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LLP MANTRA
A Publication by Corporate Professionals
              {Y-01).{V-VI)
Insight




Par ti cul ar s                                  Page No.

R egular Sec tion – C ontribut ion               3-...
Contribution


Contribution as per the lexicon interpretation means “Part or Share”. In reference to LLP, contribution can...
Return of Contribution in case of cessation of Partner

Whenever a partner of a LLP ceases to be a partner than unless oth...
FAQ’S on
                                                 Contribution



What do you mean by Contribution?


 Contributio...
Initial capital contribution to remain fixed or the same may keep on fluctuating with the addition/
withdrawal of addition...
LLP In News

  Firm Bullish on LLP regime



With no clear-cut guidelines specified for the
conversion of companies into l...
No tax-free conversion of unlisted companies into LLPs yet




The finance ministry is not willing to allow tax-free
conve...
Global Segment


  Facts              LLP UK                      Singapore LLP           USA LLP                 Indian L...
Recent Queries on LLP Club


If a LLP has not filed Form 3 & Form 4 after 30 days of Incorporation. Now they have filed th...
Our Services




                                                                       Our Team

A n ki t Si n g h i - O ...
Our Gamut of Services

              INVESTMENT BANKING • INDIA ENTRY SERVICES • M&A, CORPORATE COMPLIANCES &
            ...
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Llp Mantra Vi 05 Jan2010

