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COMPARATIVE CORPORATE

LLP(Limited Liability Partnership)

Submitted by:Poonam Katoch Roll No. 30

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INTRODUCTION

The legal quandary expressed above in the precise words applies to the concept of Limited Liability Partnerships (hereinafter called LLP). Indian law on partnership as of many other countries was primarily a replication of English partnership law which was drafted in 1879 and enacted in 1890. The English Act was passed after much debate and amendment and has ever since been a seminal piece of legislation. But unfortunately it has failed to keep pace with the fast changing requirements of the economy and new developments. In India, options which entrepreneurs had in terms of business vehicles at their disposal are mostly of either going for a company or partnership. Adopting company as the vehicle of ones business involves the onerous duty of complying with the exacting procedures of Indian companies Act, 1956. Choosing partnership is not an attractive proposition as being part of an entity with unlimited liability in an extremely litigious environment does not offer a safe working of business. Also a general partnership is not permitted to expand beyond 20 members because of the limitation imposed by the Companies Act, 1956. So an alternative business structure which could fill the gap between these two prominent business vehicles was required. On 9th January 2008 central government enacted Limited Liability Partnership Act. This act envisages the establishment of a new kind of business vehicle in India with some unique features and characteristics. To outsiders it is legal entity of its own, and subject to much company law regulation. To its members it is akin to a partnership, in that the members regulate its management as they may agree between themselves, without the structure of company articles, directors or shareholders.1

THE HISTORY OF LIMITED LIABILITY PARTNERSHIP


Societe en commandite or limited partnership appears to have originated in Italy as a mode of medieval European business. The nobility in Italy used to transfer funds secretly to merchants on whom they had implicit faith in lieu of a share of the profits arising out of the business with no liability attached in case of any loss arising out of the business. In course of time this concept came to be proclaimed as limited liability partnership. The arrangement
1

Sharay, Madhusudan; Textbook on Indian Partnership Act: With Limited Liability Partnership Act New Delhi: Universal Law Publication, 2010.

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gradually spread over to other European countries like France, Germany and Great Britain as well as to far off countries like USA and Japan. However the concept of a limited liability partnership largely surfaced into the business organisations in response to the great real estate and energy prices crumple in 1980s and the consequent impact it had on the banks and other financial institutions. Since not much could be recovered from these failed financial institutions, attention soon shifted to the lawyers and accountants who had represented the failed financial institutions before their collapse. The plausibility of recovery came across owing to the backing of these professionals by rich and resourceful partnerships and insurers. The United States, which was the epicentre of that financial crunchas it has been for most other, including the present sub-prime credit crunchspearheaded the process of legislating the concept of LLPs. The other countries have soon followed the idea and enacted LLP laws.2

NEED OF EVOLUTION OF NEW BUSINESS VEHICLE IN THE FORM OF LLP:


Partnerships and Corporations have been a primary form of business structure for a long time now. Although, the two bodies of law have much in common, historically they differed sharply on the role of the contract and private ordering in structuring the firm. Partnership law encourages private ordering through bargaining and by providing an agreement amongst partners. In contrast, company law historically has provided a mandatory framework for firm structure highly resistant to shareholders attempts to define their relationships through bargaining. The general form of partnership which was popular in the initial stage lost its charm because of inherent disadvantages in it. The most important is the unlimited liability of all partners for business debts and legal consequences, regardless of their holding, as the firm is not a legal
2

Taxmanns LLP Ready Reckoner: A Comprehensive and Complete Guide to Law and Procedures Prescribed Under Limited Liability Partnership Act 2008 / Limited Liability Partnership Rules 2009 New Delhi: Taxmanns Publications (P) Ltd. 2009 [reprint 2010]

