Limited Liability Partnership

Transcription

1 Brief Overview on Limited Liability Partnership CA Shashi Agarwal CA Shashi Agarwal Page 1

2 Benefits of LLP Popular form of business: Though the concept of Limited Liability Partnership has been recently introduced in India but it is very known concept in other countries of the world especially in service sector, realty sector, JV/SPV. Easy to Form: It is very easy to form LLP, as the process is very simple as compared to Companies and does not involve much formality. Its cost of formation is also lesser in comparison to companies. Body Corporate: Just like Company, LLP is also body corporate, which means it has its own existence as compared to partnership. LLP and its Partners are distinct entity in the eyes of law. LLP will know by its own name and not the name of its partners. Perpetual Succession: An incorporated LLP has perpetual succession. Not withstanding any changes in the partners of the LLP, the LLP will be same entity with the same privileges, rights and obligations. The LLP shall continue to exist till its wound up in accordance with the provisions of the relevant law. Liability: The liability of partner is limited upto the amount of contribution mentioned in LLP agreement. A Partner is personally liable for his own wrongful act i.e. act which is not authorized by LLP or for fraud on his part. Partners are not agent of other Partners: In LLP partners unlike partnership are not agents of the partners and therefore they are not liable for the individual act of other partners in LLP, which protects the interest of individual partners. Separate Property: The LLP as legal entity is capable of owning its funds and other properties. The LLP is the real person in which all the property is vested and by which it is controlled, managed and disposed off. The property of LLP is not the property of its partners. Therefore partners cannot make any claim on the property in case of any dispute among themselves. Related party transactions: There is no restriction for entering into contracts with related parties in LLP. Investment: LLP can invest in shares of other Company in its name. At present not allowed by RBI. Flexible to Manage: LLP Act 2008 gives LLP the freedom to manage its own affairs. Partner can decide the way they want to run and manage the LLP, in form of LLP Agreement. The LLP Act does not regulate the LLP to large extent rather than allows partners the liberty to manage it as per their will. Taxation: LLPs will be treated at par with Partnership firm for the purpose of Income Tax. Moreover, LLP are also not subject to Dividend Distribution Tax as compared to company, so there will not be any tax while you distribute profit to your partners. Raising Money: Financing a small business like sole proprietorship or partnership can be difficult at times. The LLP being a regulated entity like company can attract finance from PE Investors, financial institutions etc. No Mandatory Audit Requirement: Under LLP, only in case of business, where the annual turnover/contribution exceeds Rs 40 Lacs/ Rs 25 Lacs are required to get their account audited annually by a chartered accountant. This provides great relief to small businessmen. Capacity to sue: As a juristic legal person, the LLP can sue in its name and be sued by others. The partners are not liable to be sued for dues against the LLP. CA Shashi Agarwal Page 2

3 LLP vs Partnership Few Comparison between Traditional Partnership and Limited Liability Partnership Sr No. Traditional Partnership Limited Liability Partnership Distinctions 1. Not a legal entity separate from its partners. It is a legal entity separate from its partners, having perpetual succession. 2. Unlimited personal liability of each partner for dues of the partnership firm. Personal property of each partner also liable. 3. The name of the entity can be as per the choice 4. It does not have perpetual succession as this depends upon the will of the partner. No personal Liability of partner, except in case of fraud. The name should contain Limited Liability Partnership or LLP as suffix It has perpetual succession and the partners may come and go. 5. Partnership deed/ agreement is executed. Incorporation Document is required to be executed. In addition, LLP agreement is required in almost all cases, though such LLP agreement is not mandatory. 6. Death of Partner dissolves a firm, in absence of agreement. Death of Partner does not dissolve LLP. 7. Minimum two and maximum twenty partners Minimum two partners. No limit on maximum number of Partners. 8. Each partner can take part in business of firm. 9. All partners are liable for statutory compliances under partnership Act 10. Every partner of firm is agent of firm and also of other partners. He can bind partnership firm as well as other partners by his acts. Each partner can take part in business of firm, but LLP Agreement can provide to the contrary. Only designated partners are liable for statutory compliances as are required under LLP act (not necessarily in respect of other Acts) Every partner of LLP is a agent of LLP but not of other partners. Thus, he can bind LLP by his acts but not other partners. 11. Partnership firm can be dissolved LLP can be wound up 12. No specific provision to enter into compromise, arrangement, amalgamation, reconstruction etc. This can be done only under civil Laws. 13. Only registered partnership can sue the third party 14. Partners have joint ownership of all the assets belonging to partnership firm. 15. A person can cease to be a partner as per the agreement. 16. Partnership firms are required to have only tax audit of their accounts as per the provisions of Income Tax Act, LLP can enter into compromise, arrangement, amalgamation, reconstruction etc. A LLP is a legal entity can sue and be sued. The LLP independent of the partners has ownership of assets. A person can cease to be a partner as per the LLP Agreement or in absence of the same by giving 30 days prior notice to the LLP. All LLP except those having turnover less than Rs. 40 lacs or Rs. 25 lacs contribution in any financial year. CA Shashi Agarwal Page 3

