Tag Archives: LLP

Withdrawal of restriction on LLPs to carry on Manufacturing activities

The Ministry of Corporate Affairs (the MCA) had earlier issued Office Memorandum (OM) No. to all the Registrar of Companies (the RoCs) dated on 6 March 2019, instructing the RoCs to reject the applications for incorporation of Limited Liability Partnerships (the LLPs) or conversion of entities into LLPs having Manufacturing & allied activities as the business of the LLPs on the ground that manufacturing activities does not fall under the definition of `Business’ as per the Limited Liability Partnership Act, 2008.

Now the MCA has withdrawn the aforementioned OM on such restriction to the LLPs from carrying out manufacturing & allied activities with immediate effect. Consequent to this clarification, LLPs can now carry out the manufacturing & allied activities and entities carrying-out manufacturing & allied activities can also convert themselves into LLP.

Link: http://www.mca.gov.in/MinistryV2/homepage.html

How to choose your legal avatar?

With the new Companies Act 2013 introducing One Person Company, we thought of doing a refresh of our earlier comparative chart.

 

SL. NO. FEATURES ONE PERSON COMPANY (OPC) PRIVATE LIMITED COMPANY LIMITED LIABILITY PARTNERSHIP (LLP) SOLE PROPRIETORY PARTNERSHIP FIRM
  1.  
Legality It is a separate legal entity It is a separate legal entity It is a separate legal entity Not a separate legal entity Not a separate legal entity
Governed by Companies Act 2013 Companies Act 2013 Limited Liability Partnership Act 2008 NA Indian Partnership Act 1932
  1.  
Registration Has to be registered with ROC. Certificate of Incorporation is issued by ROC Has to be registered with ROC. Certificate of Incorporation & Certificate of Commencement of Business is issued by ROC

 

Has to be registered with ROC. Certificate of Incorporation is issued by ROC  There is no process of registration as it is not a separate legal entity Not mandatory. Unregistered Partnership Firm will not have the ability to sue.
  1.  
Name “One Person Company” shall be mentioned in brackets below the name of such company Name of a private company to end with the words “Private Limited” Name to end with “LLP” Limited Liability Partnership” No guidelines No guidelines
  1.  
Capital Contribution Minimum authorised and paid up capital is Rs. 1,00,000/- Minimum authorised and paid up capital is Rs. 1,00,000/-

 

No limit prescribed in the Act No guidelines No guidelines
  1.  
Minimum number of Directors/Partners 1 Director who has to be a Resident of India 2 Directors out of which 1 director has to be a resident of India

 

2 Designated Partners out of which 1 director has to be a resident of India No guidelines 2 Partners
  1.  
Minimum number of shareholders/members 1 shareholder who has to be a Resident of India. He has to appoint a Nominee in case of his death or incapacity to contract

 

Minimum 2 shareholders. Can be Body Corporates & foreign nationals also NA NA NA
  1.  
Minimum number of Meetings including Board & General Meetings At least 1 Board meeting in each half year and the gap between 2 meetings should not be less than 90 days. However, no Board Meeting required, if there is only one director. No requirement of AGM.

 

At least 4 Board Meetings, one in each quarter & the gap between 2 meetings should not be more than 120 days. AGM to be held within 6 months from closure of Accounts. No specified limits NA NA
Annual Filings Financial Statements and Annual Return to be filed with ROC Annual Accounts and Annual Return to be filed with ROC Annual Statement Of Accounts And Solvency & Annual Return has to be filed with ROC NA NA
10. Audit Compulsory, irrespective of share capital and turnover Compulsory, irrespective of share capital and turnover Required, if the contribution is above Rs.25,00,000/- or if annual turnover is above Rs. 40,00,000/- NA Compulsory
11. Foreign Nationals as shareholders/ Partners NA – Has to be a Resident of India Foreign nationals can be shareholders, however there are separate RBI guidelines to be followed Foreign nationals can be partners, however there are separate RBI guidelines to be followed NA Foreign nationals cannot form partnership firm.
12. Taxability No amendment made in the Income Tax Act yet. But may be treated like pvt ltd. The income is taxed at 30% + surcharge + cess (Surcharge rates will vary)  The income is taxed at 30% +  surcharge+ cess (Surchage rates will vary) As per tax slabs applicable to personal income The income is taxed at 30% + surcharge+ cess (surcharge rates will vary)
 13. Liability Limited Liability Limited liability Limited liability Unlimited Liability Unlimited, can extend to the personal assets of the partners
14. Conversion Can be converted into a public/private Company Can be converted into a Public Company/LLP Cannot be converted into a Private Company/Public company/OPC NA Can be converted to a Private Company
15. Dissolution Not prescribed – To follow the same as for Private Limited Company Very procedural & time consuming. Voluntary Winding up under FTE/ by Order of National Company Law Tribunal Less procedural compared to Company. Voluntary/ by Order of National Company Law Tribunal NA By agreement of the partners, insolvency or by Court Order

Article by Pooja Shah, Associate with NovoJuris.

Disclaimer: This is a generic note. Please consult your lawyer.

FDI in LLP

Foreign Director Investment allowed in Limited Liability Partnerships (LLPs), subject to some conditions. Everything that you need to know is listed herein:

Who is eligible to invest in LLP?

A person resident outside India (PROI) or an entity incorporated outside India

Who can’t invest in LLP?

  • Citizen/entity of Pakistan and Bangladesh or
  • SEBI registered Foreign Institutional Investor (FII) or
  • SEBI registered Foreign Venture Capital Investor (FVCI) or
  • SEBI registered Qualified Foreign Investor (QFI) or
  • SEBI registered Foreign Portfolio Investor

What are the eligibility conditions for LLP to accept FDI?

