Limited Liability Partnership ('LLP' for short) is the new form business entity. It is a hybrid entity incorporating features of a body corporate and the partnership. LLP is prevalent across the globe. They are commonly used by private equity/venture capital funds and professionals. In United States, Canada, China, Poland and Germany LLPs can be formed only by professional service providers. In USA this concept has been introduced from 1991. In U.K. LLPs are treated as incorporated entities for legal purposes. In Singapore LLPs are governed by LLP Act, 2005 which is similar to UK. In India LLP Act, 2008 was enacted which is similar to UK and Singapore. Indian LLP Act is unique in tax treatment.
LLP Act, 2008 was notified on 01.04.2009. First LLP was registered on 02.04.2009. As on 15.10.2010 2526 LLPs have been registered.
LLP shall be a body corporate and a legal entity separate from its partners having perpetual succession. It is a form of business model which-
is organized and operates on the basis of agreement;
provides flexibility without imposing detailed legal and procedural requirements;
enables professionals/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner.
In 1997 Naresh Chandra Committee in its report on regulation of private companies and partnership had suggested that the LLP form should initially be made available only to those providing defined professional services like Advocates, Chartered Accountants, Companies Secretaries like professionals as these professions are already governed by regulations that adequately controls and disciplines errant professional conduct. The said Committee further suggested that LLPs may be extended, at a later stage, to other services and business activities, once the experience gained with this form of organization has been evaluated and tested. Now LLPs have not been restricted only to professional services and all activities are permissible.
The following are the features of LLP:
LLPs are governed by Limited Liability Partnerships Act, 2008;
The essential requirement for setting up LLP is carrying on a lawful business with a view to profit;
Foreigners can incorporate LLP in India provided at least one designated partner is resident of India;
LLP is to be registered with Registrar of Companies;
LLP is governed by LLP agreement;
No minimum paid up capital is specified for LLPs;
Every contribution to the capital of LLPs shall have a monetary value, determined by a Chartered Accountant but no guidelines have been prescribed yet;
A contribution of a partner may consist of tangible, moveable or immovable or intangible property or benefit to LLP including money, promissory notes, other agreements to contribute cash or property and contracts for services or to be performed.
LLP agreement is to be filed with Registrar of Companies;
LLP identification number is to be obtained from Registrar of Companies;
Minimum number of Members in LLP is 2 and maximum number is no limit;
LLP has to identify designated partner;
Liability of members is limited;
LLP can sue or be sued in the name of LLP;
Name of LLP should be obtained in accordance with LLP Act;
Board meetings is depending upon the procedure in the LLP agreement;
Share holders meeting procedure as that in Companies Act is not applicable to LLPs;
Preparation of minute books is depending upon the procedure prescribed in LLP agreement;
It is mandatory to appoint auditors;
All LLPs are compulsorily required to get their accounts audited by a Chartered Accountant. However compulsory of audit of accounts is not required when the turnover in any financial year does not exceed 40 lakh or the contribution does not exceed 25 lakh;
Maintenance of statutory registers as in Companies Act are not applicable to LLPs;
Maintenance of Books of accounts is compulsory for LLPs;
Filing of annual return and balance sheet with the Registrar of Companies is mandatory;
It is restricted to invite to the public to subscribe for any shares or debentures of the LLP;
It is restricted for the LLP to list on stock exchange;
It is possible to issue of shares/interest other than cash;
Merger and Amalgamation is possible in LLPs;
LLP is to obtain PAN/TAN from Income Tax Department;
Filing of Income Tax Return is compulsory;
Accounting Standards for LLP has yet been prescribed;
Tax Rate to LLP is 30.90%;
Minimum Alternative Tax is not applicable to LLPs;
Dividend Distribution Tax is not applicable to LLPs.
Every year on or before six months from the end of the financial year, each LLP is required to file a Statement of Accounts and Solvency in form signed by designated partners.
The Registrar of Companies is having the following powers on LLP:
Under Section 36 to inspect documents such as incorporation, details of partners, statements of accounts, returns etc;
Under Section 37 to levy penalties for submission of false statements;
Under Section 38 to obtain any such information from the LLP as it considers necessary for the purposes of LLP Act;
The Central Government is having the following powers on LLP:
Under Section 39 to compound the offences;
Under 43 to appoint competent persons to investigate the affairs of the LLP;
Under Sec. 79(2) to make rules for 39 items.
The Government is also considering FDI in LLPs also. For this purpose the Department of Industrial Policy and Promotion has issued four discussions papers and now it has come out with the fifty discussion paper on 'FDI in LLPs. The increasing number registered in LLPs and also the government initiatives like introducing FDI etc., will help the LLPs to develop faster.
