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Q1) Whether the LLP Act is applicable to any specific services like professional services regulated by Statutes?
A1) No. Any two or more persons associating for carrying on a lawful business with a view to profit may set up an LLP. In the light of various inputs received by this Ministry for applicability of the LLP form to small entities and venture capital funded enterprises, it is proposed that the framework should not be restricted to professional services alone as was earlier recommended by Naresh Chandra Committee. Accordingly, the LLP Act does not restrict the benefit of LLP structure to certain classes of professionals only.
Q2) Whether provisions of Indian Partnership Act, 1932 would be applicable to LLPs?
A2) No, these shall not be applicable to LLPs.
Q3) Whether an entity which has objectives like “charitable or other not for profit objectives” would be able to set up under LLP Act?
A3) No. The essential requirement for setting LLP is ‘carrying on a lawful business with a view to profit’.
Q4) Why a new legislation for LLP? Why not amendments in Companies Act or Partnership Act are made?
A4) The Companies Act is not suited to the liability and governance structure intended for LLPs. The overall intent of the legislation to regulate widely-held companies is different. Therefore, in accordance with the recommendations of the Irani Committee, it is felt appropriate to bring about a separate legislation for LLPs. The administration and enforcement of partnership firms under the Indian Partnership Act, 1932 is at the State level. Besides, a partnership firm involves full joint and several liabilities of the partners. Because of this, many firms/enterprises engaged in biotech, information technology, Intellectual property and other knowledge based sectors find traditional partnerships unsuitable. The traditional partnerships are also considered unsuitable for multi-disciplinary combinations comprising a large number of partners, seeking a flexible working environment but with limited liability. LLP structure would promote growth and enable such firms/enterprises expand their trade/business or services across States in India as also abroad.
Q5) What are the restrictions in respect of minimum and maximum number of partners in an LLP?
A5) A minimum of two partners will be required for formation of an LLP. There will not be any limit to the maximum number of partners.
Q6) Whether a body corporate may be a partner of an LLP?
A6) No.
Q7) What are the qualifications for becoming a partner?
A7) Any individual or body corporate may be a partner in a LLP. However an individual shall not be capable of becoming a partner of a LLP, if— he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force; he is an undischarged insolvent; or he has applied to be adjudicated as an insolvent and his application is pending.
Q8) Who can be a “Designated Partner”?
A8) Every LLP shall be required to have atleast two Designated Partners who shall be individuals and at least one of the Designated Partner shall be a resident of India. In case of a LLP 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 LLP or nominees of such bodies corporate shall act as designated partners.
Q9) How can a person become a partner of an LLP?
A9) Persons, who subscribed to the “Incorporation Document” at the time of incorporation of LLP, shall be partners of LLP. Subsequent to incorporation, new partners can be admitted in the LLP as per conditions and requirements of LLP Agreement.
Q10) How can an existing partner cease to be a partner of an LLP?
A10) A person may cease to be a partner in accordance with the agreement or in the absence of agreement, by giving 30 days notice to the other partners. A person shall also cease to be a partner of a limited liability partnership- on his death or dissolution of the limited liability partnership; or if he is declared to be of unsound mind by a competent court; or if he has applied to be adjudged as an insolvent or declared as an insolvent. Notice is required to be given to ROC when a person becomes or ceases to be partner or for any change in partners.
Q11) What is the manner in which a partner of an LLP can bring his contribution? How will it be recorded/disclosed in the accounts?
A11) Partner’s contribution may consist of both tangible and/or intangible property and any other benefit to the LLP. 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 in the rules.
Q12) Whether audit of all LLPs would be mandatory?
A12) The accounts of every LLP shall be audited in accordance with Rule 24 of LLP, Rules 2009. Such rules, inter-alia, provides that any LLP, whose turnover does not exceed, in any financial year, forty lakh rupees, or whose contribution does not exceed twenty five lakh rupees, is not required to get its accounts audited. However, if the partners of such limited liability partnership decide to get the accounts of such LLP audited, the accounts shall be audited only in accordance with such rule.
Q13) Whether every LLP would be required to maintain and file accounts?
A13) An LLP shall be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A “Statement of Accounts and Solvency” in prescribed form shall be filed by every LLP with the Registrar every year.
Q14) Whether any Annual Return would be required to be filed by an LLP?
A14) Every LLP would be required to file annual return in Form 11 with ROC within 60 days of closer of financial year. The annual return will be available for public inspection on payment of prescribed fees to Registrar.
Q15) What is the tax treatment being provided for LLPs?
A15) Since the taxation related matters in India are provided under Tax Laws, the taxation of LLPs has not been provided in the LLP Act. The Finance Bill, 2009 has made provisions in this regard, pursuant to which the taxation scheme of LLPs has been proposed to be introduced in the Income Tax Act. The Finance Bill, 2009 has proposed following regarding taxation of LLPs:- 1)LLPs to be taxed on the lines similar to general partnerships under Indian Partnership Act, 1932, i.e. taxation in the hands of the entity and exemption from tax in the hands of its partners. 2)Consequent changes to be made in the Income-tax Act, 1961 like (i) the word ‘partner’ to include within its meaning a partner of a limited liability partnership, (ii) the word ‘firm’ to include within its meaning a limited liability partnership and (iii) the word ‘partnership’ to include within its meaning a limited liability partnership 3)The designated partner shall sign the income tax return of an LLP, or, where, for any unavoidable reason such designated partner is not able to sign the return or where there is no designated partner as such, any partner shall sign the return. 4)In case of liquidation of an LLP, every partner will be jointly and severally liable for payment of tax unless he proves that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part. 5)As an LLP and a general partnership is being treated as equivalent (except for recovery purposes) in the Income-tax Act, the conversion from a general partnership firm to an LLP will have no tax implications if the rights and obligations of the partners remain the same after conversion and if there is no transfer of any asset or liability after conversion. 6)If there is a violation of these conditions, the provisions of section 45 of Income-tax Act shall apply.
Q16) Is there any time period within which partners of an LLP shall bring contribution?
A16) The LLP Act, 2008 or the LLP Rules, 2009 do not mention anything specifically about the time period within which contribution shall be brought in, by the partners of an LLP. Hence, the time period of bringing in contribution, shall be governed by the provisions of LLP Agreement.