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entity. General partners are also jointly and severally liable for tortuous acts of co-partners. Each partner has the exposure of their personal assets being appropriated and liquidated to meet partnership dues. These are statutory position, which cannot be altered by contract interse, though at times subterfuges are resorted to by unscrupulous partners to avoid personal liability. General partnership holdings are not easy to transfer; typically all other partners have to agree. Thus, for a long time, a need has been felt to provide for a business format that would combine the flexibility of a partnership and the advantages of limited liability of a company at a low compliance cost.3 The objective of the LLP law, if understood in this milieu, is quite clear. It seeks to achieve the principal benefits of both partnership and company as forms of business organization. Primarily, it aims at freeing the mind of a professional from the fear that his personal assets may be attached for the negligent and other wrongful acts of his co-partners, over whom he has no control. This, the law does, by providing the shield of limited liability by way of a separate legal personality. In other words, it enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner. The other objective is to allow to the LLP the same organization litheness and freedom from compliances as are available to a general partnership, thus calling for a new form of corporate governance. Additionally, an LLP is also conferred the same status as a general partnership for tax purposes, by following the flow-through system, so that the tax incidence does not act as a disincentive against this form of organization.4

INTERNATIONAL SCENARIO
The LLP concept emerged in USA in the early nineties when only two States in 1992 allowed LLP kind of formation. Over forty States adopted LLP legislation by the time LLPs were added to the Unified Partnership Act in 1996. Each individual State in USA now has its own LLP law. In UK, there are three forms of partnership prevalent. The first and the oldest form called as ordinary partnership, governed by the Partnership Act, 1890. There is also limited partnership, which is governed and registered under the Limited Partnership Act of 1907. In this type of partnership, one or more partners may limit their liability to the amount of capital
3

news.vakilno1.com/2009/.../limited-liability-partnership-llp-bill (accessed on 25.02.12)

Saharay, Madhusudan; Textbook on Indian Partnership Act: With Limited Liability Partnership Act New Delhi: Universal Law Publication, 2010.

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he has contributed. But, even in such a partnership, at-least one partners liability is unlimited. The third category is Limited Liability Partnership (LLP), which is a body corporate having perpetual succession and limited liability. Such kind of formation is governed by the Limited Liability Partnership Act, 2000, the Limited Liability Partnerships Regulations, 2001, and the Limited Liability Partnerships (Scotland) Regulations, 2001. LLP kind of formation has also gained popularity in countries like, Australia, Singapore, Japan, and China. Indian limited liability law is a kind of a mixture of the partnership laws found in Singapore and the UK.5 Now for our better understanding lets make a comparative study of the LLPs that exist in India, U.S and U.K. Basis of comparison Legislation Uniform 1996 Name of LLP Partnership Act of LLP Act 2000, LLP LLP Act, 2008 Regulation 2001 LLP in USA LLP in UK LLP in INDIA

Must carry the words RLLP Must carry word LLP Must carry the word that is registered under limited in the end liability partnership in the end. limited partnership liability or the

acronym LLP as part of it name

Body corporate No, it is only a form of general Yes & separate legal partnership to protect partners entity Minimum and maximum partners/ Number of The Act is silent in this respect. If LLP carries on from unlimited liability. Minimum 2; maximum no Same limit.

Yes

Same

Vountary winding up

partners/member s if fall below statutory minimum limit

business for a period of by NCLT. more than 6 months with such reduced

number of members,

http://en.wikipe dia.org/wiki/Limited_liability_partnership (accessed on 23.02.12)

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of 2

the members shall be personally liable for the obligations of LLP.

Minimum Designated partner/member/ manager

No provision for any such At least 2 designated At least 2 designated designated partner, member or members, they can be partners who shall be manager. either companies and or individuals and at

individuals

they least 1 of them shall

may not be residents of be a resident of India. U.K Responsibility of Agent is responsible with for Designated member is Designated partner is the responsible for doing all responsible for doing

designated complying

partner/ manager/ agent

requirements of formation of such acts, matters, and all such acts, matters, the LLP in case partnership things required to be and things required to does not have an office in the done by LLP. state of incorporation. Same be done by LLP.

Liability of members/ partners

Limited up to the agreed Same contribution except in case of deliberate fraud, misconduct and or negligence.

Partnership agreement

Can be express or implied

Same

Same

Admission of a By taking consent of required As per the partnership Same as in UK new member partner/ number of partners as per the agreement, in absence voting requirement to amend of which the default partnership agreement. Hence rule will apply which consent of all partners is not states consent of all required Filing requirements partners is required.