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Llp Mantra Vi 05 Jan2010

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Llp Mantra Vi 05 Jan2010

  1. 1. LLP MANTRA A Publication by Corporate Professionals {Y-01).{V-VI)
  2. 2. Insight Par ti cul ar s Page No. R egular Sec tion – C ontribut ion 3-4 F AQ’S – C ontribution 5-6 LLP in N ews 7-8 Segm ent on Global C o m paris on 9 Gray I s s ues 9 R ec ent Queries on LL P C lub 10 Public Opinion 10 Our Of f erings 11 2 of 11
  3. 3. Contribution Contribution as per the lexicon interpretation means “Part or Share”. In reference to LLP, contribution can be termed as, what a partner is contributing towards the Limited Liability Partnership for running of his business. For ease of understanding, what Share Capital is in case of Company, is Contribution in case Limited Liability Partnership. Therefore, in case of LLP, the ownership will be judged on the basis of contribution by the partners in the LLP. Is it necessary to contribute for a partner? No, as per LLP Act 2008 Contribution is not a pre requisite for formation of a Limited Liability Partnership or for being a Partner in any Limited Liability Partnership. Under the Act, organizational flexibility has been offered to the Partners through LLP Agreement wherein the Partners can decide the amount and form of Contribution as per their suitability. The LLP Agreement must specify the contribution intended to be paid by all the members and the form in which it will be paid. Form of Contribution As per the requisite of Section 32(1) of LLP Act 2008 the contribution can be in the form of 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. 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. Valuation of Intangible Contribution In case of intangible form of Contribution, the value of the same shall be certified by a practicing Chartered Accountant or 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. 3 of 11
  4. 4. Return of Contribution in case of cessation of Partner Whenever a partner of a LLP ceases to be a partner than unless otherwise provided in the LLP agreement, the former partner or a person entitled to his share in consequence of the death or insolvency of the former partner, shall be entitled to receive from the limited liability partnership, an amount equal to the capital contribution of the former partner actually made to the limited liability partnership. Interest on Contribution Alike Partnership, the Partners in LLP are allowed to have interest on the contribution. No limit has been prescribed under the Act for any maximum amount of interest payable by the LLP to its partner. However as far as tax planning is concerned interest to partners is deductible if conditions of section 184 and section 40(b) of the Income Tax Act are satisfied. The Income Tax Act allows for the maximum 12% deduction of the interest to the partners on the amount of their contribution. Procedural Aspect Increase in Capital Contribution: The existing Capital of the LLP can be increased as per the provisions provided in the LLP Agreement. The LLP Act 2008 only requires to File Form 3 with the Registrar of LLP for the amendment in the particulars of the LLP Agreement and is required to pay the difference amount between the fee payable on the increased slab or contribution and the fee paid on the preceding slab of contribution through Form 3. Reduction in Capital Contribution: The existing Capital of the LLP can similarly to enhancement be reduced as per the provisions provided in the LLP Agreement. The LLP Act 2008 only requires to File Form 3 with the Registrar of LLP for the amendment in the particulars of the LLP Agreement and is required to pay the normal filing fee. 4 of 11
  5. 5. FAQ’S on Contribution What do you mean by Contribution? Contribution as per the lexicon interpretation means Part or Share. In reference to LLP, contribution can be termed as, what a partner is contributing towards the Limited Liability Partnership for running of his business. Contribution in case of LLP is alike Share Capital in case of Company. What can be the form of contribution? A contribution of a partner may consist of tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, other agreements to contribute cash or property, and contracts for services performed or to be performed. Whether contribution can be increased? Yes, the Contribution of LLP would be provided under the LLP Agreement and the same can be increased by way of amendment in the LLP Agreement. How to work out the monetary value of contributions? If any rules prescribed whether the same are in conformity with general principles of valuation? Section 32 (2) specifically prescribes that 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 case the contribution is in intangible form, the value of the same shall be certified by practicing CA/CWA or a valuer approved by the Central Government. Ownership of business and Profit & Loss sharing ratio- whether the two may be different? If yes, how the ownership of business be determined -Whether by capital contribution or otherwise? Yes and in that case the ownership will be determined by contribution and in case of nil contribution the ownership can be determined as per the agreement or in the absence of agreement it should be equal. 5 of 11
  6. 6. Initial capital contribution to remain fixed or the same may keep on fluctuating with the addition/ withdrawal of additional capital or with addition/ deletion of Profit & Loss? The Law is silent but the flexibility for addition or deletion is provided through the LLP Agreement. Section 33 (1) of the LLP Act 2008,specifies that the obligation of a partner to contribute money or other property or other benefit or to perform services for a limited liability partnership shall be as per the limited liability partnership agreement. Whether partner can withdraw their contribution like drawings in case of partnership? Yes, but the terms and conditions for such withdrawal shall be provided in the LLP Agreement. Whether contribution can be reduced in LLP? There is no provision under the LLP Act 2008 for reduction of the contribution but the same can be reduced in the manner provided under the LLP Agreement. 6 of 11
