the designated partner to ensure that Statement of Account and Solvency complies with the LLP Act. Every LLP is required to file Statement of Account and Solvency in Form 8 within 30 days from the end of six months of the financial year i.e., on or before 30th October. Accounts of LLP are required to be audited. However, an LLP whose turnover in any financial year does not exceed ₹40 lakhs or the contribution (capital) does not exceed ₹25 lakhs is exempt from the provisions of audit. For the first year, the auditor may be appointed any time before the end of the financial year. Thereafter, the auditor is to be appointed at least 30 days prior to the end of the financial year. The designated partners shall appoint the auditors. If they fail to do so, the partners may appoint the auditors. Provisions have been made regarding filling up of casual vacancy in the office of the auditors, reappointment of the auditors, deemed reappointment of the auditors and removal of the auditors. Unlike company there are no provisions under the LLP Act to intimate Registrar about the appointment of the auditor. An auditor may resign or may express his unwillingness to be reappointed by a notice in writing. In either case, he is required to enclose with the notice a statement of circumstances connected with his ceasing to hold office.Within 60 days from the end of the financial year, the LLP is required to file Annual Return in Form 11. Where the annual turnover of the LLP is up to ₹5 crore or the contribution is up to ₹50 lakhs, the Annual Return is to be accompanied by a certificate from a designated partner other than the signatory to the Annual Return, to the effect that the Annual Return contains true and correct information. In other cases, the Annual Return is to be accompanied by a certificate from a Company Secretary.

Conversion to Limited Liability Partnership

The LLP Act provides for the conversion of general partnership firm, private limited & unlisted public company. Act does not prescribe any procedure for conversion of sole proprietary concerns, trusts into LLP. Provisions of section 58(4) are very significant. It being a notwithstanding clause has overriding effect on various laws for the time being in force. As per the said clause all the property assets and liabilities of the firm/company converted into LLP gets vested in the LLP without any further act/deed and erstwhile firm company stands dissolved.

Particulars

Partnership Firm

Private Limited Company

Unlisted Public Company

Applicable to conversion of Statutory provisions:

Firms as defined u/s. 4 of Indian Partnership Act, 1932

Company as defined u/s. 3(1)(iii) of Companies Act, 1956 [as defined u/s. 2(68) of Companies Act, 2013, though no amendment is made]

Company which is not a listed company

a) Section

55

56

57

b) Schedule to Act

Second

Third

Fourth

c) Rules+

38

39

40

Eligibility

Partners of the converted LLP comprises of all the partners of the firm.

a. No security interest subsists at the time of application and

b. Partners of the converted LLP comprises all the shareholders such private/unlisted public company

Filings

  1. An application in format provided in Part A of Form 17 comprising information such as name, registration number and date of registration of firm along with statement of partners in format provided in Part B of Form 17

  2. Fees prescribed in Annexure ‘A’

  3. Incorporation documents & statements referred in section 11.

  4. Statement of consent of partners of the firm, Statement of Assets and Liabilities of the firm duly certified as true and correct by the Chartered Accountant in practice, copy of acknowledgement of latest income tax return

  1. a. An application in format provided in Part A of Form 18 comprising information such as name, registration number and date of registration of private/unlisted public company along with statement of shareholde rs in format provided in Part B of Form 18

  2. Fees prescribed in Annexure ‘A’

  3. Incorporation documents & statements referred in section 11.

  4. Statement of shareholders, Statement of Assets and Liabilities of the company duly certified as true and correct by the Chartered Accountant in practice, copy of acknowledgement of latest income tax return

Certificate of registration

On conversion of firm Registrar shall issue certificate of registration in Form 19.

On conversion of any private/unlisted company registrar shall issue certificate of registration in Form 19.

Information to concern registering authority

The LLP within 15 days shall inform the concern Registrar of firms about conversion of firm into LLP in Form 14.

The LLP within 15 days shall inform the concerned Registrar of Companies about conversion of private/unlisted public company into LLP in Form 14.

Refusal for registration

  1. Registrar may refuse to register such proposed LLP, in case it is not satisfied with the particulars and other information provided along with the registration.

  2. Against such refusal appeal may be preferred before Tribunal.

Effect of registration

  1. LLP as per name specified in the registration certificate comes into existence.

  2. All assets movable/immovable tangible/intangible, interest rights, privileges, liabilities obligations relating to firm, whole of the undertaking of the firm shall be transferred to and shall vest in the LLP without further assurance, act or deed.