Annual report containing the Annual accounts to be Same as in UK prescribed details in the office filed with the ROC of the secretary of state.

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Tax LLP

status

of LLP will have a pass through LLP will have a pass LLP will be treated as status i.e. it pays no tax but its through status i.e. it Partnership firms for partners do in relation to the pays no tax but its the purpose of Income income or gains they receive partners do in relation Tax and will be taxed through the LLP. to the income or gains like a partnership firm. they receive through the LLP.

Winding up & Both voluntary as well as Both voluntary as well The winding up of an dissolution compulsory winding up by the as compulsory winding LLP may be either Secretary of State. up by the High Court. voluntary or by

Tribunal unless it is formed Court. Default provision UPA does not provide for any In the absence of Same as UK but LLP the High

default rules in case of absence partnership agreement, Act2008 also provides of a partnership agreement partners need to follow for dispute settlement the default provisions between parties under stated in schedule I of the the Act. Arbitration and

Conciliation Act,1996.

SOME JUDICIAL INTERPRETATION GIVEN BY THE ENGLISH COURTS6


Since the concept of LLP is relatively new in India there is hardly any judicial decision given by the courts in this regard. So let us look at some of the decisions given by the English Courts in this regard, which may be made applicable by the Indian Courts in the near future. In contrast to the contractual liability of LLP firms the LLP Act in England partially adopts the partnership model for liability for torts, crimes and breaches of trust, including accessory liability. It imposes vicarious liability on the LLP rather than its members for any wrongful acts or omissions committed by a member in the course of business of the LLP or with its authority. The Court of Appeal in the case of Dubai Aluminium Company v. Salaam (2000) the Court of Appeal refused to construe the words wrongful acts and omissions to be

Geoffrey Morse: Partnership law; Blackstone Press publication, 5 th edition

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wide enough to encompass the possibility of vicarious liability for the accessory liability of a member. Another important question came before the Court as to the nature of relationship the members and the LLP; whether it is a fiduciary one like between the members themselves. The Courts in the case of Platt v. Platt (1999) and Peskin v. Anderson(2000) held that in the absence of agreement, whether express or implied it cannot be said so. However since an LLP is a body corporate, it will be the proper claimant in an action against any wrong done to it and the well-known rule in Foss v. Harbottle (1843) shall apply. Thus for example where it is alleged that one or more members have acted in breach of their fiduciary duty to the LLP the decision whether to bring an action against them is for the LLP to decide and if the majority members decide not to do it then that is the end of the matter. Mergers and acquisition of LLPs and the consequent rearrangement of the rights of the members of the LLP is also an area of concern that came before the court. The English LLP Act though permits mergers of LLPs and also binds the minority member with the decision of the majority members. However permission of the court is necessary for bringing about such change. The Court in Re Hawk Insurance Ltd. (2001) held that the duty of the court is to see that those whose rights are so dissimilar that they cannot consult together should be separated out. Otherwise the minority should not be given a veto by an overzealous examination of the class meetings.

INDIAN SCENARIO
India has a rich set of choices in determining its future growth path in a globalised competitive business environment. The future choice or a combination thereof will depend on how well the government, the private initiative, and the civil society can work together to create a common understanding of the direction in which the economy should head and what it needs to get there. India can, no doubt, reap tremendous economic gains by developing policies and strategies that focus on making more effective use of its rich knowledge base to increase the overall productivity of the economy and the welfare of its population. In so doing, India will be able to improve its international competitiveness and join the ranks of countries that are making a successful transition to the knowledge economy. Joint Stock Companies, limited by shares or guarantees, have as significant a role to play in the economic processes of a countrys economy as the other forms of businesses e.g. sole
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proprietorships or partnership firms or, for that matter, the limited liability partnerships. These business forms undertake operations across the manufacturing sector and the services sector, both of which account for a very large contribution to the overall development of a nations economy. In this background, a need was felt for a new corporate form that would provide an alternative to the traditional partnership which exposes its partners to unlimited personal liability and a statute based governance structure of limited liability companies. The issue of Limited Liability Partnership (LLP) has been a matter of discussion for many years - the Abid Hussain Committee recommended legislation on LLP in 1997. Later, the concept of LLP and the pressing need to introduce it in India found mention in the report of Naresh Chandra Committee (2003) set up on regulation of private companies. More recently, the JJ Irani Expert Committee on Company Law (2005) recommended introduction of a LLP law. With this background, Limited Liability Partnership Act, 2008 [LLP Act] was enacted on January 7, 2009. Subsequently, Government of India [GOI] notified various provisions of LLP Act on 31st March 2009. GOI has, on April 1, 2009, also notified the Limited Liability Partnership Rules, 2009 [LLP Rules] in respect of registration and operational aspects under the LLP Act.7

