LLP- Registeration

REGISTRATION

23. What are the registration formalities relating to LLPs?

LLPs shall be registered with the Registrar of Companies (ROC) (appointed under the Companies Act, 1956) after following the provisions specified in the LLP Act. Every LLP shall have a registered office. An Incorporation Document subscribed by at least two partners shall have to be filed with the Registrar in a prescribed form. Contents of LLP Agreement, as may be prescribed, shall also be required to be filed with Registrar, online.

Contents of LLP Agreement or any changes made therein, if any, may be filed in Form 3 and details of partners/designated partners may be filed in Form 4 in accordance with LLP Rules, 2009.

24. Whether foreigners can incorporate LLP?

Yes, the LLP Act 2008 allows Foreign Nationals including Foreign Companies & LLPs to incorporate a LLP in India provided at least one designated partner is resident of India. However, the LLP/Partners would have to comply with all relevant Foreign Exchange Laws/ Rules/ Regulations/ Guidelines.

25. What are the broad provisions of the Act in respect of names of LLPs?

Every limited liability partnership shall have either the words “limited liability partnership” or the acronym “LLP” as the last words of its name. LLPs would not be given names, which, in the opinion of the Central Government, are undesirable. Registrar would be under obligation to follow such rules, which would be framed by the Central Government in connection with allotting names to LLPs. There are also provisions in respect of ‘rectification of name’ in case two LLPs have been registered with the same name, inadvertently.

26. for what period a name can be reserved by Registrar?

The name can be reserved by ROC on approval of Form 1, for a period of 3 months from the date of intimation by the Registrar. However, Foreign LLP/Companies have an option to reserve their existing names, under which they are operating outside India, for a period of 3 years in India, which can be further renewed on application to Registrar in Form 25.

27. Can LLP give any other address (besides its registered office) for the purpose of receiving communication from Registrar?

It has been provided in the Act that a document may be served on a LLP or a partner or designated partner by sending it by post or by any other mode (to be prescribed under Rules) at the registered office and any other address specifically declared by the LLP for the purpose in such form and manner as may be prescribed (in the rules). Thus, an LLP shall have option to declare one more address (other than the registered office) for getting statutory notices/letters etc. from Registrar.

CHANGE IN PARTNERS

28. How can a person become a partner of an LLP?

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.

29. How can an existing partner cease to be a partner of an LLP?

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- 

(a) on his death or dissolution of the limited liability partnership; or

(b) if he is declared to be of unsound mind by a competent court; or

(c) 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.

30. What will be the obligation of a partner in case he changes his name or address?

Every partner shall inform the LLP of any change in his name or address within a period of fifteen days of such change. The LLP, in turn, would be under obligation to file such details with the Registrar within thirty days of such change in Form 4.

PARTNER’S CONTRIBUTION AND TRANSACTIONS OF PARTNERS WITH LLP

31. What is the manner in which a partner of an LLP can bring his contribution? How will it be recorded/disclosed in the accounts?

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.

32. Whether a partner would be able to give loan to or transact other commercial transactions with LLP? What will be his rights and obligations in this regard?

A partner may lend money to and transact other business with the LLP and shall have the same rights and obligations with respect to the loan or other transactions as a person who is not a partner.

33. Whether a partner would be able to transfer his ‘economic rights’?

A partner’s economic rights (i.e. rights of a partner to a share of the profits and losses of the LLP and to receive distribution at the time of winding up) in the LLP shall be transferable. However, such a transfer shall not by itself cause the partner’s disassociation or a dissolution and winding up of the LLP.

However, such transfer shall not entitle the transferee or assignee to participate in the management or conduct of the LLP’s activities. Therefore, the transferee would not be deemed to be a ‘partner’ of the LLP just because a partner has transferred him the ‘economic rights’. For becoming a partner of LLP, the manner specified in the LLP Agreement or the provisions of the Act would have to be followed.

NATURE OF LIMITED LIABILITY PARTNERSHIP (LLP) PART 2

13. Whether Ministry has adopted a “Consultative Approach” while bringing out the LLP Act?

Yes. The Ministry of Corporate Affairs, on 2nd November, 2005, placed a Concept Paper on LLP Law on its website so that all interested stakeholders may express their opinions on the concepts involved and suggest formulations for the consideration of the Ministry on various aspects of LLP Law.  The Concept Paper was also circulated to various concerned Ministries/Departments and autonomous bodies like Comptroller and Auditor General of India (C&AG), Securities and Exchange Board of India (SEBI), Insurance Regulatory Development Authority (IRDA) etc. for their comments.         

Large number of comments and suggestions were received by the Ministry on the Concept Paper. These were examined in light of international practice/law on the subject. The Act has been prepared keeping in view the Indian requirements.  

PARTNERS AND DESIGNATED PARTNERS

14. What are the restrictions in respect of minimum and maximum number of partners in an LLP?  

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.