  3. Firm shall be deemed to be dissolved and if registered under Indian Partnership Act, 1932 removed from the records maintained thereunder.

  1. LLP as per name specified in the registration certificate comes into existence.

  2. All assets movable/immovable tangible/intangible, interest rights, privileges, liabilities obligations relating to such private/unlisted public company, whole of the undertaking of such private/unlisted public company shall be transferred to and shall vest in the LLP without further assurance, act or deed.

  3. Such private/unlisted public company shall be deemed to be dissolved and removed from the records of the Registrar of Companies.

Registration in relation to property

If any property/asset (e.g. tangible assets like immovable property, intangibles like patent, trade mark, copy rights) of the firm are registered with any authority, LLP as soon as practicable after the date of registration shall take necessary steps as required by the relevant authority (e.g. property registration authority, trade mark/copyright/patent authority) to notify the conversion of firm and particulars of LLP in such form as relevant authority may specify.

If any property/asset (e.g. tangible assets like immovable property, intangibles like patent, trade mark, copyrights) of the private/unlisted company are registered with any authority, LLP as soon as practicable after the date of registration shall take necessary steps as required by the relevant authority (e.g. immovable property registration authority, trade mark/copyright/patent authority) to notify the conversion of firm and particulars of LLP in such form as relevant authority may specify.

Pending proceedings

All the pending proceedings before any court, tribunal or any authority, by or against the firm, on the date of registration may be continued, completed and enforced by or against LLP.

All the pending proceedings before any court, Tribunal or any authority, by or against such private/unlisted public company, on the date of registration may be continued, completed and enforced by or against LLP.

Continuation of conviction, ruling, order or judgment

Any conviction, ruling, order or judgment of any Court, Tribunal or other authority in favour or against the firm may be enforced by or against the LLP.

Any conviction, ruling, order or judgment of any Court, Tribunal or other authority in favour or against such private/unlisted public company may be enforced by or against the LLP.

Existing agreements

Every agreement to which firm was party immediately before its registration as LLP, whether or not such rights/liabilities under the agreement could be assigned, after registration shall have effect as LLP were a party to such agreement and reference to the firm shall mean LLP.

Every agreement to which such company was party immediately before its registration as LLP, whether or not such rights/liabilities under the agreement could be assigned, after registration shall have effect as LLP were a party to such agreement and reference to the such company shall mean LLP.

Existing contracts, etc.

All deeds, contracts, schemes, bonds, agreements, applications, instruments and arrangements subsisting immediately before the registration of firm as LLP, shall be enforceable by or against LLP as LLP was named therein or party thereto instead of firm.

All deeds, contracts, schemes, bonds, agreements, applications, instruments and arrangements subsisting immediately before the registration of such company as LLP, shall be enforceable by or against LLP as LLP was named therein or party thereto instead of such company.

Continuation of employment

Every contract of employment continues to be in force on or after registration as if such LLP were employer thereunder instead of the firm.

Every contract of employment continues to be in force on or after registration as if such LLP were employer thereunder instead of such company

Existing appointments

  1. Every appointment of the firm in any role or capacity which is in force immediately before the date of registration shall take effect and operate from the registration date as if LLP were appointed.

  2. Any authority or power conferred on the firm prior to the registration as LLP shall take effect and operate from the registration date as if LLP was conferred.

  1. Every appointment of such company in any role or capacity which is in force immediately before the date of registration shall take effect and operate from the registration date as if LLP were appointed.

  2. Any authority or power conferred on such company prior to the registration as LLP shall take effect and operate from the registration date as if LLP was conferred. No such provision for liability on erstwhile shareholders.

Notice of conversion

  1. LLP shall ensure that for a period of 12 months from the date of registration every official correspondence shall bear

• Statement that it was converted into LLP from a date of registration

• Name and registration number as per Partnership Act, if applicable

  1. LLP contravening above provisions may be punishable with the fine

• Minimum – ₹10,000

• Maximum – ₹1 lakh

  1. In case continuing default

• Minimum ₹50 &

• Maximum ₹500 for every day of default

  1. LLP shall ensure that for a period of 12 months from the date of registration every official correspondence shall bear