SOME KEY ISSUES RELATING TO AN LLP IN INDIA LLP under the Indian law like in other dominions is a marriage of principles of company law and partnership law in order to address the deficiencies in both the areas for small scale business and professional firms. The fundamental issues relating to LLPs in India may be summarised as follows: 1. LIMITED LIABILITY AND PERPETUAL SUCCESSION The LLP Act of 2008 through its various provisions makes it clear that the liability of the LLP shall not be the liability of the individual partners.
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Sec 3(1) of the Act entails that LLP is a body corporate having perpetual succession. Sec 3(2) of the act lays down that LLP is a legal entity separate from its members.

http://www.caclubindia.com/articles/understanding-llps-better-12991.asp (accessed on 14.02.12)

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According to Sec 3(3) the change in the partners of a LLP shall not affect the existence, rights and liabilities of the LLP. Similarly Sec 27 and 28 of the Act provides that the partners are not personally liable to liabilities of an LLP except in case of fraud.

2. INCORPORATION OF LLP [SECTIONS 11 TO 21] While Section 11 to 21 provides the technical details for incorporation of LLP, which is similar to the procedure for incorporation of a company under the Companies Act, 1956, the entire procedure for formation of an LLP is governed by the LLP Rules, 2009. The steps that are involved in the process of formation of LLP may be summarised as follows:

Step I-Deciding the Partners and Designated Partners For the incorporation of a LLP a minimum of two partners are essential. In addition to it there is another condition which lays down that out of the total members at least two shall be designated members. Partners of LLP Partner of LLP can be i. Companies incorporated in and outside India ii. LLP incorporated in and outside India iii. Individuals Resident in and outside India Designated Partner

Every LLP should have minimum 2 designated partners who are individuals and at least one of them should be resident in India.

A person or nominee of a body corporate, intending to be appointed as who is appointed as designated partner of LLP should hold a Designated Partner Identification Number (DPIN) allotted by the Ministry of Corporate Affairs.

DPIN can be obtained by submitting application along with address proof and identity proof of the individuals.
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Step II- Obtaining DPIN No. & Digital Signature The next important step is to obtain a DPIN No. and a digital signature from the central government and the certifying authority respectively. Designated Partner Identification Number (DPIN): DPIN is an eight digit numeric number allotted by the Central Government in order to identify a particular partner and can be obtained by making an online application in e Form 7 to Central Government and submitting the physical application along with necessary identity and Address proof of the person applying with filing fee of Rs. 100 prescribed fees. Section 7 (6) of LLP Act 2008, provides that every Designated Partner is required to obtain a DPIN from the Central Government. Digital Signature Certificate (DSC) 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 agency.

Step III- Checking the Name Availability After obtaining the DPIN and DSC the partners must decide on the name of the proposed LLP. The proposed name is to be filed via an application an application in e Form 1of Rule 18(5) of the Limited Liability Partnership Act 2008, for reservation of the desired name. The prescribed parameters for naming a LLP

The name of the limited liability partnership shall not be similar or identical with Company or LLP already registered in India.

It should not contain words prohibited under the Emblems and Names (Prevention of improper use) Act, 1950 or which are also not 'Undesirable' in the opinion of Central Government or which satisfies the conditions prescribed under rule 18(2).

Upto 6 names of the proposed LLP can be indicated.


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Any partner or designated partner in the proposed LLP may submit eForm-1 along with a fee of Rs. 200.

