LLP – What ?

 The Limited Liability Partnership (LLP) is an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement.

LLP - Chronology  Limited Liability Partnership Act, 2008

notified on 31.03.2009. 1st LLP created on 02.04.2009 Conversion of Companies & Firms notified

w.e.f.31-05-2009 4580 LLP registered till date. 25 LLP registered in MP.

Salient features of the LLP Act Is a body corporate and a legal entity separate

from its partners. Perpetual succession. The liability of the partners limited to their

contribution. No partner is liable on account of the independent

or un-authorized actions of other partners or their misconduct.

The liabilities of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose is unlimited for all or any of the debts or other liabilities of the LLP

Salient features of the LLP Act Minimum 2 partners. No cap on maximum

numbers.   Require at least 2 individuals as Designated

Partners, of whom at least one shall be resident in India.

A body corporate may be a partner in LLP. Nominee of the body corporate may be a

designated partner.

Salient features of the LLP Act An annual return is to be filed by every LLP

with the Registrar every year.  This return is to be filed within a period of

sixty days from the end of the financial year.

Penalty of Rs. 25000 to Rs. 5,00,000 on LLP and Rs. 10000 to Rs. 1,00,000 on designated partner for non compliance.

Salient features of the LLP Act A statement of accounts and solvency is to

be filed by every LLP with the Registrar every year. 

These documents are to be filed within a period of thirty days from the end of six months of the financial year.

Penalty of Rs. 25000 to Rs. 5,00,000 on LLP and Rs. 10000 to Rs. 1,00,000 on designated partner for non compliance.

Salient features of the LLP Act A notice is to be filed with registrar when

◦ Any person becomes a partner◦ Any person ceases to be a partner

This notice is to be filed within 30 days.

Penalty of Rs. 2000 to Rs. 25000 on LLP and on designated partners for non compliance.

Salient features of the LLP Act Accounts of LLPs are required to be audited

if : ◦ Turnover exceeds forty lakh rupees, or ◦ Contribution exceeds twenty-five lakh rupees

Salient features of the LLP Act The incorporation document, names of

partners, statement of account and solvency, and annual return are available for inspection by any person.

Salient features of the LLP Act A firm, private company or an unlisted public

company is allowed to be converted into LLP. From the date of registration, all tangible

(moveable or immoveable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company,  shall be transferred to and shall vest in the LLP without further assurance, act or deed.

The firm or the company,  shall be deemed to be dissolved.

LLP and Income Tax Treated as Firm. All the provisions applicable accordingly

including payment of salary and interest to partners.

Income Tax : Conversion to LLP Any transfer of a capital asset or intangible asset

by a private company or unlisted public company to a limited liability partnership or any transfer of shares held in the company by a shareholder as a result of conversion of the company into a limited liability partnership (LLP) in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008 is not treated as transfer.

  Following conditions are required to be fulfilled in

this regard:

Income Tax : Conversion to LLP

all the assets and liabilities of the company immediately before the conversion become the assets and liabilities of the LLP.

all the shareholders of the company immediately before the conversion become the partners of the LLP and their capital contribution and profit sharing ratio in the LLP are in the same proportion as their shareholding in the company on the date of conversion.

the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the LLP.

the aggregate of the profit sharing ratio of the shareholders of the company in the LLP shall not be less than fifty per cent at any time during the period of five years from the date of conversion;

the total sales, turnover or gross receipts in business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; and

no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion.

Income Tax : Conversion to LLP Accumulated loss and the unabsorbed

depreciation of the predecessor company, shall be deemed to be the loss or allowance for depreciation of the successor LLP for the purpose of previous year in which conversion was effected .

Income tax - AMT Before the introduction of the Union Budget

2011-12, LLP was considered as very tax effective business vehicle as it was not subject to Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT).

Now from P.Y. 2011-12, they are also subjected to MAT being called Alternative Minimum Tax –AMT.

However no DDT is payable by LLP.

Income tax - AMT In order to save revenue on account 

of companies converting to LLP’s to take benefits of tax exemptions and to rationalize taxation of LLP’s with companies, Chapter XII-BA has been added to the Income Tax Act 1961 which provides for levy of Alternate Minimum Tax @ 18.5% on the adjusted total income of Limited Liability Partnerships.

As per the provisions of the chapter XII-BA, where the regular income tax payable by a LLP for a particular financial year is less than the corresponding alternate minimum tax computed at the rate of 18.5% on its adjusted total income; such alternate minimum tax shall be deemed to be the income tax liability of such LLP.