15. Whether a body corporate may be a partner of an LLP?

Yes.

16. What are the qualifications for becoming a partner?

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—

(a)   he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force;

(b)   he is an undischarged insolvent; or

(c)   he has applied to be adjudicated as an insolvent and his application is pending.

17. What are the requirements in respect of “Designated Partners”?

Appointment of at least two “Designated Partners” shall be mandatory for all LLPs. “Designated Partners” shall also be accountable for regulatory and legal compliances, besides their liability as ‘partners, per-se”.

18. Who can be a “Designated Partner”?

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.

19. Should the number of designated partners resident in India not be more than partners from outside India?

LLPs, particularly those as may be engaged in the services or technology-based sectors, may provide services globally. This may require any number of its partners to locate them abroad.  In view of liability structure of partners, designated partners and LLP, clearly provided for in the Act, there does not appear to be any necessity and justification for restriction relating to designated partners to out-number partners located abroad. In fact it may pose unnecessary restriction.

20. Whether there would be any requirement of ‘identification number’ of Designated Partner? Whether Designated Partners would be subject to any other condition/requirement before they are appointed as such?

Every Designated Partner would be required to obtain a “Designated Partner’s Identification Number” (DPIN) on the lines similar to “Director’s Identification Number” (DIN) required in case of directors of companies. Enabling provisions have been made to prescribe under rules conditions, which would have to be fulfilled by an individual who is eligible to be appointed as a ‘designated-partner’.

LLP AGREEMENT

21. How the mutual rights and duties of partners inter-se and those of partners and LLPs would be governed?

The mutual rights and duties of partners inter se and those of the LLP and its partners shall be governed by the agreement between partners or between the LLP and the partners. This Agreement would be known as “LLP Agreement”.

22. Whether LLP Agreement would be mandatory for all LLPs?

As per provisions of the LLP Act, in the absence of agreement as to any matter, the mutual rights and liabilities shall be as provided for under Schedule I to the Act. Therefore, in case any LLP proposes to exclude provisions/requirements of Schedule I to the Act, it would have to enter into an LLP Agreement, specifically excluding applicability of any or all paragraphs of Schedule I.

NATURE OF LIMITED LIABILITY PARTNERSHIP (LLP) PART 1

1. Concept of “limited liability partnership”

• LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.
• The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.
• The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
• Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
• Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.

Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.

2. Structure of an LLP
LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession.

3. Advantages of LLP form

LLP form is a form of business model which:
(i) is organized and operates on the basis of an agreement.
(ii) Provides flexibility without imposing  detailed legal and procedural requirements
(iii) enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner

4. Other countries where this form is available

The LLP structure is available in countries like United Kingdom, United States of America, various Gulf countries, Australia and Singapore. On the advice of experts who have studied LLP legislations in various countries, the LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act 2005. Both these Acts allow creation of LLPs in a body corporate form i.e. as a separate legal entity, separate from its partners/members. 

5.  Difference between LLP & “traditional partnership firm”

• Under “traditional partnership firm”, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner.
• Under LLP structure, liability of the partner is limited to his agreed contribution.  Further, no partner is liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct.

6. Difference between LLP & a Company

• A basic difference between an LLP and a joint stock company lies in that the internal governance structure of a company is regulated by statute (i.e. Companies Act, 1956) whereas for an LLP it would be by a contractual agreement between partners.
• The management-ownership divide inherent in a company is not there in a limited liability partnership.
•  LLP will have more flexibility as compared to a company.
• LLP will have lesser compliance requirements as compared to a company.

APPLICABILITY OF THE LLP Act

7. Whether the LLP Act is applicable to any specific services like professional services regulated by Statutes?

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.

8. Likely users/beneficiaries of the LLP Law?

India has witnessed considerable growth in services sector and the quality of our professionals is acknowledged internationally. It is necessary that entrepreneurship knowledge and risk capital combine to provide a further impetus to our impressive economic growth. Equally the services sector promises an economic opportunity similar to that provided by information technology over the past few years. It is likely that in the years to come Indian professionals would be providing accountancy, legal and various other professional/technical services to a large number of entities across the globe. Such services would require multidisciplinary combinations that would offer a menu of solutions to international clients.  In view of all this, the LLP framework could be used for many enterprises, such as:-

• Persons providing services of any kind
• Enterprises in new knowledge and technology based fields where the corporate form is not suited.
• For professionals such as Chartered Accountants (CAs), Cost and Works Accountants (CWAs), Company Secretaries (css) and Advocates, etc.
• Venture capital funds where risk capital combines with knowledge and expertise
• Professionals and enterprises engaged in any scientific, technical or artistic discipline, for any activity relating to research production, design and provision of services. 
• Small Sector Enterprises (including Micro, Small and Medium Enterprises)
• Producer Companies in Handloom, Handicrafts sector

9.  Whether an entity which has objectives like “charitable or other not for profit objectives” would be able to set up under LLP Act?