  7. 7. LLP In News Firm Bullish on LLP regime With no clear-cut guidelines specified for the conversion of companies into limited liability partnership firms, the industry chambers as well as the LLP users have urged the finance ministry to provide more clarity on the taxation issue to encourage formation and conversion of LLPs. The industry chamber, Assocham has also written to the finance ministry to give clear- cut guidelines on the conversion aspect of companies to LLP. “Since limited liability partnership will become a very popular vehicle for carrying out various business activities in the country, all aspects of taxation measures dealing with either incorporation or conversion of existing entities into LLPs needs to be addressed fully by the finance ministry," Assocham has said. Source: The Financial Express FDI norms to cover LLP The government is working to bring limited liability partnerships (LLPs) within the scope of foreign direct investment guidelines, a move which will facilitate the inflow of overseas capital through a corporate structure that has just recently been allowed in India. The ministry of corporate affairs, which administers the LLP Act that came into effect in April, and the department of industrial policy and promotion which administers FDI policy, are working to amend FDI guidelines, a government official said. The rule change is expected to happen in a few months. Source: The Economic Times 7 of 11
  8. 8. No tax-free conversion of unlisted companies into LLPs yet The finance ministry is not willing to allow tax-free conversion of unlisted companies to LLPs, but it is open to giving the benefit if the number of promoters going for conversion increases, a ministry official told ET on condition of anonymity. Capital gains tax will increase the cost of conversion for companies that have capital assets including immovable property. This tax is charged on the value of appreciation of a capital asset, excluding the effect of inflation. Long-term capital gains from transfer of property attract 20% tax after three years of purchase. Experts see this as a speed-breaker in the growth of this globally-preferred business form. The government will consider tax-free conversion of a company to an LLP when this form of business finds wider acceptance, the official said. Budget 2009 had allowed tax-neutral conversion of a general partnership to an LLP if the rights and obligations of the partners don’t change. The rider on rights and obligations was introduced to ensure that the sale of a company is not passed off as a conversion to an LLP. However, the Budget did not mention conversion of an unlisted company to an LLP. The tax regime for LLPs introduced in the Budget is soft compared to that for companies. These partnerships don’t have to pay 16.9% dividend distribution tax or the surcharge. Source: The Economic Times To check out the entire articles click here 8 of 11
  9. 9. Global Segment Facts LLP UK Singapore LLP USA LLP Indian LLP Contribution No minimum amount No minimum amount No minimum amount No minimum prescribed , contribution prescribed , prescribed , amount shall be such , as contribution shall be contribution shall be prescribed , prescribed under the LLP such , as prescribed such , as prescribed contribution shall Agreement under the LLP under the LLP be such , as Agreement Agreement prescribed under the LLP Agreement Gray Area LLP being a self regulatory arrangement is on some corners of the Act lacking for being a fully transparent structure. Like in case of Reduction of Contribution no expressed provision is provided and the same can be reduced as per the arrangement in the LLP Agreement. The only requirement is for filing Form 3 after such reduction that is for Change in the LLP Agreement providing the total Contribution limit of the LLP. In case where the secured/unsecured creditors are subsisting in any LLP even than the contribution can be reduced without seeking any consent from the creditors 9 of 11
  10. 10. Recent Queries on LLP Club If a LLP has not filed Form 3 & Form 4 after 30 days of Incorporation. Now they have filed the same on LLP Portal and paid the minimum fees of Rs. 50 under miscellaneous fee option and have not paid the full fee with additional fees of Rs. 100 per day. Now what is the procedure to compound the offence? Whether LLP can carry on business of hire-purchase or finance? If an LLP admit new partner whether amendment in agreement is needed for including his contribution and name in agreement, if needed whether supplement agreement is enough? Whether any amendment in the LLP Agreement by way of increase of contribution, will subject to stamp duty? Whether 2 companies can convert into 1 LLP? Whether LLP can carry on the business of stock broking? If capital gain is paid on conversion of company into LLP, who will pay the same, company or shareholders? To check the reply of the queries click here Public Opinion Our Poll of the week “Whether registration of charge like companies should be made mandatory for LLPs” was favored by 90% audience while 10% audience was against the registration of charge with the Registrar of LLP. To count your vote on “Whether registration of charge like companies should be made mandatory for LLPs?” log in to w w w . L L P o n l i n e . i n 10 of 11
  11. 11. Our Services Our Team A n ki t Si n g h i - O 1 1 -4 0 6 2 22 0 8 A s st . Ma na g e r , C o r p o r a t e A f fai r s & C o m p li an ce s Em ai l : a nki t @ i nd i a cp .c o m Sh i p r a W ad h w a - 0 11 - 4 06 2 2 24 8 A sso ci a te , C o r p o r a te A f fai r s & C o m p li a n ce s Em ai l : sh i p r a@ i nd i a cp . co m Visit us at From the house of Corporate Professionals (India) Private Limited D-28, South Extn. Part-I, New Delhi-110049, Ph: 011- 40622200; Fax: 011- 40622201. Email: info@indiacp.com & info@LLPonline.in 11 of 11
  12. 12. Our Gamut of Services INVESTMENT BANKING • INDIA ENTRY SERVICES • M&A, CORPORATE COMPLIANCES & DUE DILIGENCE • CORPORATE TAXATION • SECURITY LAW ADVISORY • AUDIT & ACCOUNTING SERVICES Disclaimer: This paper is a copyright of Corporate Professionals (India) Pvt. Ltd. The entire contents of this paper have been developed on the basis of Limited Liability Partnership Act 2008. The author and the company expressly disclaim all and any liability to any person who has read this paper, 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 paper. 12 of 11

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