Limited LIABILITY PARTNERSHIP

Definition
As per Section 2(1)(n),

Limited Liability partnership means a partnership formed and registered under the Limited Liability Partnership Act, 2008

Body Corporate Separate Legal Identity

Common Seal

Perpetual Succession Limited Liability Of Partners

Nature of Limited Liability Partnership

A body corporate formed and incorporated under the LLP Act,2008. A legal entity separate from its partner. It will have perpetual succession. Any change in the partners of a LLP shall not effect its existence, right, or liabilities. LLP can also purchase movable/immovable property in its own name. Save as otherwise provided, the provision of Indian Partnership Act 1932, will not be applicable to a LLP. Liability of the every partner limited except in case of fraud. It have hybrid characteristics of company & firm. No maximum limit of the partners.

Partnership Firm vs LLP

Firm
Partners Liability

LLP
Limited up to capital contributed Yes Yes Two

Unlimited No No Two

Perpetual Existence

Separate Legal Entity

Min. Partners

Firm

LLP
No upper limit

Maximum no.

10 in the case of Banking firm and 20 in other cases No

Concept of Designated Partner

Yes, with specific duties

Agency relationship

Partner is agent of firm and agent of other partners

Agent of LLP only; Not an agent of other partners

Firm
Registration

LLP
Mandatory

Not necessary

Annual Accounts

/Return to be filed with the Registrar

Regulating Act

No filings with RoC Yes. Many forms to be filed

Partnership Act, 1932

LLP Act, 2008

Limited Company vs. LLP

Private Limited Company
Maximum no. of members

LLP

50

No maximum no. of partners LLP Agreement /Schedule-I LLP Act, 2008

Governing documents

MOA & AOA/ Table A Companies Act, 1956

Regulating Act

Private Limited Company

LLP

Transferability of shares

As per AOA

Transfer allowed. Also subject to LLPA Optional

Common Seal

Compulsory

Incorporation of LLP
I - Deciding the Partners & Designated partners II - Obtaining DPIN (Form-7) & Digital Signature III - Reservation of Name for LLP (Form-1) IV - Filing of Incorporation Document (Form-2)

V - Certificate of Incorporation
VI Filing of LLP Agreement (Form3) VII Filing of Consent of partners/Designated partners (Form-4)

PARTNERS IN LLP
- Any Individual

- Any Body Corporate However individuals cannot become partner if: He has been found of unsound mind by court of competent jurisdiction he is an undercharged insolvent he has applied to be adjudicated as an insolvent and his application is pending

BODY CORPORATE
Body Corporate (S. 2(d)) include A Company u/s 3 of Companies Act A LLP under this Act LLP incorporated outside India Companies incorporated outside India
But Exclude: A Corporate Sole A Co-operative Society Any other Body Corporate so notified.

NO. OF PARTNERS
Minimum - 2 Maximum NA

What happens if falls below 2 ?

If carries for more than 6 months and knowing so, then he would be personally liable for that period. Tribunal can wind up

DESIGNATED PARTNERS
Designated partner to obtain DPIN application in Form 7 - to give prior consent in Form 9 Responsible for doing all acts, matters, things, etc. required by LLP Liable for all penalties imposed on LLP To appoint DP within 30 days of vacancy If less than 2, each partner deemed to be DP

CESSATION OF PARTNERS
A person shall cease to be a partner when: The LLP agreement provides so If agreement does not provide, then by giving 30 days notice in Form 13 On his death On dissolution of LLP When he is declared to be of unsound mind by a competent court When he has applied to be adjudicated as insolvent or is declared as insolvent A person dealing with former partner should know of his cessation or his resignation should be filed with registrar, otherwise he still would be regarded as partner. [Section 24(3)].

ACCOUNTS & AUDIT

Method of Accounting:
Double entry system Cash or accrual

The books of account shall contain:

particulars of all sums of money received and expended and the matters in respect of which the receipt and expenditure takes place; a record of the assets and liabilities; statements of cost of goods purchased, inventories, work-in-progress, finished goods and cost of goods sold; and any other particulars which the partners decide.

