INTENSIVE STUDY COURSE ON COMPANY LAW FOR WIRC

Transcription

1 1 INTENSIVE STUDY COURSE ON COMPANY LAW FOR WIRC LIMITED LIABILITY PARTNERSHIP Presented by: Dipali Sheth, Partner, M. Dhruva & Partners At: Indian Merchants Chamber, Mumbai On: March 24, 2011

2 2 BACKGROUND Limited Liability Partnerships ( LLPs ) is a vehicle that gives the benefits of limited liability like a company and also allows its members to enjoy the flexibility of a partnership. Limited Liability Partnership Act, 2008 (the LLP Act ) received the assent of the President on January 7, LLP Act was notified on March 1, 2009 and the Limited Liability Partnership Rules, 2009 framed there under were notified on April 1, At present, there are 4168 LLPs registered (as available from official website ofthe Government ofindia). With effect from May 31, 2009, partnership firms, private companies and unlisted public companies are permitted to convert to LLP.

3 3 Key differentiators between LLP, Company and Partnership Firm Sr. No. Titles LLP Partnership Firm 1. Principal Legislation 2. Minimum number partners/ members 3. Maximum number partners/ members of of LLP Act and the rules framed there under Minimum partners two The Indian Partnership Act, 1932 and the rules framed there under Minimum partners two No cap Maximum ten partners for banking business and twenty for other businesses Company The Companies Act, 1956 and the rules framed there under Minimum two members for private company and seven members for public company Maximum fifty (50) members for private companies and no cap for public companies

4 4 Key differentiators between LLP, Company and Partnership Firm (continued) Sr. No. Titles LLP Partnership Firm Company 4. Registration Mandatory Optional (if the partnership firm is not registered it cannot sue) 5. Separate Legal Entity It is a separate legal entity from its partners/ designated partners. It is not a separate legal entity. Partners are collectively referred to as firm. Mandatory It is a separate legal entity. 6. Perpetual succession It has perpetual succession. Any change in the partners shall not affect the existence, rights or liabilities of the limited liability partnership firm. It does not have perpetual succession. It has perpetual succession.

5 5 Key differentiators between LLP, Company and Partnership Firm (continued) Sr. No. Titles LLP Partnership Firm Company 7. Name Approved Name to contain suffix 'Limited Liability Partnership' or 'LLP. 8. Name change Requires approval of the Central Government 9. Constitutional Documents 10. Shareholder/ Member LLP Agreement. In the absence of such agreement, LLP shall be governed by the LLP Act Individual or body corporate Any name as per choice of partners Name can be changed at partner s discretion Approved name to contain suffix private limited or limited, as the case may be Requires approval of the Central Government Partnership Deed Memorandum and Articles of Association Only individuals Individual or body corporate

6 6 Key differentiators between LLP, Company and Partnership Firm (continued) Sr. No. Titles LLP Partnership Firm Company 11. Liability Liability of partner is limited to the extent of the contribution to the LLP. No partner would be liable on account of the independent or unauthorized actions of other partners or their misconduct. 12. Management Minimum two designated partners Unlimited liability. All Partners are jointly and severally liable and it can extend to the personal assets of the partners. Liability of member is limited to the extent of unpaid share capital held by such member. No such requirement Minimum two directors for private company and three directors in case of public company

7 7 Key differentiators between LLP, Company and Partnership Firm (continued) Sr. No. Titles LLP Partnership Firm Company 13. Agents Partners act as agent of the firm 14. Dissolution by act of the partners/ members LLPs existence is not affected by the acts of the partners. Partners acts as agent of the firm and of each other Partnership firms existence can be ended at the instance of the partner or on happening of certain events as specified under the Indian Partnership Act, Directors act as agent of the company Company s existence is not affected by the act of directors/ members.

