This article would through light on procedural aspect of LLP right from the incorporation to winding up.

A.        INTRODUCTION

The concept of Limited Liability Partnership (LLP) in India is viewed as an alternative corporate business vehicle that provides the benefits of limited liability and also allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. The revised Bill received the assent of the President of India on 7, January 2009.

LLP is a body corporate formed and incorporated under the LLP Act, which is a distinct legal entity separate from that of its partners. Introducing LLPs, as a new business structure would fill the gap between business firms such as sole proprietorship and partnership, which are generally unregulated and Limited Liability Companies, which are governed by the Companies Act, 1956. It will also provide an aid to the growth of service sector in India. Further, the provisions of the Indian Partnership Act, 1932 shall not apply to a limited liability partnership.

B.        SALIENT FEATURES

The salient features of the act are as follows:

1. LLP can be formed by any two or more person, associated for carrying on a lawful business, by subscribing their names to incorporation document.
2. The rights and duties of LLP and its partners shall be governed by an agreement between partners or between LLP and the partners.
3. The LLP will be a separate legal entity, liable of its assets, with liability of the partners being limited to their agreed contribution in the LLP.
4. Every LLP shall have at least two partners and shall also have at least two individuals as Designated Partners, of whom at least one shall be resident in India.
5. The LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs.
6. A firm, private company or an unlisted company is allowed to convert itself into LLP.
7. The act provides for the winding up of LLP which may be either voluntary or by the tribunal.
8. The provisions of the Indian Partnership Act, 1932 not applicable on LLP.

C.        Incorporation of Limited Liability Partnership (LLP)

The procedure for incorporation of LLP is same as that of Incorporation of a Company, which as given below:

C.(i).          Registration of User

In order to access this site every user needs to be registered with this site by filling an online form

1. Register yourself on the website of LLP, i.e. www.llp.gov.in by clicking on “Register” tab on top right hand corner of the page.
2. Also upload your digital signature certificate.

C.(ii).         Obtaining Designated Partner Identification Number

Every Designated partner of the proposed LLP shall obtain “Designated Partner Identification Number (DPIN), by filing Form – 7 online.

1. Individual Designated Partner shall Log in to their account by entering user name and password. After this, open Form 7 Form E-forms and fill the required information.
2. Submit the application form online after Paying filing fee of Rs. 100 online. Note the provisional DPIN generated by the system.
3. Take the print out of the application form, affix a latest passport size photograph and get it attested/certified for submission physically, along with documentary evidences (proof of identify and proof of residence).
4. Deliver the printed and signed application form, along with the prescribed documents by hand/courier/registered post to the Office of Registrar, Ministry of Corporate Affairs, 3^rd Floor, “Paryavaran Bhawan”, CGO Complex, Lodhi Road, New Delhi – 110003.

C.(iii).  Reserve name of proposed LLP

Name of Proposed LLP may be reserved by any Partner/Designated Partner by filing Form-1.

• Individual Designated Partner of Partner shall Log in to their account by entering user name and password. After this, open Form 1 from E-forms and fill in the details. Details of minimum two designated partners of the proposed LLP, one of them must be a resident of India, is required to be filled in the application for reservation of name. Only individuals or nominees on behalf of the bodies corporate as partners can act as designated partners.
• Select name of the proposed LLP (max. 6 choices can be indicated).
• Attach Digital signatures, pay the necessary fee online and submit the e-form on LLP Portal.

C.(iv).  Incorporation of LLP

This is the last step of incorporating a LLP, where Form-2 is required to be filed with registrar along with necessary documents.

