Executive Summary:
In India, The Limited Liability Partnership Act, 2008 was published in the official Gazette of India on January 9, 2009 and has been notified with effect from 31 March 2009. AS per MCA Report, during the year 2014, around 11616 no’s LLP were registered in India. Moreover, MCA has also clarified that LLP cannot be treated as body corporate in section 141 of the Companies Act 2013. Hence, LLP of Chartered Accountants is allowed to conduct Statutory Audit. Thus, we can say that the concept of LLP is at growing stage. Therefore, it is necessary to understand the Basics of LLP and how it is formed
Preface:
LLP is a partnership firm which is formed and incorporated under THE LIMITED LIABILITY PARTNERSHIP ACT 2008. LLP is the body corporate which gives the benefit of being a company as well as of being partnership firm. Partners in LLP have Limited Liability as per their Agreement with LLP.
Features:
Partner:
Though LLP is a body corporate, LLP is formed by minimum 2 partners. There is no limit for maximum partners. Moreover Partner can be individual or body corporate
Following are the individual which cannot become the partners of LLP (as per LLP ACT 2008):
(a) Individual who has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force;
(b) Individual has an undischarged insolvent; or
(c) Individual who has applied to be adjudicated as an insolvent and his application is pending.
Designated partners:
The term designated partners means partner who have responsibility and accountability for regulatory and legal compliances of LLP apart from their liability as partner of LLP.
As per LLP act 2008, at least 2 such designated partners are required who are individuals or nominees of Body corporate and at least one of them should be Resident of India.
Liability of Partner:
In LLP, liability of partner is limited to their agreed contribution at the time of becoming partners in LLP.
Moreover partners is also not liable for any misdeeds or unauthorised work done by the other partner
Separate Legal entity
LLP has the separate identity from its partners. It can make a contract and can also hold property in the name of LLP.
Perpetual Succession:
LLP has a separate legal entity and it continue its existence irrespective of changes in the partner.
Objective of LLP:
LLP can be formed by minimum two partners with a view to carry a lawful business having objective is to earn profit. Hence entity which has Objective of not carrying a business with a profit motive cannot form LLP as for e.g. Trust, NGO etc.
Steps for Registration of LLP:
STEP -1 Decide who will be the PARTNERS and DESIGNATED PARTNERS
STEP -2 Obtain Designated Identification Number
STEP -3 Register DSC of Designated Partners.
STEP -4 Reservation of Name of LLP
STEP -5 Incorporation Document
STEP -6 Incorporation Document
Obtain Designated Identification Number(DIN):
Every intended designated partner of LLP should obtain its DESIGNATED IDENTIFICATION NUMBER in Form “DIR-3”.
All the necessary documents need to be scanned and attached with the e form. After the submission of DIR-3 online, system will generate provisional DIN.
Register Digital Signature of Designated Partner:
Designated partners are those who have the accountability of compliance of legal and regulatory terms of LLP. Hence their signature needs to be affixed on e-forms. Digital signature of Designated partners can be obtained from any Authorised certifying agency.
Reservation of Name of LLP:
Every limited liability partnership shall have either the words “limited liability partnership” or the acronym “LLP” as the last words of its name. Name of the Proposed LLP (upto 6 choice) is to be filled in Form: 1.
Incorporation Document:
Every partnership firm has Partnership deed which is the incorporation document of firm; in the same manner LLP has “Certificate of incorporation”. For filing incorporation of LLP fill form no: 2.Details regarding Partners, Designated Partners, Partners contribution, Partners DSC, etc is filled. Moreover Declaration of proposed LLP have fulfilled the requirements as per provision of LLP Act 2008 or not is to be submitted by Chartered accountant or Advocate or company Secretary in practice. On submission of documents online and e filing of form -2 , Incorporation certificate will beissued by Registrar after satisfying himself about the compliance with LLP provision.
LLP agreement:
After issue of Certificate of incorporation, “LLP AGREEMENT” needs to be drafted. The mutual rights and duties of partners with LLP as well as rights and duties among the partners is stated in LLP agreement. Such agreement needs to be filed in Form -3 at the time of registration of LLP or it can be filled within 30 days of filing Form-2.After filing of LLP Agreement , Registration Procedure is completed unless the query is raised by the Registrar.
Accounts Aspects:
LLP needs to maintain Annual accountswhich reflects its True and Fair view of its state of affairs.LLP can maintain books on cash basis or accrual basis. Double entry system of accounting needs to be followed. Every LLP needs to maintain “Statement of Solvency” within 6 months from the end of financial year and shall be filled by LLP every year with the Registrar
Audit:
LLP whose turnover exceeds Rs 40 Lakhs or whose contribution of partners in LLP exceeds Rs 25 Lakhs, is mandatory.ly required to get its books of accounts audited by Chartered Accountant in Practice. Designated partners appoints Auditor of the LLP .The First Auditor must be appointed before the end of the financial year.Thereafter the appointment or Reappointment of the auditor must be made 1 month before the closure of the financial year.
Taxation Aspects:
Income Tax
Rates:
As per the Union Budget 09-10, LLP will be treated as a partnership Firm and hence it will be taxed at rate of 30%.
Income of LLP
LLP has a separate legal identity. Therefore the Income of LLP will be taxed to LLP and not to Partners.
Provision of AMT and DDT
Alternate Minimum Tax (AMT) is applicable to all person except companies, hence AMT will be applicable to LLP. As LLP is considered as a Partnership Firm, Dividend Distribution Tax (DDT) will not be applicable
Remuneration to the partners:
As per LLP act 2008, there is no prescribed limitation on the limit of Remuneration to the partners. However the same limits can be prescribed under LLP Agreement.
As per Income Tax Act LLP is Treated as Partnership Firm , hence the deduction available on partners remuneration will be same as that of Partnership Firm (see section 40 b of Income Tax Act).However such remuneration will be chargeable in hands of Partners of LLP.
Interest on contribution made by the partners:
Interest on contribution made by the partners is allowed to LLP provided that the same should be allowed in LLP Agreement. Deduction of the interest is available to LLP only if the condition of section 184 and 40 (b) of the Income Tax Act are satisfied. However such Interest will be chargeable in the hands of Partners of LLP.
Section 44AD of Income Tax Act:
Section 44AD is the special provision for computing profits on a presumptive basis. An eligible Asseessee engaged in eligible Business is applicable to charge profit under section 44 AD. As per Income tax Act, Eligible Asseessee is defined as an
Service Tax
For the matters of Service Tax, LLP will be treated as Partnership Firm. Hence Partial Reverse charge is not applicable to LLP.
Conclusion:
LLP can be formed to do any type of business with the objective of earning Profit. Moreover Foreign Direct Investment is allowed with the specific approval of the government in those activites where 100% FDI is allowed under automatic route.
List of Reference:
- LLP Act 2008 by ICAI
- MCA Website(http://www.mca.gov.in/LLP)
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