• Statement that it was converted into LLP from a date of registration

• Name and registration number of the company from which it was converted

  1. LLP contravening above provisions may be punishable with the fine

• Minimum – ₹10,000

• Maximum – ₹1 lakh

  1. In case continuing default

• Minimum ₹50 &

• Maximum ₹500 for every day of default

+ Limited Liability Partnership Rules, 2009

Steps in conversion of Firm or private company or unlisted public company into LLP is broadly similar to that of formation of LLP. However it may be noted that the LLP Act does not provide for any procedure for conversion of LLP into partnership firm or company. However using restricting models business along with assets & liabilities can be transferred to partnership firm or company and thereafter LLP can be wound off. It has been clarified provisions of Ss. 55 & 58 of the LLP Act, does not provided for the conversion of the multiple firms into single LLP. In case any Chartered Accountancy partnership firm is converted into LLP in terms of the provisions of the LLP Act then such LLP in accordance with the provisions of S. 58(4)(b) would be deemed to be the auditor of the company. Relevant company may take note in change of status of the auditor through resolution of the Board.

Restructuring of LLPs

Provisions are been laid for

  • Compromise or arrangement of LLP between
  1. LLP and its creditors

  2. LLP and its partners

  • Restructuring of LLP

  • Amalgamation of LLP

Provisions are similar to that of sections 391 to 394 of the Companies Act, 1956 or 230 to 232 of the Companies Act, 2013. However currently no income-tax exemptions are been provided in case of restructuring etc. of LLP. In absence of income-tax incentives, restructuring of LLPs may not take off.

Foreign LLP

Provision has been made regarding establishment of a place of business by a foreign LLP. A foreign LLP within 30 days of establishing a place of business in India has to file with the Registrar Form 27 along with a copy of certificate of incorporation or registration or other document evidencing the constitution of the LLP, full address of the registered/principal office of the LLP in the country of incorporation, address of the principal place of business in India, list of partners and designated partners, if any, and names and addresses of two or more persons resident in India authorised to accept service of notices, documents, etc. Any change in the above particulars has to be intimated in the prescribed forms. If the documents are not in English language, the certified translation is also required to be filed. A foreign LLP is also required to file Statement of Account and Solvency every year. Foreign LLPs may be regarded as company for the purposes of income-tax.

Winding up and Dissolution of LLP

The winding up of an LLP may be either voluntary or by the Tribunal (till the Tribunal is set reference to Tribunal be read as High Court). Section 64 of the LLP Act provides for circumstances in which an LLP may be wound up by the Tribunal. It is governed by the Limited Liability Partnership (Winding Up and Dissolution), Rules 2012 which were notified on 10th July, 2012. It consists of 301 rules and 125 forms. Section 75 of the LLP Act provides for power to the Registrar to strike off the name of a defunct LLP the register of Limited Liability Partnership. Before striking off the name of an LLP, the Registrar is required to give reasonable opportunity to the LLP of being heard. The Registrar may exercise the power suo motu if the LLP is not carrying on any business for two years or more; or on application by the LLP made with the consent of all partners if the LLP is not carrying on business for one year or more.

Miscellaneous

The Government may by notification direct that provisions of the Company Act, 1956/2013 specified in the notification shall apply to any LLP with or without such exception, modification or adoption as specified in notification. Under the LLP Act and LLP Rules every form, application, document or declaration shall be filed in ‘Portable Document Format’ (PDF) through the portal maintained by the Ministry of Corporate Affairs on its website or through any other website approved by the Central Government. Documents so filed are to be authenticated by valid digital signature. In cases where document is required to be filed on non-judicial stamp paper, the LLP has to submit such document in physical form in addition to submission in the electronic form. The Central Government is to set up and maintain secure electronic registry. It will allow access to the public to inspect documents which are required to be in public domain under the LLP Act on payment of fees.