4 LLP vs Company Few Comparison between Company under Companies Act and Limited Liability Partnership Sr. Company under Companies Act Limited Liability Partnership No. 1. Articles are to be filed at the time of incorporation. Companies must have Articles. LLP Agreement is required to be filed later. In absence of LLP agreement, mutual rights and duties will be as specified in First Schedule to LLP Act. Thus, practically, each LLP must have LLP Agreement, though not mandatory 2. Managing Director and Whole time director to look after day to day administration. There are restrictions on remuneration payable to MD/WTD. 3. Individual Director or member does not have authority in conduct of business of company. 4. The number of members incase of Private Company is 2 and maximum 200 and incase of Public Limited Company minimum 7 and there is no limitation on the maximum number of members. Designated partner to look after statutory compliances. Otherwise all partners can look into affairs of the LLP. However, LLP can delegate powers to some partners who may be designated as Managing Partner or Executive Partner or any other name. Every partner has authority to conduct business of LLP, unless the LLP Agreement provides contrary Minimum 2 partners and there is no limitation of the maximum number of partners. 5. Filing of accounts and annual return is required. 6. Liability of Members is limited to the amount required to be paid up on each share. 7. The directors act as agents of the company and not of the members. 8. Holding of Board meetings and General meetings are mandatory requirement. 9. The proceedings of meetings are required to be recorded in minutes book. 10. Companies are required to get their accounts audited annually as per the provisions of the Companies Act, Statement of Solvency (eform 8) and Annual Return (eform 11) but no attachment like companies. Liability of Partners is limited to the extent of their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner. Partners act as agents of LLP and not of the other partners. There is no need of holding Board meetings or General meetings. A LLP by Agreement may decide to record the proceedings of meetings of the Partners/Designated Partners. All LLP except those having turnover less than Rs. 40 lacs or Rs. 25 lacs contribution in any financial year are required to get their accounts audited annually as per the CA Shashi Agarwal Page 4

5 provisions of LLP Act, Few Similarities Between Company Under Companies Act And Limited Liability Partnership Sr. No. Company under Companies Act 1. Provision of name, its approval, change are similar. 2. Complicated procedure for change in registered office, particularly when change is to other state. 3. Company can be wound up voluntarily or by order of court 4. ROC can strike off name of defunct company Limited Liability Partnership Provision of name, its approval, change are similar. Simple procedure to change registered office of LLP anywhere in India just by informing ROC and following prescribed conditions. LLP can be wound up voluntarily or by order of Court ROC can strike off name of defunct LLP Who may/can go for LLP? Till the introduction of the Limited Liability Partnership Act, 2008 ( LLP Act ), entrepreneurs running business on small/ medium scale had options as form of organization i.e. Proprietorship, Partnership Firm or Private/Public Limited Company. Now, with the introduction of the LLP Act new option is open for small scale business. All existing partnership firms can convert themselves into LLP. LLP has an advantage over partnership firm. The only point of concern is financial information of LLP is available at public domain. Further, Association of Persons ( AOP ) or any other un-registered entity can also go for LLP due to above advantages. Entities barred from LLP LLP is formed for carrying any business or trade with a view to profit. Hence LLP cannot be formed with Non-profit making objective. There is no provision under LLP Act for such kind of registration under it. Conclusion Hence, we can conclude that, existing partnership firms OR new entities can go for LLP rather than Partnership Firm. AOPs can also think of forming LLP instead of unregistered form of organization. CA Shashi Agarwal Page 5

