seminar paper presented by Gowtam Bhat, a student of II year B.Com of SVS College, Bantwal, Karnataka under the auspices of Commerce Association-focus is on LLP in India

2. Limited Liability Partnership is a body corporate & is
a separate legal entity.
Special type of partnership wherein liabilities of
partners are limited.
From March 31, 2009, the Limited Liability
Partnership Act, 2008 came into force to basically
visualise & give opportunities mainly to service sector
including I.T, Accountancy & Law
The disadvantages of company & partnership form of
organisation led to LLPs

3. Unlimited Liability:
Every partner is jointly & severally liable for firm’s debts.
Principal Agency Relationship:
A partner can be bound by the acts of his co-partners & at
the same time, he can bind other partners by his acts.
Limit on maximum number of partners:
Maximum number of partners is 10 in the case of banking
business & 20 in other businesses. But in case of LLPs there is
no maximum limit on number of partners. This allows to
acquire more capital needed to run the business efficiently.

4. Higher Administrative Costs:
The Companies Act, 1956 imposes lot of rigidity in
every functions & activities of companies. Such rigidity
in activities increases administrative costs.
More Restrictions
Unnecessary Formalities
Maintenance of registers & records
Disadvantages of Companies

5. Limited Liability & Perpetual Succession
Healthy Blending of Partnership & Company
Body corporate having legal entity separate from its
partners
Minimum number of partners is two & there is no
limit on maximum number of partners
Written partnership deed & Registration is
compulsory with Registrar of Companies [RoC]
Any individual or body corporate can be a partner in
an LLP

6. A partner in an LLP can bind the LLP but not the co-
partners. There is no Principal – Agency Relationship
Every LLP should have at least 2 designated partners,
who are individuals & at least one of them should be
Resident in India.
Features of LLP
Interest of minority partners are
protected.
Accounts are to be maintained but small
LLPs are exempt from Audit Provisions.
Change in partners is required to
reported within 30 days of such change.

7. Concept of “Holding Out” by partners incorporated.
For Income Tax Purposes, LLPs are taxed as General
Partnership is taxed i.e. at the rate of 30% on income plus
3% education cess. LLPs are not taxed with Dividend
Distribution Tax [DDT] & Minimum Alternate Tax [MAT]
But for other purposes like registration, Reconstruction,
amalgamation, liquidation etc are similar to those under
Companies Act, 1956
Already existing partnership firms, private cos’ & unlisted
public companies can convert themselves into LLPs.
No Principal - Agency Relationship.
Features of LLP

8. Features Company Partnership Firm LLP
Registration Compulsory registration
required with ROC.
Certificate of
incorporation is
compulsory evidence.
Not compulsory.
Unregistered
partnership firm will
not have the ability to
sue.
Compulsory
registration with
ROC required.
Name Name of public company
to end with “Ltd” & a
private company with
“Private Ltd”
No guidelines. Name to end with
“LLP” or “Limited
Liability
Partnership”
Capital
Contribution
Private Co should have a
minimum paid up capital
of Rs.1 lakh & Rs. 5 lakh
for a public Co.
Not specified. Not specified.
Legal Entity
Status
Is a separate legal entity. Not a separate legal
entity.
Is a separate legal
entity.

9. Features Company Partnership Firm LLP
Liability Limited to the extent of
unpaid capital.
Unlimited, can extend
to the personal assets
of partners.
Limited to the
extent of the
contribution to the
LLP.
Number of
Shareholders
Minimum :2.
Maximum: 50 in a private
Ltd Co.
Minimum :2.
Maximum: 20 [10 in
Banking firms]
Minimum :2.
Maximum: No
limit.
Taxability Income is taxed at 30 % +
Surcharge + 3 % education
cess
Income is taxed at 30
% + Surcharge + 3 %
education cess
Not notified.
Audit Compulsory, irrespective
of share capital &
turnover.
Compulsory. Required, if the
capital is above
Rs.25 lakhs or
turnover is above
Rs. 60 lakhs.

10. ‘Partner’ means any person who has entered into
partnership agreement in a LLP.
Body corporates / Individuals can become partners in
an LLP.
However, following persons are disqualified from
becoming partners:
1. Person of unsound mind.
2. Person who has applied to be adjudicated as insolvent
& his application is pending.
3. Undischarged insolvent.

11. ‘Designated Partner’ means any partner designated as
such in Section 7 of LLPAct, 2008.
According to Section 7(1), every LLP must have
two designated partners who are individuals. Out of
two designated partner, at least one of them should be
a Resident in India.
If the partners in an LLP are body corporates, then
the nominees of such corporates act as Designated
Partners.

12. LLP incorporated in India will be assessed as if it is a
partnership firm.
According to Section 2 (23) of Income Tax Act, 1961,
the term ‘Firm’ shall include LLP & ‘Partner’ shall
include partner of LLP & ‘Partnership’ shall include
LLP.
But, LLPs incorporated outside India [Foreign LLPs]
shall be taxed as ‘Company’
Like in the case of general partnership, share of profit
of LLP at the hands of its partners is exempt. [Section
10 (2A) of Income Tax Act, 1961.

13. The provinces of Quebec, Ontario, Manitoba,
Alberta, the territory of Nunavut, Nova Scotia have
permitted LLPs for lawyers. The Partnership
Amendment Act, 2004 [Bill 24] permitted LLPs even
for other professionals as well as businesses.

14.  In China, the LLP is known as Special General Partnership.
The organizational form is restricted to knowledge based
professionals & technical service Industries. The structure
protects co-partners from liabilities due to willful
misconduct of one partner or a group of partners.