No. The essential requirement for setting LLP is ‘carrying on a lawful business with a view to profit’.

10. Whether provisions of Indian Partnership Act, 1932 would be applicable to LLPs?

No, these shall not be applicable to LLPs.

11. Why a new legislation for LLP? Why not amendments in Companies Act or Partnership Act are made?

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 liability 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. 

IFRS – In Indian Context- PART 3

a.      Fair Value Accounting

The conceptual difference between the accounts under IFRS and under the Indian GAAPs is that in many instances the figures in accounts under the IFRS will be reported on the basis of ‘fair value’ of the items, whereas such items by and large are reported at present at ‘cost’, unless the fair value happens to be lower than the cost. The fair value concept demands that if an item has appreciated in value over its cost, the appreciation will be recognized and if it has declined in value, the decline will also be recognized.

 Assessment of fair value using valuation model brings with it an undesirable level of subjectivity which produces an inherent risk and a question mark on reliability. There is a higher scope for manipulating the financial statements prepared on fair value basis. The So Called Fair Value would heavily depend upon availability of data, assumptions made by the management and the intentions of management. How fair is Fair value, is a very big question?

Argument in favor of fair value accounting is that it helps in determining the true worth of business. The present value of business is known to the investors and helps them take decisions based on the financial statements. No one can deny the fact that financial statements prepared on the basis of fair value gives more useful information to prospective investors. In many cases it provides greater level of transparency (except in cases where complex models are used).

From a careful analysis we can conclude that benefits of fair value based accounting outweighs the disadvantages. However strong measures should be taken by regulatory authorities to improve the verifiability of estimates used in financial statements based on fair value (As discussed earlier the guidance provided by SA 540 is a right step in this direction)

Convergence: - The road ahead

The Term “convergence” means to achieve harmony with IFRS in precise terms. It would mean to design and maintain national accounting standards in a way that financial statement prepared in accordance with national accounting standards draw unreserved statement of compliance with IFRS.

There is feeling among many that Accounting standards will give way to IFRS. ICAI and Government of India is very clear that India is not migrating to IFRS, but the existing accounting standards will be redesigned in such a manner that the moment Indian Accounting standards is followed it will be treated as following international standards. As a part of the initiative, ICAI has released exposure draft on Accounting Standards which has been sent to NACAS for approval.

At the same time, it is important to understand that IFRS need not be adopted word by word. The national standards should meet the requirements of IFRS and there is no prohibition in including additional disclosure requirements or removing optional treatment.

 The roadmap issued by Ministry of Corporate Affairs requires IFRS to be implemented in a phased manner. IFRS will be implemented in three phases, starting from April 1, 2011 as shown in the table below:

Phase	Companies/ Entities covered	Date of Conversion
1	·         Companies which are part of NSE Index- NSE 50 ·         Companies which are part of BSE Sensex- BSE 30 ·         Companies whose shares or securities are listed on overseas stock exchanges ·         Companies whether Listed or not having net worth of more than Rs 1,000 crores.	1st April 2011
2	·         Companies whether Listed or not, having a net worth exceeding Rs 500 crores but not exceeding Rs 1,000 crore.	1st April 2013
3	·         Listed companies having a net worth of Rs 500 crores or less.	1st April 2014
Roadmap for Others
	·         Insurance Companies	1st April 2012
	Banking Companies ·         All SCBs and UCBs having net worth greater than Rs 300 crores ·         All SCBs and UCBs having net worth greater than Rs 200 crores but less than 300 crores.	1st April 2013 1st April 2014

As we can see from the above, in first stage only BSE 30, NSE 50, companies with net worth of more than Rs 1,000 crores and overseas listed are required to converge in 2011. Initiative has been taken by companies towards convergence.

However the process of convergence has not taken place as planned by the Ministry. At this point of time, notification is not issued with regards to implementation of IFRS. It is very unlikely that the IFRS convergence will take place starting April1, 2013.

Time for Leadership

Movement to IFRS is inexorable and the initiative involves multiple corporate functions, not solely finance. So you have a choice: either to sit back and wait for it to happen or mobilize the company to attempt to extract every possible benefit and dodge every avoidable obstacle.

By starting now, companies are likely to spread out cost, get the jump on competition, and reel the scarce talent before it vanishes. Fire drill atmosphere and last minute projects can be avoided. Processes and systems can be integrated with other initiatives, such as an ERP upgrade or a merger or acquisition. Most important, by starting early, IFRS can be implemented at a pace that suits the company and its circumstances and in their own terms. An IFRS project should not be a distraction from the primary activities of the business. It must be integrated, coordinated and aligned.