Taxation of LLP

Section 2(23) of the Income-tax Act, 1961 has been amended. The amended definition of ‘firm’ includes an LLP and definition of‘partner’ includes a partner of an LLP. Thus, for the purposes of taxation, an LLP is treated as a firm and all the provisions applicable to a firm will apply to an LLP. Accordingly, provisions contained in section 40(b) relating to remuneration to the working partners and payment of interest to the partners will apply to an LLP. Provisions relating to Minimum Alternate Tax in section 115JB, Dividend Distribution Tax in section 115-O, Deemed Dividend in section 2(22) will not apply to an LLP. Under section 44AD as substituted by the Finance (No. 2) Act, 2009, an LLP is not eligible for the scheme of presumptive taxation. However foreign LLP would be treated as corporate assessee. Accordingly all the provisions as applicable to company would apply to foreign LLP. There is no specific provision in the Income-tax Act, 1961 for exemption from taxation on conversion or a partnership firm under the Partnership Act, 1932 (general partnership) into an LLP. However, in case of conversion of a General Partnership into an LLP, the Explanatory Memorandum to the Finance (No. 2) Bill, 2009 clarifies that since a general partnership and an LLP are considered equivalent, conversion of a general partnership into an LLP will be tax neutral if the rights and obligations of the partners remain the same and there is no transfer of assets or liabilities. The Finance Act, 2010, has introduced section 47(xiiib) w. e. f. 1-4-2011. The newly introduced section exempts from Capital Gains, any transfer of a capital assets by private company or unlisted public company to a Limited Liability transfer or any transfer of shares held in the company by a share holder as a result of conversion of the company into a Limited Liability Partnership. The conversion must satisfy conditions laid down in sections 56 & 57 of the Limited Liability Partnership Act and satisfaction of various conditions prescribed under this section itself. Under section 140 of the Income-tax Act, 1961, return of income of an LLP is to be signed by a designated partner. However, if for any unavoidable reason the designated partner is unable to sign or where there is no designated partner, any partner may sign the return. Under the new section 167C, each partner of an LLP is jointly and severally liable for tax due from an LLP if it cannot be recovered from the LLP unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the LLP. This section is similar to section 179 applicable to directors of a private company. It is materially different from section 188A already existing and applicable to partners of a partnership firm.

Alternate Minimum Tax (AMT)

Effective F. Y. 2011-12, i.e. Assessment Year 2012-13, the Finance Act, 2011 has introduced new Chapter XII-BA titled as ‘Special Provisions Relating to Certain Limited Liability Partnership’. It consists of sections 115JC to 115JF. For details p. 9.54.

RULES GOVERNING FDI IN LLPs

The Government of India has reviewed the extant policy on FDI and decided to permit FDI in LLP firms in a calibrated manner vide Press Note No. 1 (2011 Series), dated 20-5-2011, effective from 1st April, 2011. These FDI guidelines have been incorporated in the consolidated FDI Policy Circular, issued subsequently. FDI has been allowed subject to conditions specified as below:

  1. FDI will be allowed, through the Government approval route, only in LLPs operating in sectors/activities where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions (such as ‘Non-Banking Finance Companies’ or ‘Development of Townships, Housing, Built-up infrastructure and Construction-development projects’, etc.).

  2. LLPs with FDI will not be allowed to operate in agricultural/plantation activity, print media or real estate business.

  3. An Indian company, having FDI, will be permitted to make downstream investment in an LLP only if both— the company, as well as the LLP — are operating in sectors where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance conditions.

  4. LLPs with FDI will not be eligible to make any downstream investments.

  5. Foreign Capital participation in LLPs will be allowed only by way of cash consideration, received by inward remittance, through normal banking channels or by debit to NRE/FCNR account of the person concerned, maintained with an authorised dealer/authorised bank.

  6. Investment in LLPs by Foreign Institutional Investors (FIls) and Foreign Venture Capital Investors (FVCIs) will not be permitted. LLPs will also not be permitted to avail External Commercial Borrowings (ECBs).

  7. In case the LLP with FDI has a body corporate that is a designated partner or nominates an individual to act as a designated partner in accordance with the provisions of section 7 of the LLP Act, 2008, such a body corporate should only be a company registered in India under the Companies Act, 1956/2013 and not any other body, such as an LLP or a trust.

  8. For such LLPs, the designated partner "resident in India", as defined under the ‘Explanation’ to Section 7(1) of the LLP Act, 2008, would also have to satisfy the definition of "person resident in India", as prescribed under Section 2(v)(i) of the Foreign Exchange Management Act, 1999.

  9. The designated partners will be responsible for compliance with all the above conditions and also liable for all penalties imposed on the LLP for their contravention, if any.

  10. Conversion of a company with FDI, into an LLP, will be allowed only if the above stipulations except clause (e) are met and with the prior approval of FIPB/Government.

However, recently RBI vide Notification No. FEMA 298/2014-RB dated 13-3-2014 has amended in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000. Post issue of RBI notification FDI in LLP is operational.

It has provided that : A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India, (other than an entity in Pakistan or Bangladesh), not being a registered Foreign Institutional Investor or Foreign Venture Capital Investor or Qualified Foreign Investor registered with SEBI or Foreign Portfolio Investor registered in accordance with SEBI guidelines, may contribute foreign capital either by way of capital contribution or by way of acquisition / transfer of profit shares in the capital structure of an LLP under Foreign Direct Investment, subject to the specified terms and conditions.