Audit
Audit compulsory. However exempt (Rule 24(8) if Turnover does not exceed Rs. 40 Lakhs; or Contribution does not exceed Rs. 25 Lakhs Auditor to be appointed by DP within 30 days before end of FY (except 1st year) Casual vacancy may be filled. Partners may appoint if DP fails Only practicing CA to be auditor

Procedure of Conversion to LLP

I - Deciding the Designated Partners II - Obtaining DPIN & Digital Signature III - Filing of Conversion Application IV - Checking name Availability for LLP V- Filing of Incorporation Document VI - Certificate of Registration VII - Information of Conversion to ROC

EFFECTS OF CONVERSION
All property along with the undertaking of the partnership

shall be transferred to LLP All proceedings against the firm pending in any Court of law or

authority on the date of registration will be enforceable against

LLP.

All partners of a firm converted into LLP shall continue to be

liable jointly with LLP for the liabilities of period prior to conversion

Taxation Aspects of LLP

Consequent changes to be made in the Income Tax Act, 1961 like :Firm Partner "firm" shall include a Limited Liability Partnership as defined in the LLP Act, 2008 "partner" shall include, a partner of a LLP as defined in the LLP Act, 2008;

LLP Taxable as Firm The Finance (No. 2) Act 2009 provided for taxation of LLP on same lines as that of traditional Partnership firms
Partnership Firm partnership" shall include a Limited Liability Partnership as defined in the LLP Act, 2008 [Sec 2(23))

Eligibility to be assesses as a firm

For an LLP to be assessed as a firm under the provisions of the provisions of the section 184 of the Income Tax Act, the following conditions are to be met:
1. 2. 3. 4.

The LLP is evidenced by an instrument i.e., there must be written LLP agreement The individual shares of the partners must be very clearly specified in the agreement. A certified copy of LLP agreement must accompany the Return of Income of the LLP. If during a financial year, a change takes place in the constitution of the LLP or in the profit sharing ratio of the partners, a certified copy of the revised LLP agreement must be submitted along with the return of income of the financial year. There should not be any failure on the part of the LLP while attending to the notices given by the income tax act for completion of the assessment of the LLP.

5.

Tax rates for Assessment year 2013-14

Tax rate is 30% flat + 2% education cess + 1% secondary and higher education cess = 30.9%. No surcharge is applicable

LLP is not required to pay Dividend Distribution Tax

Procedure for filing return

Filing the return on the prescribed format by the due date i.e. 31 July if the accounts are not audited and 30 September if the accounts are audited

o Authority for signature

The return of an LLP should be signed and verified by:

1. A designated partner
2. A designated partner is not able to sign the

return or where there is no designated

WINDING UP & DISSOLUTION

MODES OF WINDING UP

Voluntary

By Tribunal

CIRCUMSTANCES IN WHICH LLP MAY BE WOUND UP VOLUNTARILY 1. Any LLP may be wound-up voluntarily if the LLP passes a resolution to wind up the LLP with approval of at least threefourths of the total number of its partners, Provided that where the LLP has creditors, whether secured or unsecured, the winding up shall not take place unless approval of such creditors takes place in pursuance of rule 7. A copy of the resolution shall be filed with the Registrar within thirty days of passing of such resolution in Form No. 1.

2.

COMMENCEMENT OF VOLUNTARY WINDING UP AND FILING UP OF STATEMENT OF AFFAIRS A voluntary winding up shall be deemed to commence on the date of passing of the resolution for voluntary winding up under rule 5.

PROVISIONS RELATED TO VOLUNTARY WINDING UP

Declaration of solvency in case of proposal to wind up voluntarily.Where it is proposed to wind up an LLP voluntarily, the majority of its designated partners (being not less than two) shall make a declaration in Form No. 2 verified by an affidavit to the effect that the LLP has no debt or that it will be able to pay its debts in full within such period, as may be specified in the declaration, but not exceeding one year from the commencement of the winding up.