Details of minimum two designated partners of the proposed LLP are required to be filled in the application for reservation of name.

Step IV- Drafting of LLP Agreement Next comes the drafting of Limited Liability Partnership Agreement governing the mutual rights and duties among the partners and among the LLP and its partners. The preliminary requirements of the agreement are:

Name of LLP Name of Partners & Designated Partners Form of contribution Profit Sharing ratio Rights & Duties of Partners Proposed Business Rules for governing the LLP

It is pertinent to mention here that in cases where no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable. Step V-Filing of Incorporation Documents After the drafting of the LLP agreement incorporation documents, consent of partners and declaration are to be filed electronically through the medium of e-forms prescribed with the Registrar of LLP for incorporation of the LLP on payment of prescribed fees based on the total monetary value of contribution of partners in the proposed LLP. Documents Required in the entire process:

eForm 1-Name Availability Application eForm 2-Incorporation Document signed by a person named in the incorporation document as a designated partner along with the prescribed registration fee as per the

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slab given in the LLP Rules, 2009, based on the total monetary value of contribution of partners in the proposed LLP.

eForm 3- Details of LLP Agreement eForm 4-Consent of Partners eForm 3 & 4 are required to filed within 30 days of the incorporation. eForm 7-Application for Designated Partners Identification Number Subscription Sheet-(Just like in case of Company formation, the partners are required to subscribe their names along with signatures to the subscription sheet, which shall be witnessed by any chartered Accountant/Company Secretary/Advocate in practice. In case the subscription sheet is executed outside India, than it must be notarized and consularized.)

LLP Agreement duly stamped as per relevant Stamp Act of the State. Proof of Address of Registered Office Consent of Partners and Designated Partners

All the e forms must be digitally signed by any designated partner and shall be certified by an advocate/company secretary/chartered accountant/cost accountant in practice engaged in the formation of LLP. Step VI- Certificate of Incorporation After the Registrar is satisfied that all the formalities with respect to the incorporation has been complied, he shall issue a Certificate of Incorporation as to formation of the LLP within maximum of 14 days of filing of Form-2 and will issue a certificate of incorporation in Form16. The Certificate of Incorporation issued shall be the conclusive evidence of formation of the LLP. 3. PARTNERS AND THEIR RELATIONS AND EXTENT OF LIABILITY [SECTIONS 22 TO 31]

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 the partners, or agreement between the LLP and its partners. In absence of any such agreements, the mutual rights and duties shall be governed by the LLP Act.

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Every partner of a LLP is, for the purpose of the business of LLP, the agent of LLP, but not of other partners.

LLP, being a separate legal entity, shall be liable to the full extent of its assets whereas the liability of the partners of LLP shall be limited to their agreed contribution in the LLP.

LLP is not bound by anything done by a partner in dealing with a person if the partner in fact has no authority to act for the LLP in doing a particular act; and the person knows that he has no authority or does not know or believe him to be a partner of the LLP

LLP is liable if the partner of a LLP is liable to any person for wrongful act/omission on his part in the course of business of LLP/with its authority

Obligation of LLP whether arising in contract or otherwise, shall solely be the obligation of LLP. Liabilities of LLP shall be met out of properties of LLP.

Partner is not personally liable for the obligations of LLP solely by reason of being a partner of LLP.

No partner is liable for the wrongful act or omission of any other partner of LLP, but the partner will be personally liable for his own wrongful act or omission.

The liability of the LLP and partners who are found to have acted with intent to defraud creditors or for any fraudulent purpose shall be unlimited for all or any of the debts or other liabilities of the LLP.

Cessation of a partner on grounds like resignation, death, dissolution of LLP, declaration that a person is of unsound mind, declared/applied to be adjudged as insolvent etc. will not be effective unless the person has notice that the partner has ceased to be so; or notice of cessation has been delivered to ROC.

The notice of cessation may be filed by the outgoing partner if he has reasonable cause to believe that LLP has not file the said notice. 4. AUDIT/FINANCIAL DISCLOSURES [SECTIONS 34 AND 35]

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LLP shall maintain the prescribed books of accounts relating to its affairs on cash or accrual basis and according to the double entry system of accounting.