Chart 1

Forms under the Limited Liability Partnership Act, 2008

Form No.

Rule

Section

Particulars

Time Limit

1

18(4), 18(5)

16(1)

Application for reservation or change of name

N.A.

2

11, 13

11(2)

Incorporation document and statement

(Form 2 also has addendum)

Within 3 months from the approval of name by the ROC

2A

-

-

Details in respect of designated partners and partners of Limited Liability Partnership

(Addendum to Form 2)

Within 7 days from the validity period of the approved name.

3

21

23(2)

Information relating to LLP Agreement and changes, if any, made therein

Within 30 days of Incorporation

4

8

7(4)

Notice of appointment of partners/designated partner and changes among them, intimation of DPIN by LLP to the Registrar and consent of partner to become a partner/designated partner (Form 4 also has addendum)

Within 30 days of Appointment

22, 10

25(2), 25(3)

Notice of appointment of partners and the changes among them or consent of incoming partner to become a partner/designated partner

Within 30 days of change

4A

-

-

Notice of appointment, cessation, change in particulars of a partners

(Addendum to Form 4)

Within 7 days of filing of Form 4

5

20(2)

19

Notice of change of name of LLP

Within 30 days of complying requirement u/r 20(1)

6

22

25(1)

Intimation of particulars of name or address of a partner / changes in particulars to the LLP by the partner

Within 15 days

DIR-3 (Old Form DIN 1)

10(1)

7(6)

Application for allotment of Directors Identification Number (Post Integration Designated Partner Identification Number has been integrated under DIN)

N.A.

8

24(8)

34(2)

Statement of Account & Solvency

Within 30 days from the end of 6 months of the Financial Year

While winding up of LLPLLP Liquidator to report quarterly to Partners/Creditors

Before the end of the following quarter

9

7, 10(8)

7(3)

Consent to act as designated partner

Prior consent

DIR-6 (Old Form DIN 4)

10(9)

7(6)

Intimation of changes in particulars by designated partner

Within 30 days from date of such change

11

25(1)

35(1)

Annual return of LLP

Within 60 days of closure of its Financial Year#

12

16(3)

13(2)

Intimation of other address for service of documents

Within 30 days of complying requirements u/r 16(2)

13*

24(1)

Specimen of notice of cessation by a ceasing partner to other partner

14

33, 38, 39, 40

58(1)

Intimation to the Registrar of Firms/Registrar of Companies for conversion of firm/company into LLP

Within 15 days from date of registration

15

17(2), 17(5)

13(3)

Notice of change of place of registered office

Within 30 days of complying requirements under rules 17(1), 17(4)

16#

12(1)

Certificate of Incorporation

17

38(1)

Para 4 of Second Schedule

Application and statement by a firm for its conversion into LLP

18

39, 40

Para 3 of Third Schedule and Para 4 of Fourth Schedule

Application and statement by a private company/unlisted public company for its conversion into LLP

19#

32, 38, 39, 40

Para 5 of Second Schedule, Para 4 of Third Schedule and Para 5 of Fourth Schedule

Certificate of Registration on conversion

20*

35(1)

60

Affidavit in support of summons

21*

35(2)

60

Summons for direction to convene a meeting under s. 60(1)

22

41(4), 35(11), 35 (17)

39, 60, 60(3), 62(3)

Notice of intimation of order of Court/Tribunal/CLB/CG to the Registrar

Within 30 days of making the order u/r 35(15)

23

19

18

Application for direction to LLP to change its name

Within 24 months from the date of registration of the LLP under that name

24

37(1)

75

Application to the Registrar for striking off name

25

18(3)

59

Application for reservation/renewal of reservation of name by Foreign LLP/foreign company

26*

35(4)

Form of proxy

Not later than 48 hours before the meeting

27

34(1)

59

Registration of particulars by foreign LLP

Within 30 days of establishing a place of business in India

28

34(3)

59

Alteration in case of foreign LLP (a) the incorporation document, or document or constituting of foreign LLP, (b) the registered or principal office of foreign LLP, or (c) partner or designated partner of a foreign LLP

Within 60 days of the close of the F.Y.

29

34(3), 34(8)

59

Alteration in case of foreign LLP in certificate of incorporation or name and address of persons authorised to accept service or alteration of place of business of foreign LLP in India or cessation of business in India

Within 30 days from the date on which the alteration was made

30#

34(10)

59

Certificate for establishment of place of business foreign LLP

31

41(1)

39

Application for compounding of an offence under the Act

32

36(6)

Rectification of Defects or incompleteness (Addendum)

Within the time limit prescribed u/r 36(7)

* These forms are not available in the electronic form

# For the year ended 31st March, 2012 the due date was extended to 31st July, 2012 due to the integration of LLP system with MCA-21.