Accordingly, it is paramount for all the stakeholders, the government, regulatory authorities and ICAI to work together in achieving full convergence with IFRS. If the means are worked out well, the end is bound to come as planned. If not, it is India Inc which will be the ultimate loser because whether we like it or not convergence is inevitable and is here to stay

Appendix

List of IFRS issued vis a vis Indian Accounting Standards

This can be clubbed under the following categories

a.       Indian Accounting Standards already issued by ICAI corresponding to IFRS

SI.No	Indian Accounting Standards		International Financial Reporting Standards
	No:	Title of standard	No:	Title of Standard
1	AS 1	Disclosure of Accounting Policies	IAS 1	Presentation of Financial Statements
2	AS 2	Valuation of Inventories	IAS 2	Inventories
3	AS 3	Cash Flow Statements	IAS 7	Cash Flow Statements
4	AS 4	Contingencies and events occurring after the balance sheet date	IAS 10	Events after the balance sheet date
5	AS 5	Net Profit or Loss for the Period , Prior Period Items and Changes in Accounting Policies	IAS 8	Accounting Policies , Changes in Accounting Estimates , and Errors
6	AS 6	Depreciation accounting		Corresponding IAS has been withdrawn since the matter is now covered by IAS 16 and IAS 38
7	AS 7	Construction Contracts	IAS 11	Construction Contracts
8	AS 9	Revenue Recognition	IAS 18	Revenue
9	AS 10	Accounting for Fixed Assets	IAS 16	Property , Plant and Equipment
10	AS 11	The Effects of Changes in Foreign Exchange Rates	IAS 21	The Effects of changes in Foreign Exchange rates
11	AS 12	Accounting for Government Grants	IAS 20	Accounting for Government Grants and Disclosure of Government Assistance
12	AS 13	Accounting for Investments		Corresponding IAS has been withdrawn now since the matter is now covered by IAS 32 , 39 , 40 and IFRS 7
13	AS 14	Accounting for Amalgamations	IFRS 3	Business Combinations
14	AS 15	Employee Benefits	IAS 19	Employee Benefits
15	AS 16	Borrowing Costs	IAS 23	Borrowing Costs
16	AS 17	Segment Reporting	IFRS 8	Operating Segments
17	AS 18	Related Party Disclosures	IAS 24	Related - Party Disclosures
18	AS 19	Leases	IAS 17	Leases
19	AS 20	Earnings Per Share	IAS 33	Earnings Per Share
20	AS 21	Consolidated Financial Statements	IAS 27	Consolidated and Separate Financial Statements
21	AS 22	Accounting  for taxes on Income	IAS 12	Income Taxes
22	AS 23	Accounting for Investment in Associates in Consolidated Financial Statements	IAS 28	Investment in Associates
23	AS 24	Discontinuing Operations	IFRS 5	Non Current Assets held for sale and Discontinued Operations ( AS 10 deals with accounting for fixed assets retired from active use)
24	AS 25	Interim Financial Reporting	IAS 34	Interim Financial Reporting
25	AS 26	Intangible Assets	IAS 38	Intangible assets
26	AS 27	Financial Reporting of Interests in Joint Ventures	IAS 31	Interests in Joint Ventures
27	AS 28	Impairment of Assets	IAS 36	Impairment of Assets
28	AS 29	Provisions , Contingent Liabilities and Contingent Assets	IAS 37	Provisions , Contingent Liabilities , and Contingent Assets
29	AS 30	Financial Instruments : Recognitions and Measurement	IAS 32	Financial Instruments :Presentation
30	AS 31	Financial Instruments : Presentation	IAS 39	Earnings Per Share
31	AS 32	Financial Instruments : Disclosures	IFRS 7	Financial Instruments : Disclosures

b.      IFRS  not considered relevant for issuance of accounting standards by ICAI for the reasons indicated

SI.No	International Financial Reporting Standards		Reasons
	No:	Title of standard
1	IAS 29	Financial Reporting in Hyper Inflationary Economies	Hyper inflationary conditions does not prevail in India. Accordingly the subject is not considered relevant
2	IFRS1	First Time Adoption of International Financial Reporting Standards	In India, Indian AS is being adopted since the last many years and IFRS are not being adopted for the first time. Therefore , the IFRS 1 is not relevant to India at present

c.       Accounting Standards presently under preparation corresponding to IFRS

SI.No	International Financial Reporting Standards
	No:	Title of standard
1	IAS 26	Accounting and Reporting by Retirement benefits plans
2	IAS 41	Agriculture
3	IFRS 2	Share based Payment
4	IFRS 4	Insurance Contracts

d.     Guidance Notes issued by ICAI corresponding to IFRS

SI.No	International Financial Reporting Standards		Title of Guidance Note
	No:	Title of standard
1	IFRS 6	Exploration for and Evaluation of Mineral Resources	Guidance note on Accounting for Oil and Gas Producing Activites