6 How to Incorporate LLP? Incorporation Procedure Step I Deciding the Partners and Designated Partners Step II Obtaining Digital Signature & DIN Step III Obtaining DPIN Step IV Checking the Name Availability Step V Drafting of LLP Agreement Step VI Filing of Incorporation Documents alongwith Subscription Sheet Step VII Certificate of Incorporation Step I Deciding the Partners and Designated Partners A LLP can be incorporated with a minimum of at least two partners who can be Individuals or Body Corporate through their nominees. Further for incorporating an LLP, of the total number no. of partners, at least two shall be Designated Partners, of which at least one must be an Indian Resident. Parameters for deciding the Partners and Designated Partners: At least Two Partners; Individuals or Body Corporate through individual nominees. Minimum of Two Individuals as Designated Partners, of total no. of Partners. At least One Designated Partner to be Resident Indian. A person Resident in India means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one year. Designated Partner means a partner who is designated as such in the incorporation documents or who become a designated partner by and in accordance with the Limited Liability Partnership Agreement. Step II Obtaining Digital Signature & DIN Digital Signature Certificate: As all the documents and forms required for incorporating an LLP in India to be filed electronically and under the signatures of Designated Partners, thus one of the Designated Partners to obtain the digital signature certificates from government recognized DSA s. The signatures shall also be required for signing and filing of all relevant forms and documents to be filed, annually or event based after incorporation of the LLP, asking for approvals or as intimation. Likewise the manual signatures, digital signature certificates are individual specific and no partner needs to obtain more than one. DIN to be obtained by filing e-form DIR-3 alongwith DIR-4 & necessary documents, photograph. Step III Obtaining DPIN Designated Partner Identification Number (DPIN): Section 7 (6) of LLP Act 2008, provides that every Designated Partner to obtain a DPIN from the Central Government. 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 prescribed fees. CA Shashi Agarwal Page 6

7 Step IV Checking the Name Availability The next step is to decide the name for the proposed LLP to be incorporated, anyone intending to incorporate an LLP has to evaluate his proposed name under the prescribed parameters and make an application in Form 1of Rule 18(5) of the Limited Liability Partnership Act 2008, for reservation of the desired name. The name of the limited liability partnership shall not be similar or identical with Company or LLP already registered in India and abroad and it should not contains 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). For more information check Name Availability Guidelines. In case any Body Corporate is partner, copy of Board resolution authorizing the incorporation of LLP shall be attached. Step V Drafting of LLP Agreement The next step is drafting of Limited Liability Partnership Agreement governing the mutual rights and duties among the partners and among the LLP and its partners. Drafting of the Agreement In order to enable the orderly function of the LLP and to avoid misunderstanding among the partners, proper care should be taken to draft the Limited Liability Partnership Agreement: The following aspects have to be taken into consideration to draft the Agreement:- i. Name of Partner And Business Nature of Business Duration of the Business, if the business is going to be carried for a specified period only ii. Relationship Between partners Admission of Partners Removal of Partner Contribution to Capital Consequences of death of a partner Transfer of Interest In the firm Sharing of profit and loss Interest to Partners capital Remuneration to partners. Selection of Designated Partners Duties Of Partners Undertaking new business Discontinuing some of the existing business Dispute resolution among partners Amendment to LLP Agreement CA Shashi Agarwal Page 7

8 iii. Bank Accounts: Opening of Bank Accounts Operation of Bank Accounts-deposit of cash, withdrawal of cash etc. In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable.. It is not necessary to have the LLP Agreement signed at the time of incorporation, as the details of the same needs to field in e form 3 within 30 days of incorporation but in order to avoid any dispute between the partners as to the terms & conditions of the agreement after the formation of LLP, it is always beneficial to have the LLP Agreement drafted and executed before the incorporation of the LLP. Step VI Filing of Incorporation Documents alongwith Subscription Sheet Next is the filing of Incorporation documents, consent of Designated Partners (in eform 9) & other Partners and declaration 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. e Form 2: Incorporation Documents alongwith Subscription Sheet 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. e Form 3: Details of LLP Agreement This form provides for the necessary information in respect to the LLP Agreement entered into between the partners. e Form 4: Consent of Partners Consent of each partner to become a partner of Limited Liability Partnership along with their address and identity proof to be filed with the Registrar of Companies. e Form 3 & 4 are required to filed within 30 days of the incorporation. All the e forms will 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. Key points: Filling will be done through or mca.gov.in The Designated Partners need to register as Business User in llp.gov.in. Digital Signature is required only for the Designated Partner who would be signing all the e Forms. Step VI Certificate of Incorporation After the Registrar is satisfied that all the formalities with respect to the incorporation has been complied, he will issue a Certificate of Incorporation as to formation of the LLP within maximum of 14 CA Shashi Agarwal Page 8

