LIMITED LIABILITY PARTNERSHIP (LLP) – A NEW BUSINESS PLANNING CORPORATE ENTITY UNDER  
  THE LIMITED LIABILITY PARTNERSHIP ACT 2008  
     
  The LLP is new concept in India and is the requirement of the today’s business needs especially in the service sector and small business because of its advantages over the partnership and the private limited company.  
  In the corporate of LLP the liability of the partners is limited and restricted to the amount committed in the agreement.  
  Existing Business’s in the Proprietary, Partnership, Private Limited Company can be converted into LLP’s but however for conversion of Private Limited Company (having turnover of over ` 60/- L) to LLP there are certain restrictions under the Income Tax Act 1961  
  The LLP can be formed between(1) two or more individuals or HUF’s (2) two or more partnership firms (3) two corporate bodies i.e. Private Limited or Limited companies, (4) a combinations of different forms of entities  
  The LLP can be formed for a specific venture, or a limited period or an unlimited period or to be dissolved on the occurrence of an event  
  The accounts are required to be Audited by an accountant only if any one of the 2 conditions are satisfied (1) the turnover in any financial year exceeds Rs. 40.00 lakhs or (2) the Capital contribution by the partners exceeds Rs 25.00 lakhs.  
 
A COMPARATIVE ANALYSIS BETWEEN -

PARTNERSHIP || LIMITED LIABILITY PARTNERSHIP || PRIVATE LIMITED COMPANY
Nature   PARTNERSHIP   LIMITED LIABILITY PARTNERSHIP   PRIVATE LIMITED COMPANY
Structure   Is not an entity but only a name by which the partners are known jointly   A corporate Entity having perpetual existance   A corporate Entity having perpetual existance
Formation    Formed by a Deed of Partnership   Incorporation under MCA - process similar to Company formation   Incorporation under MCA - process Company formation
Conversion from one form to another   Can be converted to LLP and to Pvt. Ltd.   Can be converted to Pvt. Ltd. But not to Partnership   Can be converted to LLP but not to partnership. Subject to restrictions under Income Tax Act on Pvt Ltd. Having turnoverr exceeding Rs.60 lakhs. 
Number of Partners   cap of 20 partners   No limit to the number of partners   Cap of 200 Members
Who can be partners   Any Indl.| HUF | Firm | Company or any other person   Any Indl.| HUF | Firm | Company or any other person   Shareholding can be only by Indl - may be for and on behalf of another entity
Life Span determined or perpetual   Can be for a specific period or at will   Can be for a specific venture | project | or to be determined on the happening of an event etc.   It has to be perpetual and if to be wound up then thru court only
Addmission / Removal of partners   By writting fresh deed   Similar to Appointment / Removal of Directors by uploading the forms    By uploading F.  No. 32
Constitution   Partnership Deed   Deed of Agreement
Incorporation Certificate
  Memorandum & Articles
Incorporation Certificate
Partners Authority & Responsibility   All partners have equal right and responsible   Only Designated Partners have rights for policy making and responsible under the act   Directors are policy decision makers and fully responsible for acts of ommission and commison under the act.
Liability of Partners   All Partners are fully liable including the personal assets   Liability limited to the Capital Commitment,
Excess capital to be treated as outside liability
  Liability limited to Share Capital Invested
Compliances           Under the new Companies Act, the compliances are very difficult to cope up.
Balance Sheet formation   No specific Schedule prescribed and no given format   No specific Schedule prescribed and no given format   Schedule VI prescribed format and disclosures with Directors Reports etc
Audit Reports | Statutory Audits etc.   No stautory Audit as in the case of Company
Only Tax Audit if turnover exceeds Rs. 1 crore
  No stautory Audit as in the case of Company
Audit compulsory if commited capital > Rs. 25 Lakhs
Tax Audit if turnover > 1 Crore.
  Statutory Audit mandatory.
Tax Audit if turnover > 1 Crore.
Loans from Non-partners and outsiders   No permission or resolution    No permission or resolution    Advance permission by filing resolution with MCA is required
Transactions by Directors / partners   No permission or resolution    No permission or resolution    Advance permission by filing resolution with MCA is required.
Loan to Director/Sister Concern is prohibited under the act.
Holding of AGM, EOGM, Directors Meeting etc and Resolutions to be passed   No Requirement   As may be decided by partners and specified in the Partnership deed   AGM Mandatory
EOGM for some special
Directors Meeting - regulatory required and for special purposes extra 
Salary to partners | directors   As provided in Partnership Deed - Fixed salary or Variable as per I Tax    As provided in Partnership Deed - Fixed salary or Variable as per I Tax    Resolutions to be passed for fixing salary and other benefits | perks and approval in certain cases from CLB
Tax Impact   Tax @ 30.09% on Net profit after interest and salary to partners   Tax @ 30.09% on Net profit after interest and salary to partners   Tax @ 30.09% on Net profit after interest and salary to directors
Surcharge applicable on incomes > 1 crore
Minimum Alternate Tax   Applicable - AMT@ 18%   Applicable - AMT@ 18%   Applicable - MAT@ 18%
Distribution of Profits after tax   No tax of profits (after salary & Interest to partners) in the hands of partners   No tax of profits (after salary & Interest to partners) in the hands of partners   Dividend Distribution Tax @ 18% applicable but dividend not taxable thereafter
Withdrawals by partners   Yes permitted but capital should not run into (-) bal   Yes permitted but capital should not run into (-) bal. In which case the LLP would be constrained to charge interest (if interest on capital is allowed in the deed.   Can withdraw loans. But Dr. Bal in the shareholders or for their benefit to another firm | Indl etc - Deemed dividend sec 2(22)(e)
{A very disturbing section}
 


 
  The agreement is required to specifically provide  
 
  • Name of the LLP
  • Date of Agreement
  • Address of the LLP
  • Business
  • Designated partners – name, address of the initial partners
  • Conditions / qualifications for * admission * resignation * retirement
  • for Obligations, rights, entitlements, etc on resignation, etc of partners
  • Powers, duties, restrictions and rights of each partner
  • Common   Seal
  • Contribution and conditions of its introduction and withdrawal
  • Interest  on   contribution
  • Remuneration   to   partners
  • Profit & Loss sharing ratio
  • Assignment & transfer of partnership rights
  • Besides it provide any other matter that the partners may agree upon
  • Personal Liabilities and frauds
  • Profit from use of property / name of LLP
  • Vote weightage Resolution requiring vote requirement – matters thereto – all / majority / %
  • Manner in which consent is to be obtained
  • Procedure   for   meetings
  • Similar business by partners – situations
  • Dispute Resolution – Arbitration
  • Mode / method of distribution of profits
  • Rights of assets (tangible / intangible
  • Appointment / reappointment / removal of auditors
  • Financial year – 31st  March
  • Banking
  • Method  of  accounting
  • Duration
  • Amendment in LLP agreement
  • Other address for service of documents
  • Change  of  name
  • Change of registered office
  • Dissolution solutions – voluntary winding up
 
     
  In the LLP the law provides that  
 
  • Partner is agent of LLP but not of other Partners.
  • Method  of  accounting to be adopted is accrual / mercantile.
  • The LLP is required to file Statement of accounts and solvency.
  • Foreign LLP, firm or Company can reserve the name for 3 year.
  • Invoices, Letterheads, etc to contain name, address, registration no. & a statement that it is registered with Limited Liability.
 
  We carry out all steps for the incorporation of the LLP with the Registrar at Delhi and Haryana including the drafting of the agreement.

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