15. In Germany partnerships are for non-commercial
professionals. It is not considered as a corporate entity.
The partners are jointly & severally liable for all
damages, partnership debts, except when some partners’
misconduct has caused damages to other parties. The
partnership is not subject to corporate / Business Tax &
only its’ partners respective income is taxed.

16. LLPs were introduced in Japan in 2006. Japanese LLPs
may be formed for any purpose [should be stated
Partnership Deed]. Japanese LLPs are not to be used by
Lawyers or Accountants, as these professionals are
required to do business through an Unlimited Liability
entity. Japanese LLPs are not corporations.

17. In United Kingdom, LLPs are governed by the Limited
Liability Partnership Act, 2000 [In Britain] & Limited
Liability partnership Act, 2002 [Northern Ireland]. In
UK, LLP is a corporate body having separate legal
existence from its partners. A UK LLPs partners have a
collective responsible to the extent of that they may
agree in an LLP agreement. But no individual
responsibility for each others options.

18.  In US, LLPs were formed in 1990s. LLPs were formed
to overcome the collapse of real estate & energy prices
in Texas in 1980s. The collapse led to large wave of
banks , savings & loan failures. Because the amount
recoverable from the banks was small, efforts were
made to recover the assets from the Lawyers &
Accountants of United States. To protect these
partners, LLP was introduced in United States.

19. Section Default Who is liable Penalties /
Prosecutions
Section 8 Liabilities of Designated
Partners
Designated
Partners
Liable to all penalties
imposed on LLP for any
contravention
Section
10
Non appointment of Designated
Partners
LLP & all Partners Fine between Rs.10000/-
to Rs.500000/-
Section
10
Non filling of Income Tax
Returns, Sales Tax/ VAT Returns
etc.
LLP & all Partners Fine between Rs.10000/-
to Rs.100000/-
Section 11 Penalty for false declaration in
Incorporation Document
Defaulting
Partner
Imprisonment up to 2
years & a fine between
Rs.10000/- to
Rs.500000/-
Section
13
Registered office- Contravention
of Provisions
LLP & its Partners Fine between Rs.2000/-
& Rs.25000/-

20. Section Default Who is liable Penalties /
Prosecutions
Section
20
Improper use of words “Limited
Liability Partnership” or “LLP”
Defaulting Person Fine between Rs.50000/-
to Rs.500000/-
Section
34
Maintenance of Books of
Accounts, other records & audit
etc – non compliance of
provisions
LLP & all its’
Designated
Partners
LLP :- Fine between
Rs.25000/- to
Rs.500000/-
Designated Partners :-
Fine between Rs.10000/-
to Rs.100000/-
Section
35
Annual Returns: Non
compliance
LLP & all its’
Designated
Partners
LLP :- Fine between
Rs.25000/- to
Rs.500000/-
Designated Partners :-
Fine between Rs.10000/-
to Rs.100000/-

21. Section Default Who is liable Penalties /
Prosecutions
Section
38
Power of Registrar to obtain
information: Non Compliance
Person in default Fine between Rs.2000/-
to Rs.25000/-
Section
69
Non filing of documents within
prescribed time limit
LLP Additional fee of Rs.100
per day of default.
Therefore, we can see that they are plenty of fines & penalties for any
default & delays by any of the partners.

22. At the time of introducing LLP Act, 2008, it was given
that the capital gain will be attracted at the time of
conversion of an unlisted company to an LLP.
However, Clause (xiiib) has been inserted in Section
47 w.e.f. A.Y 2011-12 to exempt such capital gain. But
some conditions are to be satisfied to claim exemption.
They are,
1. Assets & liabilities of the company before conversion
becomes assets & liabilities of the LLP.
2. All the shareholders of the company become the
partners of the LLP & their contribution & profit
sharing ratio in the LLP are in same proportion of their
shareholding in the company.

23. 3. No consideration would be paid by the LLP to the
company. The shareholders of the company do not
receive any consideration / benefit other than by way
of share in profit & capital contribution in the LLP.
4. The aggregate of the profit sharing ratio of the
predecessor company in LLP shall not be less than
50% immediately after conversion & for a period of
five years after conversion.
5. The total sales, turnover of the business of the
company in any way of the 3 years preceding the year
of conversion, should not be more than Rs.60 lakhs.

24. 6. No amount is paid, either directly or indirectly, to any
partner out of balance of accumulated profit standing
in the accounts of the company from the date of
conversion to a period of three subsequent years.
Capital gain on the conversion of assets &
liabilities from company to LLP is exempt only if these
aforesaid conditions are satisfied.
If condition 4 & 6, which are relating to
subsequent to the year of conversion, if they are not
satisfied, the same will be taken as capital gain in the
hands of the LLP.

25. The Limited Liability Act [LLP] Act, 2008 is very
small containing only 81 sections. LLP has so many
advantages over General Partnership & a Joint Stock
Company. But from the perspective of penalties, it is
quite large, as more than 40% of the sections prescribe
penalties.

26. For false information in Incorporation Document,
the defaulting partner may be imprisoned up to two
years & with a fine between Rs.10000/- to Rs.500000/-
Even for small defaults & delays, huge penalties have
been mentioned in LLP Act, 2008.
So, on the one hand, LLP is a healthy blend of
company as well as partnership but on the other hand,
it is nothing but a plethora of penalties. Therefore, this
profuseness of penalty has made the LLP Act just like a
beautiful & expensive toy kept in an expensive
showroom which can only be watched from a distance.

27. THANK YOU