The accounts of every LLP are required to be audited, except where the turnover does not exceed Rs. 40,00,000 in any financial year; or Contribution does not exceed Rs. 25,00,000

Central Government has powers to exempt certain class of LLP from requirement of compulsory audit.

LLP are required to file following documents with the ROC statement of account and solvency, within 30 days from the end of 6 months of the financial year and annual return within 60 days from the end of the financial year.

5. ASSIGNMENT & TRANSFER OF PARTNERSHIP RIGHTS [SECTION 42]

The rights of a partner to a share of the profits and losses of the LLP and to receive distribution in accordance with the LLP agreement are transferable, either wholly or in part. However, such transfer of rights does not cause either disassociation of the partner or a dissolution and winding up of the LLP.

Such transfer of right, shall not, by itself entitle, the assignee or the transferee to participate in the management or conduct of the activities of the LLP or access information concerning the transactions of the LLP.

6. FOREIGN LLP [SECTION 59 AND RULE 34]

On establishment of a place of business in India, foreign LLP are required to file prescribed documents for registration with ROC within 30 days of the establishment in India.

Any alteration in the constitution documents, overseas principle office address and partner of foreign LLP are required to be filed with the ROC in the prescribed form within 60 days of the close of the financial year.

Any alteration in the certificate of registration of foreign LLP, authorized representative in India and principle place of business in India are required to be filed with the ROC in the prescribed form within 30 days of alteration.
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Foreign LLP ceasing to have a place of business in India, are required to give notice to ROC in the prescribed form within 30 days of its intention to close the place of business and from the date of such notice, the obligation of Foreign LLP to file any document with the ROC shall cease, provided it has no other place of business in India and it has filed all the documents due for filing as on the date of the notice.

7. CONVERSION OF PARTNERSHIP FIRM/PRIVATE COMPANY/UNLISTED PUBLIC COMPANY INTO LLP [SECTIONS 55 TO 58, SECOND, THIRD AND FOURTH SCHEDULES] The government of India has, on May 22, 2009, notified provisions relating to conversion of a partnership firm as defined under the Indian Partnership Act,1932 into LLP; a private limited company into LLP; an unlisted public company into LLP. Second, Third and Fourth Schedules to the LLP Act contain provisions relating to conversion of a partnership firm into LLP, a private limited company into LLP and unlisted public company into LLP, respectively. Eligibility for conversion: Firm into LLP: Firm can be converted into LLP if all the partners of firm become the partners of LLP and no one else. Company into LLP: Private limited company/unlisted public company can be converted if and only if there is no security interest in its assets subsisting or in force at the time of application for conversion; and all the shareholders of the company become partners of LLP and no one else. Other conditions For conversion of firm/private limited company/unlisted public company into LLP, the partners of the firm/shareholders of company are required to file a statement and incorporation documents in the prescribed form with the ROC.

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On receiving the documents for conversion, ROC shall register the documents and issue certificate of registration specifying the date of registration as LLP. Upon registration by ROC, LLP shall intimate Registrar of Firm [ROF]/ROC, as the case may be, about conversion within 15 days of registration. On and from the date specified in the certificate of registration issued by ROC -all tangible (movable/immovable) & intangible property, liabilities, interest, obligation etc. relating to the firm/private limited company/unlisted public company and the whole of the undertaking of the firm/private limited company/unlisted public company, shall be transferred to and shall vest in the LLP without further assurance, act or deed. -firm/private limited company/unlisted public company shall be deemed to be dissolved and removed from the records of ROF/ROC, as the case may be. If any property/rights, etc. of the partnership firm/private limited company/unlisted public company is registered with any authority, LLP shall take steps to notify the authority of the conversion. Upon conversion, following things/events in favour of or against the firm/private limited company/unlisted public company on the date of registration may be continued, completed and enforced by or against the LLP: -all proceedings, conviction, ruling, order or judgment of any Court, Tribunal or other authority pending in any Court or Tribunal or before any authority on the date of registration, -every agreement irrespective of whether or not the rights and liabilities thereunder could be assigned, -deeds, contracts, schemes, bonds, agreements, applications, instruments and arrangements -every contract of employment -appointment in any role or capacity -any approval, permit or licence issued under any other Act, etc. In case of a firm, every partner of a firm which is converted into a LLP shall continue to be personally liable (jointly and severally with LLP) for the liabilities and obligations of the firm
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incurred prior to the conversion or which arose from any contract entered into prior to the conversion. In case any such partner discharges any such liability or obligation he shall be entitled (subject to any agreement with the LLP to the contrary) to be fully indemnified by LLP in respect of such liability or obligation. For a period of 12 months commencing on or before 14 days from the date of registration, LLP shall ensure that every official correspondence of LLP bears the following: -a statement that it was, as from the date of registration, converted from a firm/private limited company/unlisted public company into a LLP; and -the name and registration number, if applicable, of the firm/a private limited company/an unlisted public company from which it was converted. 8. COMPROMISE, ARRANGEMENT OR RECONSTRUCTION OF LLPS [SECTION 60]