# These forms are to be issued by the Registrar.

Chart 2

Fees payable under the Limited Liability Partnership Act, 2008

Sr. No.

Particulars

Fees

1.

For registration of Limited Liability Partnership including conversion of a firm or a private company or an unlisted public company into Limited Liability Partnership:

a) Limited Liability Partnership whose contribution does not exceed ₹1 lakh

₹500/-

b) Limited Liability Partnership whose contribution exceeds ₹1 lakh but does not exceed ₹5 lakhs

₹2,000/-

c) Limited Liability Partnership whose contribution exceeds ₹5 lakhs but does not exceed ₹10 lakhs

₹4,000/-

d) Limited Liability Partnership whose contribution exceeds ₹10 lakhs

₹5,000/-

2.

The difference between the fees payable on the increased slab of contribution and the fees paid on the preceding slab of contribution shall be paid through Form 3

3.

For filing, registering or recording any document, form, statement, notice, Statement of Accounts and Solvency, annual return and an application along with the Statement for conversion of a firm or a private company or an unlisted public company into LLP by this Act or by these rules required or authorised to be filed, registered or recorded:

a) Limited Liability Partnership whose contribution does not exceed ₹1 lakh

₹50/-

b) Limited Liability Partnership whose contribution exceeds ₹1 lakh but does not exceed ₹5 lakhs

₹100/-

c) Limited Liability Partnership whose contribution exceeds ₹5 lakhs but does not exceed ₹10 lakhs

₹150/-

d) Limited Liability Partnership whose contribution exceeds ₹10 lakhs

₹200/-

3A.

For filing, registering or recording notice of appointment, cessation, change in name, address, designation of a partner or designated partner, intimation of designated partner identification number and consent to become a partner or designated partner in Form 4

₹50/-

4.

Fee for any application other than application for conversion of a firm or a private company or an unlisted public company into LLP shall be as under:—

a) An application for reservation of name u/s. 16

₹200/-

b) An application for direction to change the name u/s. 18

₹10,000/-

c) Application for reservation of name under rule 18(3)

₹10,000/-

d) Application for renewal of name under rule 18(3)

₹5,000/-

e) Application for obtaining DPIN under rule 10(5)

₹100/-

f) Application for striking off name of defunct LLP under rule 37

₹500/-

5.

Fee for inspection of documents or for obtaining certified copy thereof shall be as under:—

a) For inspection of documents of an LLP under section 36

₹50/-

6.

b) For Copy or extract of any document under section 36 to be certified by Registrar

₹5/- per page or fractional part thereof

Fee for filing any form or a Statement of Account and Solvency or a notice or a document by foreign Limited Liability Partnership

a) For filing a document under rule 34(1)

₹5,000/-

b) Any other form or Statement of Account and Solvency or notice or document

₹1,000/-

Chart 3

Penalties under the Limited Liability Partnership Act, 2008

Default under Section

Default in Compliance

Penal Section

Person Liable

Amount of Penalty/ Punishment

Imprisonment

7(1)

Appointment of designated partners

10(1)

LLP & Partners

Minimum ₹10,000 Maximum ₹5 lakh

No

7(4)

Filing of consent of designated partners

10(2)

LLP & Partners

Minimum ₹10,000 Maximum ₹1 lakh

No

7(5)

Satisfaction of conditions and requirements by designated partners

10(2)

LLP & Partners

Minimum ₹10,000 Maximum ₹1 lakh

No

8

Compliance of provisions by designated partners including filing of documents

10(2)

LLP & Partners

Minimum ₹10,000 Maximum ₹1 lakh

No

9

Appointment of designated partner within 30 days of vacancy

10(2)

LLP & Partners

Minimum ₹10,000 Maximum ₹1 lakh

No

11(1)(c)

False or untrue statement while incorporating LLP

11(3)

Concerned Person

Minimum ₹10,000 Maximum ₹5 lakhs

Up to 2 years

13(3)

Contravention of section 13 relating to registered office or change therein

13(4)

LLP & Partners

Minimum ₹2,000 Maximum ₹25,000

No

17(1)

Failure to comply with Government’s directions u/s 17(1) to rectify any undesirable name

17(2)

LLP

Minimum ₹10,000 Minimum ₹5 lakhs

No

Designated Partner

Minimum ₹1,000 Maximum ₹1 lakh

20

Carrying business under LLP without registering as LLP

20

Any person

Minimum ₹50,000 Maximum ₹5 lakhs

No

21(1)

Non publication of name, address and limited liability on invoices, official correspondence, etc.

