The Limited Liability Partnership Act, 2008

Limited Liability Partnership Act, 2008
LLP Act
An Act to make provision for the formation and regulation of limited liability partnerships and for matters connected therewith or incidental thereto.
Citation No. 6 of 2009
Enacted by Parliament of India
Date enacted 12 December 2008
Date assented to 7 January 2009
Date commenced 31 March 2009
Status: In force

The Limited Liability Partnership Act, 2008 was enacted by the Parliament of India to introduce and legally sanction the concept of LLP in India. Unlike the general partnerships in India, LLP is a body corporate and legal entity separate from its partners, have Perpetual succession and any change in the partners of a LLP shall not affect the existence, rights or liabilities of the LLP.[1]

Overview

LLP is a corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, as a hybrid of companies & partnerships providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.[2]

Definitions

Foreign Limited Liability Partnership: A LLP formed, incorporated or registered outside India which establishes a place of business within India.

Partner: Partner means any person who becomes a partner in the LLP in accordance with the LLP agreement.

Financial Year: The period from the 1st day of April of a year to the 31st day of March of the following year. In the case of a LLP incorporated after the 30th day of September of a year, the financial year may end on the 31st day of March of the next following year.

Salient Features

LLP Agreement

Any written agreement between the partners of the LLP or between the LLP and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that LLP. It is not necessary to enter into an LLP agreement as per LLP Act,2008. In the absence of LLP agreement, the mutual rights of partners & in relation to LLP will be determined as per schedule I of the LLP Act,2008.[3]

Foreign Direct Investment in LLPs

Foreign Direct Investment in LLP is allowed, with the specific approval of the government, in those sectors/activities where 100% FDI is otherwise allowed under the automatic route and there are no FDI-linked performance related conditions.[4]

Minimum number of partners

Every LLP shall have at least two designated partners who are individuals and atleast one of them shall be resident in India. If at any time the number of partners of a LLP is reduced below two and the LLP carries on business for more than six months, the person, who is the only partner of the LLP carries on business after those six months shall be liable personally for the obligations of the LLP incurred during that period.[3]

Designated Partner

Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India. In case if no partner is designated or if at any time there is only one designated partner, each partner shall be deemed to be a designated partner of the LLP.

In case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners.[5]

Accounts and Audit

LLP is required to maintain books of accounts for each year on cash basis or on accrual basis. Accounts shall be audited by Auditors appointed by the LLP. Audit of accounts is compulsory if turnover exceeds Rs. 40 lakhs in any financial year or contribution by partners exceed Rs. 25 lakhs.

The Statement of Accounts and Solvency for the year ended 31 March is required to be filed with the Registrar before 30 October in each year.[6]

Penalty

Any person guilty of an offence under this Act for which no punishment is expressly provided shall be liable to a fine which may extend to five lakh rupees but which shall not be less than five thousand rupees and which may extend to fifty rupees for every day after the first day after which the default continues.[7]

Taxation of a Limited Liability Partnership

LLP registered in India will be a resident even if only a part of control and management is in India. Profits distributed by LLP exempt in the hands of the partners. As per the Finance Bill, 2009, the income of an LLP is taxed only the hands of LLP and not the Partners. The entire taxation of LLPs is similar to the existing taxation pattern applicable to Partnerships registered and formed under The Indian Partnership Act, 1932.[8] Dividend distribution tax is not applicable in case of LLPs, whereas it is 15.00%(plus surcharge @ 5% plus education cess @ 2% plus SHEC @ 1% of amount so declared, distributed or paid) in case of companies.[9] Wealth Tax (which is currently @ 1%) is not applicable to LLPs.

Comparison

Category

Partnership

Company

LLP

Registration

Registration is optional

Registration with Registrar of Companies required.

Registration with Registrar of LLP required.

Distinct entity

Not a separate legal entity

Is a separate legal entity under the Companies Act, 2013.

Is a separate legal entity under the Limited Liability Partnership Act, 2008.

Cost of Formation

The Cost of Formation is negligible

Minimum Statutory fee for incorporation of Private Company is Rs.6,000/- and minimum Statutory fee for incorporation of Public Company is Rs. 19,000/-

Minimum cost of Formation of LLP is Rs. 800 only, comparatively much lesser than the cost of formation of Company

Common Seal

There is no concept of common seal in partnership

It denotes the signature of the company and every company shall have its own common seal

It denotes the signature and LLP may have its own common seal, dependant upon the terms of the Agreement

Number of Members

2 to 20 members in case of Non-Banking Company, and 2 to 10 members in case of Banking Company.

2 to 200 members in case of Private Company and Minimum 7 members in case of Public Company.

Minimum 2 partners and there is no limitation of maximum number of partners.

Ownership of Assets

Partners have joint ownership of all the assets belonging to partnership firm

The company independent of the members has ownership of assets

The LLP independent of the partners has ownership of assets

Tax Liability

Income of Partnership is taxed at a Flat rate of 30% plus education cess as applicable.

Income of Company is Taxed at a Flat rate of 30% Plus surcharge as applicable.

Income of LLP is taxed at a Flat rate of 30% plus education cess as applicable.

References

[10]

  1. ↑ "Section 3 of LLP Act, 2008". Indian Kanoon. Retrieved 2015-11-21.
  2. ↑ "Ministry Of Corporate Affairs - The Limited Liability Partnership Act, 2008". www.llp.gov.in. Retrieved 2015-11-21. horizontal tab character in |title= at position 55 (help)
  3. 1 2 "LLP Act, 2008" (PDF).
  4. ↑ "http://www.indiafilings.com/learn/fdi-llp/". www.indiafilings.com. Retrieved 2015-11-21. External link in |title= (help)
  5. ↑ "Welcome to LLPOnline.in : Designated Partners in LLP". www.llponline.in. Retrieved 2015-11-21.
  6. ↑ "Section 34 of LLP Act, 2008". Indian Kanoon. Retrieved 2015-11-21.
  7. ↑ "Section 74 of LLP Act, 2008". Indian Kanoon. Retrieved 2015-11-21.
  8. ↑ http://www.mca.gov.in/LLP/pdf/pressreleaseonLLPtaxation.pdf
  9. ↑ http://law.incometaxindia.gov.in/DIT/File_opener.aspx?page=ITAC&schT=&csId=f58d6a12-650c-48a3-a038-b597e7fa9277&rdb=sec&yr=303d6389-2d18-4432-bdbf-b74822b1a6df&sec=115&sch=&title=Taxmann%20-%20Direct%20Tax%20Laws
  10. ↑ LLP a New Format of Business https://www.setindiabiz.com . 2016-10-06.
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