1. After the name is reserved by the Registrar, log on to the portal and fill up Form-2 “Incorporation Document and Statement”.
2. Pay the prescribed fee for registration as specified under ‘Annexure A’ of the LLP Rules, 2009.
3. Statement in the e-form is to be digitally signed by a person named in the incorporation document as a designated partner having permanent DPIM and also to be digitally signed by an advocate/company secretary/chartered accountant/cost accountant in practice and engaged in the formation of LLP.
4. Following documents are required to be filed along with Form-2:

• Copy of authorization where the partner is a limited liability partnership, or company, or a limited liability partnership incorporated outside India or a company incorporated outside India.
• Proof of address of registered office of limited liability partnership.
• Details in respect of names of partners / witnesses and their signatures.
• Any other document as specified in the form.

5.  Registrar will register the LLP, within 14 days of filing of Form-2 and a certificate of incorporation will be issued to LLP in Form-16.

C.(v).   Filing of other information

Following documents are required to be filed within 30 Days of incorporation of LLP or these may also be filed simultaneously at the time of filing Form-2.

• Form 3 – Details of LLP agreement
• Form 4 – Notice of Appointment of Partner/Designate Partner.

D.        ELIGIBILITY TO BE A PARTNER

Any person may become a partner by and in accordance with the limited liability partnership agreement and he may also cease to be a partner in accordance with limited liability partnership agreement.

E.         EXTENT AND LIMITATION OF LIABILITY OF PARTNERS

A partner is not personally liable; directly or indirectly for an obligation, solely by reason of being a partner of the limited liability partnership. However, the personal liability of a partner shall not be affected for his own wrongful act or omission, but a partner shall not be personally liable for the wrongful act or omission of any other partner of the LLP.

If incase any act being carried out be LLP or any partner with intention to defraud creditors or any other person or for any fraudulent purpose, the liability in such cases shall be unlimited for all or any other debts or other liabilities of the LLP.     In case any such act is carried out by a partner, then his liability shall be unlimited and also liability of LLP be unlimited unless it is established by the limited liability partnership that such act was without the knowledge or the authority of the limited liability partnership. However a partner shall not be personally liable for the wrongful act or omission of any other partner of the LLP.

Every person who is knowingly a party to any such act shall be punishable with an imprisonment for a term which may extend to two years and with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.

F.         DESIGNATED PARTNERS

Every limited liability partnership shall have at least two designated partners who are individuals and at least one of them shall be a resident in India. In case 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 limited liability partnership or nominees of such bodies corporate shall act as designated partners.

Every designed partner of a limited liability partnership shall obtain a Designated Partner Identification Number (DPIN).

A designated partner shall be liable to all penalties imposed on the limited liability partnership for any contravention of the provisions of the act.

G.        Books of Accounts

Every limited liability partnership shall keep books of accounts which shall contain-

1. particulars of all sums of money received and expended by the limited liability partnership and the matters in respect of which the receipt and expenditure takes place;
2. a record of the assets and liabilities of the limited liability partnership;
3. statements of cost of goods purchased, inventories, work-in-progress, finished goods and cost of goods sold; and

Such books of accounts shall be preserved for eight years.

Every LLP shall file the Statement of Accounts and Solvency in Form-8 with the Registrar, within a period of thirty days from the end of six months of the financial year.

H.        AUDIT

Every limited liability partnership shall be required to get its accounts audited. However a limited liability partnership whose turnover does not exceed, in any financial year, forty lakh rupees, or whose contribution does not exceed twenty-five lakh rupees shall not be required to get its accounts audited. Audit can be assigned only to a Chartered Accountant in practice.

I.          Annual Return

Every limited liability partnership shall file and annual return with the Registrar in Form-11 with in 60 days of closure of its financial year.

The annual return of an LLP having turnover upto INR 5 crore during the corresponding financial year or contribution upto INR 50 lakh shall be accompanied with a certificate from a designated partner(other than the signatory to the annual return), to the effect the annual return contains true and correct information. In all other cases, the annual return shall be accompanied with a certificate from a Company Secretary in practice to the effect that he has verified the particulars from the books and records of the limited liability partnership and found them to be true and correct.

J.         CONVERSION FROM FIRM INTO LIMITED LIABILITY PARTNERSHIP

A firm can be converted into LLP, upon such conversion the partnership firm shall deemed to dissolved and all the assets and liabilities of the firm shall be transferred to, and vest with LLP.