9 days from date of filing of documents. The Certificate of Incorporation issued shall be the conclusive evidence of formation of the LLP. E-forms & Documents Required: eform 1-Name Availability Application eform 2-Incorporation Document eform 3- Details of LLP Agreement eform 4-Consent of Partners eform 7-Application for Designated Partners Identification Number Subscription Sheet LLP Agreement duly stamped as per relevant Stamp Act of the State. Proof of Address of Registered Office Consent of Designated Partners ( in eform 9) and Partner. CA Shashi Agarwal Page 9

10 KEY INCORPORATION REQUIREMENT Partners Designated Partners Designated Partners Identification Number Digital Signature Certificate Contribution LLP Name LLP Agreement Registered Office Partner There should be at least 2 persons (natural or artificial) required to form a LLP. In case any Body Corporate is a partner, then any person (natural) to be nominated as its nominee for the purpose of the LLP. Following can become a partner in the LLP Company incorporated in and outside India LLP incorporated in & outside India Individuals resident in & outside India Designated Partners: Designated Partner means a partner who is designated as such in the incorporation documents or who become a designated partner by and in accordance with the Limited Liability Partnership Agreement. Every limited liability partnership shall have at least two designated partners and at least one of them shall be a resident in India Provided that in case of a limited liability partnership in which all the partners are bodies corporate or in which one or more partners are individuals and bodies corporate, at least two individuals who are partners of such limited liability partnership or nominees of such bodies corporate shall act as designated partners. Designated Partner shall be: Responsible for the doing of all acts, matters and things as are required to be done by the limited liability partnership in respect of compliance of the provisions of this Act including filing of any document, return, statement and the like report pursuant to the provisions of this Act and as may be specified in the limited liability partnership agreement; and Liable to all penalties imposed on the limited liability partnership for any contravention of those provisions. Explanation. - for the purposes of this section, the term resident in India means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one year. Who can be Designated Partner Only individual can be designated partners. At least one of them shall be a resident in India. CA Shashi Agarwal Page 10

11 Appointment of Designated Partners There are three methods to appoint designated partners, they are : (i) The incorporation document can specify who are designated partners. (ii) The incorporation document can declare that each of the partners from time to time is to be designated partner. In other words every partner shall be designated partner. (iii) Any partner can become designated partner according to the terms of limited liability partnership agreement. Ceasing to be Designated Partner Any Designated Partner may cease to be a Designated Partner according to the terms of limited liability partnership agreement. Consent to become Designated Partner An individual who agrees to become designated partner has to give consent in Form 9 to the LLP. Liabilities/Duties of Designated Partner Section 8 deals with the duties of a designated partner. The Designated partner shall be responsible for compliance of the provision of this act including (i) Filling any document, (ii) Return, (iii) Statement etc. And any other requirement as specified in the limited liability partnership agreement. He is liable to all penalties imposed on the LLP for any contravention of the provisions relating to compliance. This section states that the designated partner is responsible for other requirements as specified in the Act. Many sections in the Act specifies the duties of the designated partner. They are given in a tabular form below for easy reference : 1. Section 13(2) - Document can be served on the partner or designated partner. 2. Section 17(2) - Not Complying with the direction to change name. 3. Section 25(4) - Registration in changes in partners. 4. Section 30 - Unlimited liability in case of fraud 5. Section 34(2) - Maintenance of books of accounts, other records and audit etc. 6. Section 35 - Annual Return 7. Section 38 - Power of Registrar to obtain information 8. Section 41 - Enforcement of duty to make returns, etc. 9. Section 46 - Power of inspection to carry out investigation into affairs of related entities, etc. 10. Section 47 - Production of documents and evidence 11. Section 48 - Seizure of documents by Inspector 12. Section 50 - Prosecution. CA Shashi Agarwal Page 11