21(2)

LLP

Minimum ₹2,000 Maximum ₹25,000

No

25(2)

Non-filing particulars of changes in partnership of LLP within 30 days

25(4)

LLP & Designated Partners

Minimum ₹2,000 Maximum ₹25,000

No

25(1)

Non-intimation by partner about change of particulars of name, address, etc. within 15 days of change

25(5)

Concerned Partner

Minimum ₹2,000 Maximum ₹25,000

No

30(1)

Carrying business with fraudulent intention/ purpose

30(2)

Every person party to such acts

Minimum ₹50,000 Maximum ₹5 lakhs

Up to 2 years

30

Conducting affairs of LLP in fraudulent manner

30(3)

LLP Designated Partner, Partners, Employee

Compensation to be paid to persons suffering loss

No

34(1) to 34(4)

Maintenance of proper books of account, filing annual statement of account, audit of LLP accounts

34(5)

LLP

Minimum ₹25,000 Maximum ₹5 lakhs

No

Designated Partner

Minimum ₹10,000 Maximum ₹1 lakh

35(1)

Filing of annual return within 60 days

35(2)

LLP

Minimum ₹25,000 Maximum ₹5 lakhs

No

35(3)

Designated Partners

Minimum ₹10,000 Maximum ₹1 lakh

No

37

False statement in any returns statement or documents

37

Concerned Person

Minimum ₹1 lakh Maximum ₹5 lakhs (save as otherwise expressly provided)

Up to 2 years

38(1), (2)

Failure without excuse to comply with summons or requisition by Registrar

38(3)

Concerned Person

Minimum ₹2,000 Maximum ₹25,000

No

47

Failure to produce evidence or documents or information or failure to appear before inspector without reasonable cause

47(5)

Any Person

Minimum ₹2,000 Maximum ₹25,000 Further fine of up to Minimum ₹50 and ₹500 but not less than per day of continuing default

No

49

Guilty of offence arising out of investigation report

50

Any Person

Liable for prosecution

No

60(3)

Filing of Tribunal’s order by LLP with Registrar within 30 days in case of compromise of arrangement

60(4)

LLP Designated Partner

Minimum not specified Maximum ₹1 lakh

No

62(3)

Filing of certified copy of Tribunal order in reconstruction/ amalgamation of LLP within 30 days before Registrar

62(4)

LLP Designated Partner

Up to ₹50,000

No

Non-compliance of any order passed by Tribunal

73

Any Person

Up to ₹50,000

Yes up to 6 months

Any offence for which no punishment is expressly provided

74

Any Person

Minimum ₹5,000 Maximum ₹5 lakhs Further fine up to ₹50 per day of continuing default

No

Para 17(1) II Sche-dule

Notice of conversion in correspondence for 12 months

Para 17(2) II Sche-dule

LLP

Minimum ₹10,000 Maximum ₹1 lakh Further fine between₹50 and ₹500 per day of continuing default

No

Para 15(1) III Sche-dule

Notice of conversion in correspondence for 12 months

Para 15(2) III Sche-dule

LLP

Minimum ₹10,000 Maximum ₹1 lakh Further fine between₹50 and ₹500 per day of continuing default

No

Para 16(1) IV Sche-dule

Notice of correspondence for 12 months

Para 16(2) IV Sche-dule

LLP

Minimum ₹10,000 Maximum ₹1 lakh Further fine between₹50 and ₹500 per day of continuing default

No

Notes

  1. In terms of section 70, in case of second and subsequent offence the person will be punishable with imprisonment provided and in cases where fine is prescribed; it will be twice the amount of fine for such offence.

  2. Under section 39, an offence which is punishable with fine only may be compounded. Compounding fee may extend to the maximum amount of fine prescribed for the offence.

  3. Under section 76, where offence is committed by an LLP and it is proved that it was committed with the consent or connivance of a partner or a designated partner or is attributable to gross neglect of a partner or a designated partner, then the LLP as well such partner or designated partner shall be guilty and punishable.

Chart 4

Notifications under the Limited Liability Partnership Act, 2008

Notification No.

