Limited Liability Partnership in India

A limited liability partnership is a type of business entity. LLP is a body corporate and a legal entity separate from its partners. There are certain pre requisites that need to be fulfilled for a LLP to form. This article discusses the salient features of LLPs, including taxation benefits and FDI in LLPs.

Tue Jul 12 2022 | Business Law | Comments (0)

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The salient features of the LLP Act 2008 are

Essential requirements for incorporation of LLP

Incorporation Of Limited Liability Partnership

The Limited Liability Partnership may be incorporated in the following manner:

  1. The User must register himself on the website of the Ministry of Corporate Affairs, developed for LLP services, i.e.  www.llp.gov.in;
  2. All designated partners of the proposed LLP shall obtainDesignated Partner Identification Number (DPIN) / Director Identification Number (DIN);
  3. Partner/Designated partner of LLP/proposed LLP, whose signatures are to be affixed on the e-forms has to obtain class 2 or class 3 Digital Signature Certificate (DSC) from any authorized certifying
  4. agency;
  5. Reserve a name for the LLP on the website;
  6. After the reservation of the name, Form-2 forIncorporation Document and Statement has to be filed;
  7. Form 3 (Information with regard to LLP agreement and changes, if any made therein) and Form-4 (Notice of Appointment of Partner/Designate Partner, his consent etc.) may be filed with the prescribed fee simultaneously at the time of filing Form-2 or within 30 days of the date of incorporation or within 30 days of such subsequent changes.

Liability of Partners

The liability of the partners in a LLP is limited to the extent of their agreed contribution in the LLP which may be of tangible or intangible in nature or both tangible and intangible in nature.

Every partner is an agent of the LLP and not the other partners; hence, neither the LLP nor other partners would be liable for the independent or un-authorized actions of other partners or their misconduct.

In case of any act committed by the LLP or  its any partner with the intention to defraud the creditors or any other person or for any fraudulent purpose, the liability of the LLP and partners guilty of fraud would be unlimited for all or any of the debts or other liabilities of the LLP.

The liability of LLP shall be met out from the property of the LLP.

Financial Disclosures:

The LLP has to maintain books of accounts for prescribed period. A statement of accounts and solvency shall be filed by every LLP within thirty days from the end of six months from each financial year.

Accounts of LLP shall be audited in case its contribution exceeds 25 lakhs or its turnover exceeds 40 Lakhs.

Taxation of LLP:

LLP incorporated in India will be assessed as if it is a partnership firm. Remuneration paid to working partners is deductible at the hands of LLP within limits prescribed under section 40(b) of Income Tax Act, if the partnership is evidenced by an instrument specifying the individual shares of the partners and is for period beyond partnership deed.

Remuneration paid to partner over and above limits of section 40(b) will be taxed at hands of LLP but will be exempt at hands of partner.

Interest paid to partners is deductible at the hands of LLP within limits prescribed under section 40(b) of Income Tax Act if the Payment of interest is authorized by the partnership deed and interest does not pertain to period prior to partnership agreement and does not exceed 12%. Indian LLP will not be liable to wealth tax whereas foreign LLP would be liable to wealth tax.

All partners of LLP are jointly and severally liable for income tax liability, but a partner can escape the liability if he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of any duty on his part.

Partner’s  Transferable Interest:

A partner can transfer wholly or partly his right to share of profit and loss of limited liability and to receive distributions in accordance with the limited liability partnership agreement.

The transfer of rights does not cause dissociation of partner from LLP or dissolution of the LLP. It does not either entitle the assignee to participate in the management or conduct of the business of the LLP.

Conversion into Limited Liability Partnership:

A firm, private company or an unlisted public company can convert into LLP in accordance with the provisions of the Act. After conversion and from the date of certificate of registration issued by the Registrar.

On and from the date of registration specified in the certificate of registration, all tangible (moveable or immoveable) and intangible property vested in the firm or the company, all assets, interests, rights, privileges, liabilities, obligations relating to the firm or the company, and the whole of the undertaking of the firm or the company,  shall be transferred to and shall vest in the LLP and the firm or the company,  shall be deemed to be dissolved.

Winding Up:

The LLP may be wound up either voluntarily or by the Tribunal to be established under the Companies Act, 1956. Winding up of LLP may be either voluntary or by the Tribunal. LLP so wound up may be dissolved. It may be wound up by the Tribunal if:

Compromise, Arrangement or Reconstruction of LLP:

On an application made by the LLP or its creditor or a partner, the Tribunal may pass an order sanctioning the compromise, arrangement or reconstruction of LLP between the LLP and its creditor or LLP and its partners.

Foreign Direct Investment in LLP:

The FDI in LLPs will be implemented, subject to the following conditions:

Details of Fee:

  1. For registration of Limited Liability Partnership including conversion of a firm or a private company or an unlisted public company into Limited Liability Partnership:
  2. For filing, registering or recording any document, form, statement, notice, Statement of Accounts and Solvency, annual return and an application along with the Statement for conversion of a firm or a private company or an unlisted public company into LLP by this Act or by these rules required or authorized to be filed, registered or recorded:
  3. Fee for any application other than application for conversion of a firm or a private Company or an unlisted public company into LLP shall be as under:-
  4. Fee for inspection of documents or for obtaining certified copy thereof shall be as under:-
  5. Fee for filing any form or a Statement of Account and Solvency or a notice or a document by foreign limited liability partnership.
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