  • All LLPs operating in sector/activities where 100% FDI is allowed under Automatic Route are eligible.
  • All the LLPS engaged in the followings sectors are not allowed to accept FDI:

a) Sectors eligible to accept 100% FDI under automatic route but are subject to FDI-linked performance related conditions

b) Sectors eligible to accept less than 100% FDI under automatic route

c) Sectors eligible to accept FDI under Government Approval route

d) Agricultural/plantation activity & print media

e) Prohibited sectors/activities

What is eligible investment?

  • Amount contributed in the capital of LLP would be an eligible investment.

Note: Investment by way of ‘profit share’ will fall under the category of reinvestment of earnings.

What is the entry route?

  • Any kind (direct or indirect) of FDI in LLP will require prior Government/FIPB approval

Pricing of investment/Transfer?

  • FDI in an LLP shall be at a price more than or equal to the fair price as worked out with any valuation norm which is internationally accepted. A valuation certificate has to be issued by a Chartered Accountant or by a practicing Cost Accountant or by an approved valuer from the panel maintained by the Central Government.
  • Transfer of capital contribution/profit share from resident to non-resident– To  be at a consideration equal to or more than the fair price of capital contribution/profit share of an LLP
  • Transfer of capital contribution/profit share from non- resident to a resident- To be at a consideration which is less than or equal to the fair price of the capital contribution/profit share of an LLP.

What is the mode of payment?

Consideration can only be in cash through either:-

  • Normal banking channels; or
  • Debit to NRE/FCNR(B) account of the person concerned, maintained with an AD Category – I bank.

Reporting of FDI by LLPs?

  • LLPs shall submit Form FOREIGN DIRECT INVESTMENT-LLP(I), together with a copy of FIRC, Valuation Certificate and KYC report to concerned Regional Office of RBI through an AD Category – I bank within 30 days from the date of receipt of the inward remittance.
  • AD Bank should get the KYC report of the foreign investor from the overseas bank.
  • Disinvestment / transfer of capital contribution or profit share between a resident and a non-resident (or vice versa) shall be reported within 60 days from the date of receipt of funds in Form FOREIGN DIRECT INVESTMENT-LLP(II).

Downstream Investment in LLP?

  • An Indian company, having foreign investment can make downstream investment in LLP only if both are operating in sectors where 100% FDI is allowed under the automatic route, having no FDI-linked performance related conditions.
  • LLP with FDI can’t make any downstream investments in any entity in India.

Other Conditions to be complied by LLP ?

  • Note that an LLP having body corporate as Designated Partner, can accept FDI only if that body corporate is a Company registered under Companies Act. Also, Nominee of that Company should satisfy the residential status as per FEMA, 1999.
  • Designated partners will be responsible for all the aforementioned compliances and also liable for all penalties imposed on the LLP for their contravention.
  • Company with FDI can convert into LLP  only if all the aforementioned conditions (except mode of payment) are met and with the prior approval of FIPB/Government.
  • LLPs are not permitted to avail External Commercial Borrowings (ECBs).

Please click here to see the complete notification.

Author: Geetika Chandel, Associate at NovoJuris.

Disclaimer:  There are many details that the Act prescribes, please speak with your attorney for advice. This is not a legal opinion and should not be construed as one.

 

Foreign Direct Investment is now permitted in LLPs

The Cabinet Committee on Economic Affairs (CCEA) on the 11May 2011 approved the proposal to amend the policy on allowing Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP) firms.  A Notification to this effect (which covers minutia) is still awaited.

LLP Act, 2008 was notified in April 2009.  However, FDI was not permitted into the LLP up until now.

This approval however comes with some restriction and will be initiated in the “open sector” where no monitoring is required. However, here too certain conditions have been laid. The following is a brief on the restrictions and conditions.

  1. Sector and Activities:  FDI in an LLP will be permitted only in those sectors/ activities where 100% FDI is permitted through automatic route.  Accordingly, FDI is not permitted in sectors prohibited for FDI (like, agriculture, plantation, print media, real estate); sectors having a cap (like telecom); sectors falling under approval route (DIPP approval); or where FDI under automatic route with conditions.
  2. Downstream Investment by LLP:  LLPs with FDI will not be eligible for making any downstream investment. However an Indian company, having FDI, will be permitted to make downstream investment in LLPs only if both the company as well as the LLP, are operating in sectors where 100% FDI is allowed, through the automatic route.
  3. External Commercial Borrowings:  LLPs will not be permitted to avail external commercial borrowings.
  4. Capital Participation:  Foreign Capital participation in the capital structure of the LLPs will be allowed only by way of cash considerations, received by inward remittance, through normal banking channels, or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank. Foreign Institutional Investors (Flls) and Foreign Venture Capital Investors (FVCIs) will not be permitted to invest in LLPs
  5. Taxation:  In 2009, the tax rate for LLP is done at 30% + cess.  An LLP is not subject to dividend distribution tax.  A minimum alternate tax (MAT) of 18.5% is applicable.
  6. Ownership and management:  The designated partners in respect of LLPs with FDI, has to be a “resident in India”  and such person should fulfill the requirement for this term as set out in Foreign Exchange Management Act, 1999.  Designated partners will be responsible for all compliances of the LLP, including compliances under FDI.
  7. Conversion of a company with FDI to LLP:  Prior approval of the FIPB/ Government is required for a Company with FDI to convert into an LLP.

Disclaimer: This is not a legal opinion and should not be construed as one. Please speak with your attorney for any advice.