Provisions have been made in the LLP Act for allowing a compromise and arrangement including mergers and amalgamations.

Compromise and arrangement can be between LLP and its creditors or between LLP and its partners.

If majority representing 3/4th in value of creditors or partners, at the meeting, agree to compromise or arrangement shall, if sanctioned by National Company Law Tribunal [NCLT] be binding on all the creditors, all the partners and LLP. NCLT to pass order subject to disclosure of all material facts/latest financial position and pendency of investigation proceedings.

NCLT order shall be filed with the ROC within 30 days, in order to be effective. In case of scheme of the amalgamation, NCLT shall pass order only on receipt of report from the ROC that the affairs of the LLP (transferor LLP) have not been conducted in the manner prejudicial to the interest of the partner/public.

9. WINDING-UP OF LLP [SECTIONS 63 AND 64] LLPs may be wound-up either voluntarily or by NCLT. LLP may be wound up by NCLT if

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LLP decides to wound up by NCLT; Number of partners is reduced below 2 for a period of more than 6 months; LLP is unable to pay its debts; LLP has acted against the interests of the sovereignty and integrity of India, the security of the State or public order; LLP has defaulted in filing Statement of Account and Solvency or annual return with the ROC for 5 consecutive financial years; or NCLT is of the opinion that it is just and equitable that the LLP be wound up On 30 March 2010, the Ministry of Corporate Affairs issued Limited Liability Partnership (Winding up and Dissolution) Rules, 2010. Presently all the provisions of the LLP Act, other than those relating to winding-up and dissolution of LLP and appellate provisions to be exercised by NCLT and National Company Law Appellate Tribunal [NCLAT], have been brought into force. Till the constitution of NCLT and NCLAT under the Companies Act, 1956, the powers of NCLT and NCLAT are be exercised by the Company Law Board or High Court as is specified in the LLP Act. [Section 81]

10. RESTRICTIONS ON IPO The main perhaps the only disadvantage of forming an LLP is that it cannot go for IPO and raise money from the public which a Company can easily do. 11. NON APPLICABILITY OF THE INDIAN PARTNERSHIP ACT, 1935 Sec 4 of the LLP Act provides that the provisions of the Indian Partnership Act shall not apply to an LLP.8

Taxmann's LLP Ready Reckoner: A Comprehensive and Complete Guide to Law and Procedures Prescribed Under Limited Liability Partnership Act 2008 / Limited Liability Partnership Rules 2009; New Delhi: Taxmann's Publications (P) Ltd. 2009 (reprint 2010); also see http://www.llponline.in/tax_llp.php (accessed on

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12. FDI IN LLP The Foreign Investment Promotion Board vide notification no.1 of 2011 has allowed 100% FDI in LLPs operating in sectors/activities where 100% FDI is allowed under the automatic route. However FDI is not permitted in the agricultural/plantation sector, print media and real estate business. At the same time downstream investment is also not permitted.9

DIFFERENCES BETWEEN A COMPANY, PARTNERSHIP FIRM AND AN LLP10

Features Name

Company Name of a public company to end with the word limited and a private company with the words private limited

Partnership firm No guidelines.

