Transcript Introduction To Limited Liability Partnership (LLP)

Introduction To Limited
Liability Partnership (LLP)
- Tushar Mittal
Introduction
• Limited Liability partnership’s
concept was introduced in order
to adopt :• a corporate form
• With Organizational Flexibility
• Tax Status of Partnership
• Limited Liability for its Partner.
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.
LLP’s 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.
LLP’s International Experiences
• Also adopted by many well-known
economies like:• Japan
• France
• Romania
• Australia
Introduction to LLP’s 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.
Features of LLP Bill
2006
• Bill defines LLP as a
Partnership formed &
Registered under this
Act.
• It stipulates two
Requirements• A Partnership
• Registration under
this act.
Features of LLP Bill
2006
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
Features of LLP Bill
2006
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.
Features of LLP Bill
2006
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.
Features of LLP Bill
2006
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.
Features of LLP Bill
2006
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.
Features of LLP Bill
2006
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.
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)
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.
Taxation Issues
•
i.
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.
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.)
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.
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.
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.