 Meeting of creditors.Where any LLP has creditors, secured or otherwise, such LLP shall, before taking any action for winding up of the LLP, seek approval of such creditors and shall send them, by registered or speed post or any other mode defined in rule 15 of Limited Liability Partnership Rules 2009, a copy of declaration under sub-rule (1) of rule 7, the estimated amount of the claims due to each of the creditors and an offer for creditors to accept such claims. The creditors shall give to the LLP their opinion in respect of voluntary winding up proposed by the LLP or acceptance of offer made under sub-rule(1) within thirty days of receipt of declaration under sub-rule (1) of rule 7. (2) Where two-thirds in value of creditors of the LLP referred to in sub-rule (1) give their consent that(a) it is in the interest of all the partners and creditors that the LLP be wound up voluntarily by partners, the LLP shall be wound up voluntarily by partners; or (b) the LLP will not be able to pay for its debts in full from the proceeds of assets to be sold in voluntary winding up and propose that the LLP be wound up voluntarily by creditors, the LLP shall be wound up voluntarily by creditors; or (c) the LLP will not be able to pay for its debts in full from the proceeds of assets to be sold in voluntary winding up and propose that it will be in the interest of all partners and creditors if the LLP is wound up by the Tribunal, the LLP shall, within fourteen days thereafter, file an application before the Tribunal for winding up: Provided that where the LLP pays the dues of creditors to their satisfaction, provisions of clause (b) or clause (c), as the case may be, shall not be applicable.

Notice of any decision of creditors in pursuance of this rule shall be given by the LLP to the Registrar in Form No 5 within fifteen days from the date of receipt of consent of the creditors referred to in sub-rule (3).

 Publication of resolution to wind up voluntarily.Where LLP has by resolution resolved for voluntary winding up and consent of creditors under clause (b) of sub-rule (3) of rule 8 is received for voluntary winding up of the LLP, it shall, within fourteen days of the receipt of creditors consent, give notice of the resolution by advertisement in a newspaper circulating in the district where the registered office or the principal office of the LLP is situated. LLP Liquidator: The provisions relating to LLP Liquidator are 1. Appointment of LLP Liquidator (i) approval by creditors (ii) Disagreement on appointment 2. Removal of LLP Liquidator 3. Filling up of vacancy in office of the liquidator 4. Notice of appointment to be given to registrar 5. Duties of liquidator

 Designated partners and other partners power to cease on appointment of LLP Liquidator. On the appointment of a LLP Liquidator, all the powers of the designated partner and other partner, if any, shall cease, except for the purpose of giving notice of such appointment of the LLP Liquidator to the Registrar. Appointment of committees.The partners or the creditors, as the case may be, may appoint such committees as they consider appropriate to supervise the voluntary winding up and assist the LLP Liquidator in discharging his functions. LLP Liquidator to submit report on progress of winding up.The LLP Liquidator shall report quarterly (quarters ending on 31st March, 30th June, 30th September and 31st December) on the progress of winding up of the LLP in Form No 8 to the partners or creditors, as the case may be, which shall be made before the end of the following quarter.

 Dissolution of LLP
(1) Preparation of Report by liquidator As soon as the affairs of a LLP are fully wound up, the LLP Liquidator shall prepare a report stating the manner in which the winding up has been conducted and property has been disposed off, final winding up accounts and explanations, in the Form No 9, showing that the property and assets of the LLP have been disposed of and its debts fully discharged or discharged to the satisfaction of the creditors and thereafter seek approval of the partners or the creditors of the LLP, as the case may be, on the said report and the final winding up accounts and explanation in the meeting of partners or creditors. (2) Approval of report If two-thirds of total number of partners or, two thirds in value of creditors, as the case may be, after considering the report, accounts and explanations of the LLP Liquidator are satisfied that the LLP shall be wound up, they shall pass a resolution, within thirty days of receipt of such report, winding up accounts and explanation for its dissolution in the case of meeting or within thirty days of receipt of such circulation or further information, whichever is later, in the case of circulation.

3. Filing of report to registrar and tribunal Within fifteen days after the resolution under sub-rule (2), the LLP liquidator shall(a) send to the Registrar a copy of the final winding up accounts, explanation and report in Form No. 10; and (b) file an application with the Tribunal along with a copy of the final winding up accounts, explanations and report, for passing an order of dissolution of the limited liability partnership.

4. Order by tribunal If the Tribunal is satisfied, after considering the application, final winding up accounts, explanations and report of the LLP Liquidator, that the process of winding up has been duly followed, the Tribunal may pass an order, within sixty days of the receipt of such application, accounts, explanations and report, that the limited liability partnership shall stand dissolved.
5. Copy of order to registrar - The LLP Liquidator shall file a copy of the order under subrule (4) with the Registrar within thirty days in Form No 11. 6. Publication of the order - The Registrar, on receiving the copy of the order passed by the Tribunal under sub- rule (4), shall forthwith publish a notice in the Official Gazette that the LLP stands dissolved. 7. Delay in winding up In the event affairs of the LLP are not fully wound up within a period of one year from the date of commencement of voluntary winding up, LLP Liquidator shall file an application before the Tribunal explaining the reasons thereof and seek appropriate directions.