12 Admission. Clause 6 of The First Schedule states that no person may be introduced as a partner without the consent of all the existing partners. However the limited liability partnership Agreement can give power one or more partners to admit any persons as partners. Cessation of Partner Section 24 deals with cessation partner of a LLP. Any partner may cease to be a partner in accordance with an agreement with other partners. If there is no agreement, then he can cease to be partner by giving notice in writing of not less than 30 days to be partners of his intention to resign as partner. (Sub- Section 1) In the following cases, a partner shall cease to be partner: (a )on his death or dissolution of the LLP; (b )if he is declared to be of unsound mind by the competent court; (c ) if he applied to be adjusted as an insolvent or declared as insolvent. (Sub-Section 2). If the person ceased to be partner shall be treated as partner unless other person has notice to the effect that he ceased to be a partner or notice regarding ceasing to be partner is given to the Registered. (Sub- Section 3), Whatever liability incurred while a person was a partner shall not be discarded when he ceases to be a partner. (Sub-Section 4) Contribution: In case of LLP, there is no concept of any share capital but every partner is required to contribute towards the LLP in some manner. The said contribution can be tangible, movable or immovable or intangible property or other benefit to the limited liability partnership including money, promissory notes, and other agreements to contribute cash or property, and contracts for services performed or to be performed. In case the contribution is in intangible form, the value of the same shall be certified by a practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained by the Central Government. The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed. The LLP Agreement must specify the contribution intended to be paid by all the members and the form in which it will be paid. LLP Name : Selection of the name for the proposed LLP to be incorporated is one of the important process of the entire incorporation process, ideally the name of the LLP should be such which represents the business or activity intended to be carried on by the LLP. Before selecting the name of the LLP, it is necessary to evaluate the proposed name under the following given criteria: LLP with Similar Name: The proposed name of the LLP should not be similar to the name of the Company or LLP, which is already registered in India. CA Shashi Agarwal Page 12

13 Prohibited Word: The Ministry of Corporate Affairs of India has prescribed certain words, which should not form part of the name of LLP intended to be incorporated in India, such words are prohibited under The Emblems and Names (Prevention of improper use) Act, Check the list of Prohibited Words:- Words Based on Approval: Various government regulatory authorities operating in India like Securities & Exchange Board of India, Reserve Bank of India, has prescribed certain words, which if forms part of the name of the proposed LLP to be incorporated, requires their approval. Names reserved for Foreign LLP/Companies: In case Foreign LLP/Companies have reserved their name under rule 18 of the LLP Rules 2009, then that name will not be applicable for forming of LLP to persons other than the Foreign LLP/Company. No Trademark other than Registered Owner/assignee Registered Office : The Registered office of the LLP is the place where all correspondence related with the LLP would take place, though the LLP can also prescribe any other for the same. A registered office is required for maintaining the statutory records and books of Account of LLP. At the time of incorporation, it is necessary to submit proof of ownership or right to use the office as its registered office with the Registrar of LLP. Change of Registered Office Any Limited Liability Partnership can change the Registered office by following the procedure explained in the following paragraphs. Change as Per Agreement Limited liability partnership can change the Registered Office by following the procedure as laid down in the limited liability partnership agreement. If the limited liability partnership agreement is silent on this matter, consent of all partners shall be required for changing the Registered Office of the limited liability partnership. Where the change in place of registered office is from one state to another state, the LLP having Secured Creditors shall also obtain consent of secured creditors. Notice of change Notice of change of Registered Office shall be given to the Registrar in Form 15. Change of Registered Office Outside the State If the Registered Office is going to be Shifted to another State, the LLP has To Publish a general notice in the district in a daily newspaper Published in English and in another newspaper published in the principal language of the district in which the registered office is situated. This notice has to be given not less 21 days before giving notice to the Registrar. CA Shashi Agarwal Page 13

14 Change of Registered Office within the State If the change of Registered office is from one place to another place within the state from the jurisdiction of one Registrar to the jurisdiction of another Registrar or from one state to another state, then the LLP shall file notice in E-form 15 with the Registrar. Accounting Aspects Norms for Maintaining Books of Accounts (1) The LLP shall maintain proper books of accounts as may be prescribed relating to its affairs for each year of its existence on cash basis or accrual basis. (2) The accounts have to be maintained on the basis of double entry system of accounting. (3) Every limited liability partnership shall keep books of accounts which are sufficient to show and explain the limited liability partnership's transactions and are such as to - disclose with reasonable accuracy, at any time, the financial position of the limited liability partnership at that time; and enable the designated partners to ensure that any Statement of Account and Solvency prepared under this rule complies with the requirements of the Act. (4) The books of account shall contain - particulars of all sums of money received and expended by the limited liability partnership and the matters in respect of which the receipt and expenditure takes place; a record of the assets and liabilities of the limited liability partnership; statements of cost of goods purchased, inventories, work-in-progress, finished goods and cost of goods sold; and any other particulars which the partners may decide. (5) The books of account which a limited liability partnership is required to keep shall be preserved for eight years from the date on which they are made. (6) Every limited liability partnership shall file the Statement of Account and Solvency in Form 8 with the Registrar, within a period of thirty days from the end of six months of the financial year to which the Statement of Account and Solvency relates. (7) The fees to be paid to the Registrar for filing the Statement of Accounts and Solvency shall be as mentioned below:= (a) Limited Liability Partnership whose contribution does not exceed Rs. 1 lakh Rs. 50/- (b) (c) Limited Liability Partnership whose contribution exceeds Rs. 1 lakh but does not exceed Rs. 5 lakhs Limited Liability Partnership whose contribution exceeds Rs. 5 lakhs but does not exceed Rs. 10 lakhs Rs. 100/- Rs. 150/- (d) Limited Liability Partnership whose contribution exceeds Rs. 10 lakh Rs. 200/- (8) A limited liability partnership's Statement of Account and Solvency shall be signed on behalf of the limited liability partnership by its designated partners. CA Shashi Agarwal Page 14