Conversion can carried out by the following procedure:

1. Obtain DPIN
2. Reserve name of proposed LLP
3. Apply to Registrar in Form No. 17 online duly signed by proposed Designated Partner. This application should also be verified by a Practicing Company Secretary.

Following documents shall be attached with this Form:

1. Consent of each of the partners of the firm.
2. Duly filled in Form No. 2,3 and 4.
3. No Objection Certificate from Tax authorities.
4. In case of Professional Firms, approval from governing Council of relevant body.
5. Consent of Creditors.

The ROC may register the firm as an LLP and issue Certification of registration in Form-19, provided all the partners of the firm become partners of LLP. The new LLP so formed is required to inform within 15 days of the date of registration, to the concerned Registrar of Firms with which it was registered under the provisions of the Indian Partnership Act, 1932 about the conversion and particulars of the limited liability partnership shall also be required to be submitted in Form-14.

The LLP shall ensure that within a period of twelve months commencing not later than 14 days after the date of registration, every official correspondence of the LLP bears a statement that is was, as form the date of registration, has been converted from a firm into a LLP and the name of registration number, of the firm from which it was converted.

K.        CONVERSION FROM PRIVATE COMPANY/UNLISTED PUBLIC COMPANY INTO LIMITED LIABILITY PARTNERSHIP

A Private Company/Unlisted Public Company (“Co.”) can be converted into LLP, upon such conversion the Co. shall deemed to dissolved and all the assets and liabilities of the Co. shall be transferred to, and vest with LLP. Conversion can be carried out by the following procedure:

1. Obtain DPIN
2. Reserve name of proposed LLP
3. Apply to Registrar in Form No. 18 online duly signed by proposed Designated Parnter. This application should also be verified by a Practicing Company Secretary.

Following documents shall be attached with this Form:

a)      Consent of each shareholder of the Co.

b)      Duly filled in Form No. 2, 3 and 4.

c)      No. Objection Certificate from Tax authorities.

d)      In case of Professional Firms, approval from governing Council of relevant body.

e)      Consent of Creditors.

The ROC may register the Co. as an LLP and issue Certificate of registration in Form-19, provided all the members of the Co. become partners of LLP. The new LLP so formed is required to inform within 15 days of the date of registration, to the concerned Registrar of Companies with which it was registered under the provisions of the Companies Act, 1956 about the conversion and particulars of the limited liability partnership shall also be required to be submitted in Form-14.

The LLP shall ensure that within a period of twelve months commencing not later than 14 days after the date of registration, every official correspondence of the LLP bears a statement that it was, as from the date of registration has been converted from a Co. into a LLP and the name and registration number, of the Co. from which it was converted.

L.         WINDING UP AND DISSOLUTION OF LLP

The Act provides for voluntary winding up of LLP or circumstances under which the winding up proceedings can be initiated by the tribunal. The Central Government is also empowered under the act to make rules for the provisions in relation to winding up and dissolution of LLP.

This post is writted by Arpit Kothari of Reach Tax. He is reachable at arpit@reachtax.com

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Registration procedure

An application in form 1A is to be made to the Registrar of Companies along with a fee of Rs. 500/- Desired names for the organization in the order of preference are to be mentioned in the application form. Normally, the Registrar inform about the availability of the name within 7 days.