8 8 Key differentiators between LLP, Company and Partnership Firm (continued) Sr. No. 15. Legal proceedings Titles LLP Partnership Firm Company It can sue and be sued in its name Only registered partnership firms can sue 16. Assets LLP owns assets Partners have joint ownership over the assets It can sue and be sued in its name The Company owns assets 17. Transfer of interest/ shareholding Transfer of interest in accordance with LLP Agreement. However, such transfer shall not entitle transferee to participate in management or conduct of the business. Transfer of interest only in accordance with the partnership deed and in most cases with consent of the partners. Shares are freely transferable except in case of private limited companies.

9 9 Incorporation of LLP DPIN/ DSC Designated Partners to obtain Designated Partners Identification Number (DPIN) and Digital Signature Certificate (DSC) and upload with LLP. Name Check name availability and reserve name with Registrar of Companies (ROC). Registration Fill in incorporation document and statement in prescribed form together with prescribed fee and submit with ROC. Registrar after satisfying himself shall register the LLP and issue certificate of incorporation. File LLP agreement and appointment of designated partners and their consent within 30 days of incorporation of LLP.

10 10 Conversion of firm to LLP In order to avail the benefits of limited liability, a partnership firm may wish to convert to LLP. It is pertinent to note that only all the partners of the partnership firm shall comprise as partners of the LLP. Section 55 of the LLP Act permits such conversion of partnership firm to LLP. On such conversion all the pending proceedings by or against the firm shall be enforced by or against the LLP. All valid contracts/agreements shall irrespective of such rights and liabilities of nature which could be assigned shall stand transferred to the LLP.

11 11 Conversion of firm to LLP (continued) An application for conversion of partnership firm to LLP can be made to the ROC if all the partners consent unanimously for such conversion. Such application together with the prescribed fees and supporting documents such as the following etc is required to be filed by the firm with the ROC for such conversion: declaration of a designated partner and advocate or chartered accountant/company secretary; no objection from income tax authorities; list of all creditors and their consents; in case of professional firms the approval of the governing body/council is also required, etc.

12 12 Conversion of a company to LLP In order to avail the benefits of flexibility which LLP offers, a closely held public limited company/ unlisted public company/ private company may wish to convert to LLP. It is pertinent to note that unanimous consent of all the shareholders is required for the conversion of a company to LLP. Sections 56 and 57 of the LLP Act deals with the provisions of conversion of a private company and unlisted public company to LLP, respectively.

13 13 Conversion of a company to LLP (continued) Such application together with the prescribed fees and supporting documents such as the following is required to be filed by the company with the ROC for such conversion: consent of all the shareholders of the company; declaration of a designated partner and advocate or chartered accountant/company secretary; no objection from income tax authorities; list of all creditors and their consents; approval of the Regulatory Authority, etc.

14 14 Conversion of LLP to Limited Co., Partners Relations and rights, inter se Conversion of LLP to a company is not permitted under the LLP Act. LLP having seven or more partners can be converted to joint stock company under Part IX of the Companies Act, It is proposed that the new companies bill will have provisions for such conversion of LLP to a company. However, the present form of the Companies Bill has also failed to provide any such mechanism. On conversion of LLP to the company, the Indian law i.e. the LLP Act governing the LLP shall be deemed to be the regulations of the company.

15 15 Conversion of LLP to Limited Co., Partners Relations and rights, inter se On conversion of LLP to the joint stock company, all assets, legal proceedings and contracts shall vest in the company and such conversion shall not affect the converting LLPs rights or liabilities in respect of any debt or obligation incurred. Such company shall not have powers to alter any of such provisions of the applicable Indian law relating to LLP. The LLP Agreement shall be substituted by memorandum and articles of association. The rights of the partners interse shall be incorporated in the articles of association.

16 16 THANK YOU Presented by: Dipali Sheth Partner M. Dhruva & Partners Advocates & Solicitors , Prospect Chambers, Dr. D. N. Road, Fort, Mumbai Tel: Fax: dipali@mdhruvapartners.com