fields like Charetered Accountant, Company
Introduction Secretary, Advocates and so on.
After the establishment of WTO and pursuant to rapid
development in the corporate world, competition is
now not restricted to a specific country and is
becoming worldwide and entering into all the fields.
Therefore, as an endeavor to enable the Indian Since Limited Liability Partnership is managed as per
Corporate Entities to combat with such competition the LLP Agreement which the partners are free to
and to have an edge over the others, the Government formulate as per their commercial understanding,
of India has now introduced a concept called “Limited therefore, it allows greater flexibility and freedom to
Liability Partnership” , which is already very popular partners. However in the absence of such
in the international business world. agreement, the LLP would be governed by the
framework provided in Schedule 1 of Limited
Although the other forms of businesses like Company,
Liability Partnership Act, 2008 which describes the
Partnership etc. as existed before coming into effect
matters relating to mutual rights and duties of
the “Limited Liability Partnership Act, 2008”, has
partners inter se and those of LLP and its Partners.
their own significance. However, still they contain
some limitation which restricts an entrepreneur from However, there still exist some Grey Areas in Limited
converting its business ideas into reality. The Liability Partnership Act, 2008 which are elaborated
Partnership forms of business organization contain below:
the restriction as to the maximum number of partners
that are allowed to form the Partnership. Similarly, 1. Unnodded Issues
the formation of company forms of business
organization is itself a cumbersome and complicated The LLP Act was notified on March 31, 2009 which
process and involves a huge amount of registration includes a total of 81 sections, 4 schedules and 29
fees. eforms. However, out of 81 sections and 4
schedules, only 71 sections and First schedule have
Thus, to help the entrepreneur in pursuing their been notified till now. For example the provision
business ideas, a new business model that embraces relating to the conversion of partnership, firm and
some key features and benefits of Company and Unlisted Public Company into LLP and that of
Partnership has been enacted called “LLP”. winding up and dissolution of the LLP are yet to be
2. Tax Aspects:
About LLP Neither the LLP Act, 2008 nor Income Tax Act, 1961
has prescribed any provision relating to the Taxation
Aspects of LLP.
LLP is nothing but a hybrid of Company and
• Whether the Capital Gain Tax arising on the
Partnership form of business organization governed
transfer of property from the
by the provisions as incorporated in the Limited
company/partnership to LLP on the
Liability Partnership Act, 2008 and rules and
conversion would be exempted as per the
regulations associated with it.
special provision of Section 47 of the
As Service sector plays an signifcant and vital role in Income Tax Act, 1961.
the development of any economy and there is • At what rate would the income of LLP
growing divresity in the range of services being would be taxed.
offered, therefore, LLP would also be very useful • What would be the tax treatment in the
form of business organisation for this segment. The hands of partners on the receipt of profits,
advantage of LLP form would be that it will not remuneration and etc. from the LLP.
impose detailed legal and procedural requirements • What would be the rate of stamp duty on
as in the case of companies. In this way, it will be an the transfer of Immoveble property on the
important vehicle catering to the needs of conversion of company/partnership into
professionals, small scale sector, venture capital and LLP.
would make it feasible to set up a multidisplinary 3. FDI Policy:
partnerships comprising of professionals of different Although the LLP Act, 2008 allows the Non Resident
to become a partner in the LLP, however, the FDI independent or unauthorized actions of other
guidelines are not yet amended to include the LLP. partner(s), liability of partners being limited to the
Whether for the purpose of FDI guidelines, LLP will respective stake of each partner in the LLP, is distinct
treated at par with the companies or not are some advantage over the partnership.
areas which needs consideration.
