LLP is a combination of both Company and Partnership. It is especially suitable for small to medium-sized business enterprises.
It is governed by Limited Liability Partnership Act- 2008 which came into force from April 1, 2008. This Act was proposed for promoting the Micro Small Medium Enterprise.
MINIMUM COMPLIANCE LEVEL & COST SAVING:
After commencement of Companies Act, 2013 cost of compliance has increased many fold in the case of Companies, while a LLP has to comply with a very few compliance.
The comparative chart of compliance to be made by a company and LLP is given below.
Particulars | LLP | Private Company |
Maintenance of Statutory Records | No such Registers are required to maintain | Many Registers are Required to Maintain Under Company as per Companies Act- 2013 |
Addition or Deletion of Directors | Require to amend LLP Agreement and File e-form- 3 & e-form-4. | Require to Pass Resolution in General Meeting, File e-form-DIR-12 and require many documents from the person who is appointed as Director. (As per Section-152 of Companies Act-2013.) |
Change in Registered Office | Require to amend LLP Agreement and File e-form Form-15 | There is Complete lengthy process for change in registered office of company as Per Section-13 of Companies Act-2013 |
Increase in Capital | Only require to amend LLP Agreement and File e-form Form-3. | Require to Pass Ordinary resolution in General Meeting and file form SH-7. |
Annually form filling requirement | Only Two annual formE-form- 8, E-form-11 | There are much forms E-form AOC-4, E-form- MGT-7, E-form-ADT-1 |
Disclosure of Interest | No such requirement | Require to Take disclosure from director under Section-184(1) and to file form- MGT-14. |
Convening of Meetings | No such requirement | Require to hold Meetings as per Section- 173. (At least Two Board Meeting and one Annual General Meeting for Small Company and At least four Board Meeting and One Annual General Meeting for other then Small company). |
Audit of Accounts | Require only if Turn over above 40 lacs or Contribution more than 25 lacs. | Audit is Compulsory. |
Loans & borrowings | As per LLP Agreement. No other requirements | There is Cap for Loans and Borrowings as per section 179 & 180, Require to hold Board Meeting and file form with ROC. |
Deposits | No such condition. | Loan from other then director is cover under deposit as per Definition of Deposit under Companies Act-2013. |
Related Party Transactions | No Restrictions | Transaction to be at arm’s length price only and as per provisions of Secton-188 of Companies Act-2013. |
If the following conditions are satisfied then the transfer of capital asset or intangible asset to LLP or any transfer of share or shares held in company by a share holder on conversion of Company into LLP shall not be regarded as transfer:
S. No. | Condition | Particulars |
i. | Turnover Limit | The Total sales, turnover or gross receipts in business of the company do not exceed Sixty Lakh (60 Lakh) Rupees in any of the three preceding previous years |
ii. | All the shareholders of company became partner of the LLP | All the shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company. |
iii. | Capital Contribution and Profit Sharing Ration on Conversion. | The Capital Contribution and Profit Sharing ration of the shareholders of company should be in the same proportion as their shareholding in the company as on the date of Conversion. |
iv. | No other consideration to partners. | No consideration other than share in profit and capital contribution in the LLP arises to partners. |
v. | Profit Sharing Ration after conversion | The erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent in aggregate of the profits of the LLP for a period of 5 years from the date of conversion |
vi. | Assets and Liabilities | All assets and liabilities of the company become the assets and liabilities of the LLP. |
vii. | Accumulated Profit (Reserve) | No amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a period of 3 years from the date of conversion |
Event Based Compliance by LLP:
Compliance | Section | e-form | Time Limit |
Filing of Consent of Designated Partners | 7(3) | Form 4 | Within 30 days of incorporation or subsequent appointments |
Filing of Change in Partners | 25(2) | Form 3 and Form 4 | Within 30 days of Change |
LLP Agreement & Changes therein | 23(2) | Form 3 | Within 30 days of incorporation or Changes in LLP Agreement |
Shifting of Registered Office | 13(3) | Form 15 | Within 30 days of Compliance |
Change of Name | 19 | Form 5 | Within 30 days of Compliance. |
Regular Compliance by LLP:
Compliance | e-form | Time Limit |
Filing of Statements of Accounts & Solvency | Form-8 | Within 30 days from the end of 6 months from the closure of Financial Year |
Filing of Annual Return | Form-11 | Within 60 Days of closure of Financial Year |
TABLE OF STEPS OF CONVERSION:
S. NO. | PARTICULAR | REQUIREMENT |
A. | Call BM- to change name – ending with word LLP | |
B. | File Form for Name approval with work LLP | E-form LLP-1 |
C. | ROC issue name approval certificate | |
D. | Incorporation documents with registrar | File e-form -2 |
E. | Application of Conversion | e-form – 18 |
F. | LLP Agreement- within 30 days of approval of above forms | e-form- 3 |
G. | If incorporation certificate is issued by department; then | |
H. | Intimation of Conversion to Registrar | e-form-14 |
The minimum number of designated partners for the incorporation of an LLP is two. One of them must be an Indian resident. Currently, DIN is only allotted only at the time of incorporation or while adding a person as a director or designated partner in a company or an LLP. Hence, first such members need to be added as directors in the company to obtain DIN. DIN will be required for those who would become designated partners.
Further, it is important to apply for a DSC before applying for the DIN. A Body Corporate can also be a partner in a Limited Liability Partnership through a nominee.
The company will have to apply for reservation of name of LLP And GET NAME APPROVAL CERTIFICATE FROM ROC.
File E Form FiLLiP with ROC along with following Attachments:
Form 18 is the form for conversion of a company into an LLP. But it needs to be filed with Form for incorporation itself.
This form has information about the conversion of the company into LLP such as:
After complying to all the formalities by the company and approved by the Ministry, ROC to issues a COI as to the conversion of LLP.
Contents of Agreement are:
This form provides information about the LLP Agreement entered into between the partners. This form is to be filed in 30 days from the date of conversion of the company into an LLP.
Attachment Required: LLP Agreement
After receiving incorporation certificate of LLP it has to be filed within 15 days of the date of conversion.
ATTACHMENTS OF E-FORM 14
It is best to know everything about Limited Liability Partnership in India including the effects on taxation after conversion. The conversion of Company into an LLP will not attract capital gain tax as this conversion is not a “transfer” as defined under the IT Act.
Also, it will not attract capital gain tax subject to the following conditions:
The following are some of the implications due to the conversion of a company into a LLP:
Company has to intimate all the authorities concerned about the conversion and make necessary changes in all the registrations and licenses.
As per the above discussions, LLP is a more convenient form of organization over a company from compliance and taxation point of view. So, it may be more suitable for small entrepreneurs and professionals particularly. The conversion from an existing company can be made to an LLP while retaining the advantages of Limited Liability and fewer compliance.