LLP Name to end with LLP i.e. Limited Liability Partnership

Registration

Companies are compulsorily required to be registered under the Indian Companies

Partnership can be registered under the Indian Partnership Act 1882. But registration is not

LLP is incorporated under the LLP Act, 2008. Incorporation is mandatory and it must be in written

23.02.12); Also there in DSR Krishnamurti; Taxmann's Law Relating to limited Liability Partnership: A Section-Wise Commentary on Limited Liability Partnership Act; New Delhi: Taxmann Pub., 2008

Vivek Sadhale and Vikas Agarwal: Foreign Direct Investment in Limited Liability Partnership-A welcome move or a dampner? ; Corporate Law Adviser Vol. 1, Pg- 106,2012 10 DSR Krishnamurti; Taxmann's Law Relating to limited Liability Partnership: A Section-Wise Commentary on Limited Liability Partnership Act; New Delhi: Taxmann Pub., 2008; see Taxmann's LLP Ready Reckoner: A Comprehensive and Complete Guide to Law and Procedures Prescribed Under Limited Liability Partnership Act 2008 / Limited Liability Partnership Rules 2009 New Delhi: Taxmann's Publications (P) Ltd. 2009 [reprint 2010]; also see Saharay, Madhusudan; Textbook on Indian Partnership Act: With Limited Liability Partnership Act New Delhi: Universal Law Publication, 2010.

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Act1956 and incorporation document is essential. Capital contribution Private company should have a minimum paid up capital of Rs. 1 lakh and Rs.5 lakhs for a public company Legal entity status Is a separate legal entity Liability Limited to the extent of unpaid capital.

mandatory and even a written agreement is not essential.

form.

Not specified

Not specified

Not a separate legal entity Unlimited, can extend to the personal assets of the partners

Is a separate legal entity Limited to the extent of the contribution to the LLP.

No. of shareholders / Partners

Minimum of 2. In a private company, maximum of 50 shareholders

2- 20 partners

Minimum of 2. No maximum.

Taxability

The income is taxed at 30% + surcharge +cess

The income is taxed at 30% + surcharge +cess

Same as a company and a partnership firm but it has to comply with certain conditions under Sec 184 of the Income Tax act.

Foreign Nationals as shareholder / Partner

Foreign nationals can be shareholders.

Foreign nationals cannot form partnership firm.

Foreign nationals can be partners.

Meetings

Quarterly Board of Directors meeting, annual shareholding

Not required

Not required.

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meeting is mandatory Annual Return Annual Accounts and No returns to be filed Annual Return to be filed with ROC with the Registrar of Firms Annual statement of accounts and solvency & Annual Return has to be filed with ROC Audit Compulsory, irrespective of share capital and turnover Compulsory Required, if the contribution is above Rs.25 lakhs or if annual turnover is above Rs. 40 lakhs. How do the bankers view High creditworthiness, due to stringent compliances and disclosures required Dissolution Very procedural. Voluntary or by Order of National Company Law Tribunal. By agreement of the partners, insolvency or by Court Order. Less procedural compared to company. Voluntary or by Order of National Company Law Tribunal Whistle blowing No such provision No such provision Protection provided to employees and partners who provide useful information during the investigation process. Creditworthiness depends on goodwill and credit worthiness of the partners Perception is higher compared to that of a partnership but lesser than a company.

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STATEWISE DATA OF LLPs IN INDIA11

CONCLUSIONS
The grass is, thus, not entirely green. There are in this Act, just as any other law, certain issues that need to be addressed in order for the LLP regime to take its full colour. It seems more like a framework legislation, the effective attainment of the objective of which is contingent on amending a host of other laws. Some much-needed clarificationsincluding
11

http://www.india-briefing.com/news/indias-llp-statistics-state-4978.html/ (accessed on 23.02.12)

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the removal of the cap of twenty persons, partnership business by advocates with nonadvocates, tax treatment and liability of foreign partners at least in respect of assets in India have not been made in the Act. Understandably, these are only some of the many issues that the Act must address before we can really have the model legislation. It is hoped that this paper would attract attention of the concerned authorities to make some of such desired changes.

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