15 (9) The Statement of Account and Solvency of a limited liability partnership shall be signed by the designated partners of the LLP and each designated partner shall be taken to be a party to its approval unless he shows that he took all reasonable steps to prevent their being approved and signed. Norms for Audit / Auditors Limited Liability Partnership alike Companies are required to get their accounts audited as per the provisions provided under Limited Liability Partnership Rules Whether audit is necessary for all LLPs: Only the Limited Liability Partnership whose contribution exceed Rs. 25 Lakh or the Limited Liability Partnership whose turnover exceed Rs. 40 Lakh are required annually to get their accounts audited by any Chartered Accountant in practice. In case if the partners do not decide for the for audit of the accounts of the LLP a statement to be included in the Statement of Account and Solvency by the partners to the effect that the partners acknowledge their responsibilities for complying with the requirements of the Act and the Rules with respect to preparation of books of account and a certificate in the form mentioned below: We declare that the turnover does not exceed/exceeds 40 lakh or the contribution does not exceed/exceeds 25 lakh rupees. The partners/authorized representatives have taken proper care and responsibility for maintenance of adequate accounting records and preparation of accounts in accordance with the provisions of the LLP Act and the Rules made there under. This certificate to be filed with the Registrar of Companies, LLP along with e Form 8. Who can be appointed: Only Chartered Accountant can be appointed as auditor. Appointment of Auditor: Limited Liability Partnerships who mandatorily require auditing of their accounts shall appoint an auditor within 30 days before the end of each Financial Year i.e. before 1st March of each year. In case of First Financial year the auditor to be appointed before the end of the First Financial Year. The Designated Partners responsible for the compliances of LLP will appoint the auditor also. However if the designated partner fails to appoint the auditor then the partners may appoint the auditor. The auditor appointed shall remain in office until new auditor is appointed or the majority of Partners have given a notice for the non appointment of existing auditor. Such notice of auditor of Partners may be in hard copy or electronic Form and must be authenticated by the Partners giving the notice. The Designated Partners can fix the remuneration of the auditor. However, if any specific provision has been prescribed in the LLP Agreement the remuneration to be decided as per that provision. Removal of Auditor: An auditor may be removed from his office at any time as per the procedure mentioned in the LLP Agreement. In the absence of LLP Agreement the auditor may be removed with the consent of all the Partners. CA Shashi Agarwal Page 15

16 Resignation of Auditor: An auditor may resign by depositing a notice in writing to that effect at the LLP s registered office. Such Notice is to be accompanied by the statement of the circumstances connected with his ceasing to hold office. In case if a auditor is unwilling to be re appointed he shall give a notice in writing to that effect at the LLP s registered office, not less than 14 days before the end of the time allowed for appointing the new auditor. Conversion Checklist Unlisted Public Co. to LLP o Deciding the designated partners (minimum 2 designated partners and one of them should be resident of India). Only shareholders of the Company can be the partners of LLP. (In case of Body Corporate who was the member of the Company, desires to act as designated partner of LLP, in that case their nominee can be appointed as the designated Partners.) o Apply in Form 1 (Rule 18(5)) for name reservation. A Board resolution passed by the Company approving the conversion into LLP shall be attached with the aforesaid form. o 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. o MGT-14 o File e form 2 (Incorporation documents, statement of partners and subscription sheet.) o File application for conversion in Form 18 together with the statement of shareholders and required documents. Rule 40 (1). o Draft LLP Agreement and consent letters and obtain signature. o File Form 3 (agreement details) and 4 (Consent of Partners) within 30 days of incorporation. o The Registrar shall issue a certificate of registration under his seal in Form 19. Rule 40 (2). o On conversion the Registrar of Companies has to be informed accordingly in form 14 within 15 days from the date of conversion. Rule 40 (3). Information required:- Name of LLP (six suggestions) Main Object Identity Proof, Residence Proof and pan card of Designated Partners Names of Partners and Designated Partners id and contact number Whether LLP agreement will be executed in India or outside India? Contribution bifurcation- name of partner and contribution Other Directorships/ or Partnerships LLP of partners Registered Office Address and Registered Office Address Proof. Form 3 (agreement) Place where agreed Date of Agreement Date of ratification Business activities to be carried on by the LLP, on incorporation Clause relating to resolution of disputes Rights and duties of Partners LLP Agreement Statement of shareholders Statement of Assets and Liabilities of the company duly certified as true and correct by CA Shashi Agarwal Page 16