Such distinct features would be the key drivers for
4. Recognition by Authorities forming LLP, rather than Company for planning
different structures. The added advantage towards
Although the LLP Act has not prescribed any conversion of a Company into an LLP should be tax
restriction with regard to the type of the business neutral, as one understands is the legislative intent.
that may be carried on through LLP. However, still This is on the ground that there is no transfer of any
the formation of LLP needs the recognition of the assets to a third party on conversion, but an internal
other authorities like RBI as NBFCs regulations reorganization taking place through a statute. Similar
requires the approval of RBI be obtained before the reorganizations like conversion of a
formation of Company as NBFC. Therefore, what proprietary/partnership into a company, or
would be requirements with regard to the registration of a firm as a company under Part IX of
incorporation of LLP for carrying on the business as the Companies Act, 1956, are treated as tax-free, for
NBFC are yet to be prescribe in NBFCs regulations. which there exists legislative/judicial precedence.
Another major reason for conversion of a company
into an LLP is on the tax front. Currently, the Income-
Key Features tax Act, 1961, provides for payment of minimum
alternate tax (MAT) as also for payment of dividend
distribution tax (DDT) by companies. An LLP, which is
not a company, should not be liable to pay MAT or
DDT, considering the legislative intent.
Major advantages as compared to Company
• No limit on number of partners.
• Less Government Intervention
• Minimal cost of Formation
• Less Compliance level
• No requirement of holding any meeting
• No requirement of maintenance of large
Status pro –quo on conversion
It is essential to note that on conversion, all the members
of the Company shall become the partners of the LLP. It
is provided that no other person would become partner
on conversion into an LLP for the simple reason that on
conversion, it should be a mirror image. On conversion,
Regular Section all the tangible (movable and immovable) property and
the intangible property, all assets, interest, rights,
privileges, iabilities, obligations of the Company shall
stand transferred to, and vest in, the LLP and the
Rationale behind conversion of Existing Private Company so converted into an LLP shall cease to exist
Company into LLP upon conversion.
Limited Liability partnership concept combines the
organizational flexibility of a partnership firm FAQs
coupled with the advantage of limited liability for its
Since LLP is a new concept in India, therefore keeping
partners. The key features of the LLP such as a
in the mind the unawareness about the subject, we
separate legal entity with unlimited number of
partners, no partner being liable on account of the
have prepared a query bank for the users. Some of
them are given below: Wizard-
Whether a body corporate can become a www.llponline.in, an online Portal developed by
partner in LLP? Corporate Professionals, is a comprehensive and
Yes. simplified portrayal of Limited Liability Partnership.
Is there any residency requirement for It aims to provide one stop solutions for all your
becoming partner? needs relating to the LLP whether relating to the
No. formation, conversion or otherwise. The unique and
Who can be a “Designated Partner”? innovative calculators of this website, makes it an
Only Individual. indispensable tool for the users of the LLP who might
How the mutual rights and duties of face difficulties in understanding and conceptualizing
partners inter-se and those of partners this new concept.
and LLPs would be governed?
LLP Agreement entered into between the Highlights of www.llponline.in
partners or between the LLP and partners
would govern the mutual rights and duties
Whether LLP Agreement would be
mandatory for all LLPs?
No. In the absence of the LLP Agreement,
the mutual rights and duties of the
partners inter se and those of partners and
LLPs would be governed by the provision
as prescribed under Schedule I of the Act.
How can a person become a partner of an
Persons, who subscribed to the
incorporation Document at the time of
incorporation of LLP, would become the
partners of LLP and subsequent to
incorporation, new partners can be
admitted as per conditions and
requirements prescribed in the LLP
Whether Foreigners can incorporate LLP
in India? Prepared by:
Ankit Singhi – 011-40622208
To know more about the subject and to get an Asst. Manager, Corporate Affairs & Compliances
expert view on all the queries relating to the LLP,
Visit FAQs section of www.llponline.in. Shipra Wadhwa-011-40622246
Associate, Corporate Affairs & Compliances
D-28, South Extn. Part-I, New Delhi-110049,
Ph: 011-40622200; Fax: 011-40622201.
This paper is a copyright of Corporate Professionals (India) Pvt. Ltd. The entire contents of this paper have been developed
on the basis of latest prevailing Limited Liability Partnership Act, 2008 in India. The author and the company expressly
disclaim all and any liability to any person who has read this Newsletter or otherwise, in respect of anything, and of
consequences of anything done or omitted to be done by any such person in reliance upon the contents of this