 LLP Liquidator to accept contribution, etc., as consideration for sale of property of LLP.Where a limited liability partnership (the transferor LLP) is proposed to be, or is in the course of being, wound up voluntarily and the whole or any part of its business or property is proposed to be transferred or sold to any other limited liability partnership (the transferee LLP), the LLP Liquidator of the transferor LLP may, with the sanction of a resolution of the transferor LLP passed by at least three-fourths of total number of partners conferring on LLP liquidator either a general authority or an authority in respect of any particular arrangement. Distribution of property of LLP.Subject to the provisions of the Act and these rules in respect of overriding preferential payments, the assets of an LLP shall, on its winding up, be applied in satisfaction of its liabilities pari passu and, subject to such application, shall, unless the LLP Agreement otherwise provides, be distributed among the partners according to their rights and interests in the LLP. Arrangement between LLP and creditors.Any arrangement entered into between an LLP in the course of being wound up and its creditors by three-fourths of the total number of partners of LLP and the three-fourths of the total number of creditors in value shall be binding, provided that the said arrangement is presented before the Tribunal within twenty one days from the date of approval by the LLP and the creditors and is approved by the Tribunal.

Circumstances in which LLP may be wound up by Tribunal

1. Inability to pay debts. 2. If the LLP decides to be wound up by tribunal 3. If for a period of more than 6 months, the number of partners of the LLP is reduced below 2 4. If the LLP has acted against the interest of the sovereignty and integrity of India, the security of the state or public order. 5. If LLP has made a default in filing the Registrar the Statement of Account and Solvency or annual return for any 5 consecutive years or 6. If the tribunal is of the option that it is just and equitable that the LLP be wound up.

Petition for winding up

An application to the Tribunal for the winding up of an LLP shall be by a petition presented (a) by the LLP or any of its partner or partners,

(b) by any secured creditor or creditors, including any contingent or prospective

creditor or creditors,

(c) by the Registrar, or

(d) by any person authorized by the Central Government in that behalf, (e) by the Central Government, in a case falling under section 51 of the Act, (f) by the Central Government or a State Government, in a case falling under clause of section 64.

Commencement of winding up
Winding up shall be deemed to commence at the time of presentation of the petition for winding up

Provisions
1. Directions for filing statement of affairs.- Where a petition for winding up is filed before the Tribunal by any person other than the LLP, the Tribunal shall, if satisfied that a prima facie case for winding up of the LLP is made out, by an order, direct the LLP to file its objections along with a statement of its affairs in the form and the manner specified in Part VI within the time specified in the order. 2. Liquidators : (i) Appointment - For the purposes of winding up of a LLP by the Tribunal or for the appointment of Provisional Liquidator, there shall be a Liquidator who may be either an Official Liquidator or a Liquidator appointed by an order of the Tribunal from the panel maintained by the Central Government. (ii) Removal - The Tribunal may, on a reasonable cause being shown and for reasons to be recorded in writing, remove the Provisional Liquidator or the Liquidator, appointed from the panel on any of the following grounds, namely:(a) misconduct, (b) Fraud or misfeasance, (c) professional incompetence or failure to exercise due care and diligence in performance of the powers and functions, (d) inability to act as liquidator, (e) conflict of interest or lack of independence during the term of his appointment.

(iii) Assistance to liquidator (iv) Exercise and control of liquidators powers and duties

(v) Audit of liquidators accounts

3.Winding up order to be communicated to liquidator and registrar 4. Notification by the registrar

5. Notice by the liquidator

6. Notice of discharge to workmen 7. Winding up to operate in favour of all creditors and partners 8. Custody of LLPs properties 9. Partners, officers, employees, etc. to discover and deliver property, books, etc. and to cooperate with the liquidator in discharge of his functions and duties. 10. Application of assets 11. Committee of inspection 12. Submission of report by liquidator

13. Directions of tribunal on report of liquidator

14. Submission of periodical reports, etc. to the tribunal 15. Payment of debts due by partner 16. Adjustments of rights of partners 17. Inspection or investigation of books of accounts and records of the liquidator.

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