17 the auditor List of all the unsecured creditors along with their consent. Details required for filing of Conversion Application. Whether any security interest in the assets of the company is subsisting or in force Whether up to date Income-tax return is filed under the Income-tax Act, Whether any prosecution initiated against or show cause notice received by the company for alleged offences under the Companies Act, 1956/2013. Whether any proceeding by or against the company is pending in any Court or Tribunal or any other Authority. Whether any conviction, ruling, order, judgment of any Court, Tribunal or other authority in favour of or against the company is subsisting. Whether any clearance, approval or permission for conversion of the company into limited liability partnership is required from any body/ authority. etc Private Co. into LLP Deciding the designated partners (minimum 2 designated partners and one of them should be resident of India). Only shareholders of the Company can be the partners of LLP. (In case of Body Corporate who was the member of the Company, desires to act as designated partner of LLP, in that case their nominee can be appointed as the designated Partners.) Apply in Form 1 (Rule 18(5)) for name reservation. A Board resolution passed by the Company approving the conversion into LLP shall be attached with the aforesaid form. 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. MGT-14 File e form 2 (Incorporation documents, statement of partners and subscription sheet.) File application for conversion in Form 18 together with the statement of shareholders and required documents. Rule 39(1). Draft LLP Agreement and consent letters and obtain signature. File Form 3 (agreement details) and 4 (Consent of Partners) within 30 days of incorporation. The Registrar shall issue a certificate of registration under his seal in Form 19. Rule 39(2). On conversion the Registrar of Companies has to be informed accordingly in form 14 within 15 days from the date of conversion. Rule 39(3). Information required:- Name of LLP (six suggestions) Main Object Identity Proof, Residence Proof and pan card of Designated Partners Names of Partners and Designated Partners, id and contact number Whether LLP agreement will be executed in India or outside India? Contribution bifurcation- name of partner and contribution by him Other Directorships/ or Partnerships LLP of partners Registered Office Address and Registered Office Address Proof. Form 3 (agreement) Place where agreed Date of Agreement Date of ratification CA Shashi Agarwal Page 17

18 Business activities to be carried on by the LLP, on incorporation Clause relating to resolution of disputes Rights and duties of Partners LLP Agreement Statement of shareholders Statement of Assets and Liabilities of the company duly certified as true and correct by the auditor List of all the Secured & Unsecured creditors along with their consent. Details required for filing of Conversion Application Whether any security interest in the assets of the company is subsisting or in force Whether up to date Income-tax return is filed under the Income-tax Act, Whether any prosecution initiated against or show cause notice received by the company for alleged offences under the Companies Act, 1956/2013. Whether any proceeding by or against the company is pending in any Court or Tribunal or any other Authority. Whether any conviction, ruling, order, judgment of any Court, Tribunal or other authority in favour of or against the company is subsisting. Whether any clearance, approval or permission for conversion of the company into limited liability partnership is required from any body/ authority. etc Partnership into LLP Deciding the designated partners (minimum 2 designated partners and one of them should be resident of India). Only partners of partnership firm can be the partners. Apply for DSC (if not available) of designated partners and then make application for DPIN in Form 7 for each designated partner. Apply in Form 1 (Rule 18(5)) for name reservation. Consent of each of the partners of the firm for conversion of the firm into LLP shall be attached to Form. 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. File e form 2 (Incorporation documents, statement of partners and subscription sheet.) File application for conversion in Form 17 together with the statement of partners and required documents. Rule 38(1). Draft LLP Agreement and consent letters and obtain signature. File Form 3 (agreement details) and 4 (Consent of Partners) within 30 days from the date of incorporation. The Registrar shall, on conversion of the firm into LLP shall issue a certificate of registration under his seal in Form 19. Rule 38(2). In case the partnership firm is registered, then on conversion the Registrar of Firms has to be informed accordingly in form 14 within 15 days from the date of conversion. Rule 38(3). Information required:- Name of LLP (six suggestions) Main Object Identity Proof, Residence Proof and pan card of Designated Partners Names of Partners and Designated Partners, id and contact number Whether LLP agreement will be executed in India or outside India? CA Shashi Agarwal Page 18