Date

Particulars

GSR 692 (E) [F. No. 1/11/2012 – CL – V]

14-9-2012

Limited Liability Partnership (Second Amendment) Rules, 2012 – Amendment in Form No. 11 Annual Return of LLP

GSR 550 (E) [F. No. 1/7/2012 – CL – V]

10-7-2012

Limited Liability Partnership (Winding up and Dissolution) Rules, 2012 – Suppression of LLP (Winding up and Dissolution) Rules, 2010

GSR 549 (E) [F. No. 1/7/2012 – CL – V]

10-7-2012

Notified date for certain provisions of LLP Act – Amendment in Notification No. 891(E), dated 31-3-2009

GSR 485(E)

21-6-2012

Limited Liability Partnership (Amendment) Rules, 2012 – Corrigendum

GSR 430 (E) [F. No. 1/1/2011 – CL.V]

05-6-2012

Limited Liability Partnership (Amendment) Rules, 2012 – Amendment in Rules 8, 18, Annexure A and substitution of Form Nos. 1 to 31

F. No. 2/17/2011- CLV

04-11-2011

LLP (Amendment) Rules, 2011 – Amendment in Rule 24

GSR 680 (E) [ F. No. 2/17/2011- CLV]

14-9-2011

Limited Liability Partnership (Second Amendment) Rules, 2011 – Substitution of Form 8

GSR 506 (E) [F. No. 2/1/2011 – CL. V]

05-7-2011

Limited Liability Partnership (Amendment) Rules, 2011 – Amendment in Rules 2, 10 and deletion of Forms 7 and 10

F. No. 2/2/2011- CL.V

23-5-2011

Section 2(7), r.w. section 226 of The Companies Act, 1956 – Body Corporate or Corporation– Definition of – Limited Liability Partnership specified as a body corporate for the purpose of section 226(3)(A)

GSR 914(E)

15-11-2010

Limited Liability Partnership (Second Amendment) Rules, 2010 – Substitution of Form 10 in the Annexure

GSR 266(E)

30-3-2010

Limited Liability Partnership (Winding up and Dissolution) Rules, 2010

GSR 24(E)

11-1-2010

Limited Liability Partnership (Amendment) Rules, 2010 – Substitution of Rules 10, 12 Forms 1 to 7 in the Annexure and Amendment in Rule 21 and Annexure ‘A’

GSR 6(E)

6-1-2010

Application of certain provisions of Companies Act, 1956 to Limited Liability Partnerships with modifications

GSR 386(E)

4-6-2009

Section 78 of the Limited Liability Partnership Act, 2008 – Power to alter schedules– Amendment in Schedules

GSR 385(E)

4-6-2009

Limited Liability Partnership (Amendment) Rules, 2009 – Amendment in Rule 32

SO 1324(E)

22-5-2009

Section 79 of the Limited Liability Partnership Act, 2008 – Power to make rules – Enforcement of certain rules

SO 1323(E)

22-5-2009

Notified Date for certain provisions of Limited Liability Partnership Act

GSR 229(E)

1-4-2009

Limited Liability Partnership Rules, 2009

SO 891(E)

31-3-2009

Notified Date for certain provisions of the Limited Liability Partnership Act

Chart 5

Circulars under the Limited Liability Partnership Act, 2008

Circular No.

Date

Particulars

37/2014

14-10-2014

Clarification with regard to Trust/trustee as a partner in the Limited Liability Partnerships (LLPs).

2/2014

11-2-2014

Use of word 'National' in the names of Companies of Limited Liability Partnerships (LLPs)

13/2013

29-7-2013

Whether Hindu Undivided Family (HUF)/its Karta can become Partner/Designated Partner (DP) in Limited Liability Partnership (LLP)

9/2013

30-4-2013

Conversion of firm into Limited Liability Certificate – Clarification

15/2012

29-6-2012

Extension of time in Filing of Annual Return by the Limited Liability Partnerships (LLPs)

13/2012

6-6-2012

Extension of time in Filing Annual Return by Limited Liability Partnerships

2/2012

1-3-2012

Registration of Companies or LLPs which have one of their objects is to carry on the profession of Chartered Accountant, Cost Accountant, Architect, Company Secretary etc.

44/2011

8-7-2011

Circular for the Integration of DPIN with the DIN

17/165/2011-CL-V (PT)

10-10-2011

Registration of Companies or LLPs which have one of their Objectives to do Business of Architect

30A/2011

26-5-2011

Clarification regarding 'Body Corporate' for the purpose of section 226(3)(a) of the Companies Act,1956.

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