 

Income tax - AMT  Adjusted total income of LLP shall be the total

income as increased by the deductions claimed under any section included in chapter VI-A ( C ) (deductions in respect of certain income) and deductions claimed under section 10AA (deduction available to SEZ units).

However LTCG u/s. 10(38) are out of the clutches of this AMT though liable for MAT in case of companies.

Similar to Company, LLP paying AMT can claim its credit for 10 assessment years.

Income Tax – LLP Other issues Sec. 44AD is not applicable

How to Incorporate a New Limited Liability Partnership A Limited Liability Partnership may be

incorporated as per the procedure explained below:

User Registration

Register yourself on the website of Ministry of Corporate Affairs, developed for LLP services, i.e. www.llp.gov.in .

On the home page of the URL www.llp.gov.in click “Register” tab.

Fill in the registration form. On successful registration, system will give a

message that you have been registered successfully.

Obtain Designated Partners Identification Number (DPIN). All designated partners of the proposed LLP shall obtain

“Designated Partner Identification Number (DPIN)” by filing an application individually online in Form -7.

For obtaining DPIN kindly log in by clicking on the “Login” tab on top right corner of the home page, enter your user name and password. After login, click on the E-forms link. List of e-forms will open. Click and open Form 7

Fill up “Form 7” for allotment of DPIN Pay filing fee of Rs.100 online through credit card (master/visa) Submit the application form online Upon approval of the application, DPIN will be generated and

informed to the applicant

Digital Signature Certificate

Partner/Designated partner of LLP/proposed LLP, whose signatures are to be affixed on the e-forms has to obtain class 2 or class 3 Digital Signature Certificate (DSC) from any authorized certifying agency, details of which are available on the home page of the llp portal under the tab “Certifying Authorities”.

Reservation of name Log on to the LLP portal by clicking the “log in” tab on the top right corner of the

homepage and enter your username and password. After login, click “EForms” link. Open Form-1 for reservation of name and fill in the details. Select name of the

proposed LLP (upto 6 choices can be indicated). Any partner or designated partner in the proposed LLP may submit Form-1. In case DPIN is entered as identification number, it should be permanent one. Append digital signatures and submit the e-form Pay the necessary fee by credit card (master/visa). Free name search facility (of existing companies / LLPs) is available on MCA portal

(hyper link available on LLP portal).The system will provide the list of similar/closely resembling names of existing companies/LLPs based on the search criteria filled up.

Details of minimum two designated partners of the proposed LLP, one of them must be a resident of India, is required to be filled in the application for reservation of name. Only individuals or nominees on behalf of the bodies corporate as partners can act as designated partners.

Check status of your application by logging on the portal.

Incorporation of LLP Once the name is reserved by the Registrar, it is available for registration of LLP

for three months. log on to the portal and fill up Form-2 “Incorporation Document and

Subscriber’s Statement” Pay the prescribed registration fee as per the slab given in Annexure A of the LLP

Rules, 2009, based on the total monetary value of contribution of partners in the proposed LLP

Subscriber’s Statement in the e-form 2 is to be digitally signed by a person named in the incorporation document as a designated partner having permanent DPIN and also to be digitally signed by an advocate/company secretary/chartered accountant/cost accountant in practice and engaged in the formation of LLP.

On submission of completed documents the Registrar after satisfying himself about compliance with relevant provisions of the LLP Act will register the LLP, maximum within 14 days of filing of Form-2 and will issue a certificate of incorporation in Form-16.

You can check status of your application by logging on to the portal

Filing of LLP agreement (Form-3) and Partners’ details (Form-4) Form 3 (Information with regard to LLP agreement

and changes, if any made therein) and Form-4 (Notice of appointment, cessation, change in name / address / designation of a partner / designated partner, intimation of DPIN and consent to become a partner/designated partner) should be filed with the prescribed fee within 30 days of the date of incorporation or within 30days of such subsequent changes.

Fees for incorporation

(a) Limited Liability Partnership whose contribution does not exceed Rs. 1 lakh Rs. 500/-

(b) Limited Liability Partnership whose contribution exceeds Rs. 1 lakh but does not exceed Rs. 5 lakhs Rs. 2000/-

(c) Limited Liability Partnership whose contribution exceeds Rs. 5 lakhs but does not exceed Rs. 10 lakhs Rs. 4000/-

(d) Limited Liability Partnership whose contribution exceeds Rs. 10 lakh Rs. 5000/-

Process to Create LLP