19 Contribution bifurcation- name of partner and contribution by him Other Directorships/ or Partnerships LLP of partners Registered Office Address and Registered Office Address Proof. Form 3 (agreement) Place where agreed Date of Agreement, Date of ratification Business activities to be carried on by the LLP, on incorporation Clause relating to resolution of disputes Rights and duties of Partners LLP Agreement Consent of each of the partners of the firm for conversion of the firm into LLP shall be attached to Form List and consent of creditors if any for conversion. Approval from any Body/ Authority, if any. Statement of Assets and Liabilities of the firm duly certified as true and correct by the Chartered Accountant. (Not older than 30 days for making application.) Details required for filing Form 17. Whether up to date Income-tax return is filed under the Income-tax Act, Whether any proceeding by or against the company is pending in any Court or Tribunal or any other Authority. Whether any conviction, ruling, order, judgment of any Court, Tribunal or other authority in favour of or against the company is subsisting. Whether any clearance, approval or permission for conversion of the company into limited liability partnership is required from any Body/ Authority. Etc Capital Gain on Conversion Capital Gain on conversion of Partnership into LLP: LLP and general partnership is being treated as equivalent (except for recovery purpose) in the Act, the conversion from a general partnership firm to an LLP will have no tax implication, if the rights and obligation of the partners remain the same after conversion and if there is no transfer of any asset or liability after conversion. Capital Gain on conversion of Company into LLP: The Finance Bill has proposed to insert a new clause (xiiib) under Section 47 of the Income Tax Act, 1961 whereby any transaction concerning transfer of a capital asset or intangible asset by a Private Company or unlisted Public Company to a Limited Liability Partnership as a result of conversion of the company into a Limited Liability Partnership in accordance with the provisions of section 56 or section 57 of the Limited Liability Partnership Act, 2008 would be exempted from the provision of Capital Gain Tax, only if the following conditions are satisfied. All the assets and liabilities of the Company immediately before the conversion shall become the assets and liabilities of the limited liability partnership; All the shareholders of the Company immediately before the conversion shall become the partners of the limited liability partnership and their capital contribution and profit sharing ratio in LLP should remain in the same proportion as their shareholding in the company on the date of conversion; CA Shashi Agarwal Page 19

20 The shareholders of the company do not receive any consideration or benefit, directly or indirectly, in any form or manner, other than by way of share in profit and capital contribution in the limited liability partnership; The aggregate of the profit sharing ratio of the shareholders of the company in the LLP shall not be less than fifty per cent at any time during the period of five years from the date of conversion; The total sales, turnover or gross receipts in business of the company in any of the three previous years preceding the previous year in which the conversion takes place does not exceed sixty lakh rupees; and No amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit standing in the accounts of the company on the date of conversion for a period of three years from the date of conversion. However in case of non compliance of any of the conditions provided as aforesaid, the amount of profits or gains arising from the transfer of such capital asset or intangible asset not charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and gains chargeable to tax of the successor limited liability partnership for the previous year in which the requirements of the said proviso are not complied with. Carry forward and set off of accumulated loss and unabsorbed depreciation allowance, on conversion into LLP: In case of reorganization of business by way of conversion of a Private Company or unlisted Public Company to Limited Liability Partnership, which fulfills the conditions laid down in the proviso to clause (xiiib) of section 47 of the Income Tax Act 1961, the accumulated loss and the unabsorbed depreciation of the predecessor company, shall be deemed to be the loss or allowance for depreciation of the successor limited liability partnership for the purpose of the previous year in which business reorganization was effected and other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly. However in case of non compliance of the conditions provided under section 47(xiiib), the set off of loss or allowance of depreciation made in any previous year in the hands of the successor limited liability partnership, shall be deemed to be the income of the limited liability partnership chargeable to tax in the year in which such conditions are not complied. CA Shashi Agarwal Page 20