Once the name is approved by the Registrar, the Memorandum and Articles of Association are prepared. Companies registered under section 25 are exempted from payment of stamp duty in respect of their Articles of Association and Memorandum, vide. Articles 1o and 39 of the Bombay Stamp Act, 1958. Thereafter, an application to the Regional Director having offices at Mumbai / Calcutta / Kanpur / Chennai is to be made for issue of licence under section 25 of the Companies Act, 1956 (hereinafter referred to as ‘the Act’). The following documents are required to be submitted to the Regional Director for issue of licence required under section 25 of the Act.

i.        Draft of the Memorandum and Articles of Association. (in triplicate).
ii.        Details such as name, address, occupation of the promoters. (in triplicate).
iii.        List of companies, associations in which the promoters are directors or hold responsible position with the description of the position held.
iv.        List of the proposed members of the Board of Directors.
v.        Declaration signed by an Advocate / Chartered Accountant / Company Secretary on non-judicial stamp paper of appropriate value.
vi.        The proposed sources of income and the expenditures thereof.
vii.        A note on the proposed activities and also the past activities, if any.
viii.        A statement of the grounds for making an application under section 25. In this statement a reference to the relevant clause in the Memorandum of Association regarding the Vision and Mission of the proposed company should be made.
ix.        Declaration signed by all the promoters on non-judicial Stamp Paper of appropriate value.
x.        In case of an existing society applying for conversion into a section 25 company, audited statement of accounts and annual report of the society for the past two years (in triplicate) should be submitted.
xi.        A certified copy of the notice to be published in newspapers.

The application should accompanied by a draft of Rs. 500/- drawn in favour of “Pay and Accounts Officer, Department of Company Affairs”.

A copy of the application with all enclosures and papers should be sent to the concerned Registrar of Companies of the state in which the Registered office of the organization is situated.

Within one week of making an application to the Regional Director a notice is required to be published in one English newspaper and one vernacular newspaper of the local area in which the Registered Office is situated.

Grant of Licence and Certificate of incorporation

The Regional Director scrutinises the application received by him. The Registrar of Companies to whom a copy is sent, also forwards his recommendations to the Regional Director.

The Regional Director may ask for further clarification or explanation as he deems fit from the applicants as well as from the Registrar. Based on his scrutiny of application and recommendations received, he grants the licence on behalf of Central Govt.

The Government by issue of licence allow an association be registered as a company with limited liability for the members, without the addition to its name of the word “Limited” or the words “Private Limited”.

After receiving the licence / approval an application is to be made to the Registrar of Companies (ROC) along with following documents :
i.        Printed copy of the Memorandum and Articles of Association.
ii.        The licence granted by the Regional Director.
iii.        One copy of Form 1
iv.        One copy of Form 18
v.        Two copies of Form 32
vi.        The requisite amount of fees payable which is Rs. 50 plus Rs. 10 per document; i.e., Form1, Form 18, Form 32.

The Registrar of Companies after scrutinizing the requisite documents shall issue a Certificate of Incorporation.

Objects of the company

The main instrument of any section 25 company is the memorandum and articles of association, wherein the aims and objects and mode of management of the company are mentioned. The objects of such company include promotion of Commerce, Art, Religion, and Charity etc.

The objects clause can be changed only with the prior sanction of Central Government.

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The Answer is YES. Why do you need to wait for the month of January to plan your taxes. It has also been observed that the individuals (often salaried ones) end up paying more taxes than they are obligated to. The only reason may be due to sufficient time to conduct the tax-planning exercise is a reason, largely, this can be attributed to lack of awareness about different incentives, allowances and rebates under the Income Tax Act. Apart from the Section 80C deductions which are quite popular, there are various other sections which can help salaried individuals save taxes.

I hereby present 5 tax-planning tips that can aid salaried individuals minimize their tax liability.

1. Utilise the entire Section 80C deduction

As you may well aware that the maximum deduction available under this Section is Rs. 1,00,000/-. Ideally, salaried individuals whose gross total income is equal to or more than Rs 1,60,000 should utilise the entire Rs 100,000 limit. Also, at times, individuals make investments of over Rs 100,000 in Section 80C designated avenues, since they fail to understand that the benefits are capped. For example, despite making investments of Rs 70,000 in Public Provident Fund and Rs 40,000 in ELSS, the amount eligible is only Rs 100,000.

2. Think beyond Section 80C

For salaried individuals whose gross total income exceeds Rs 160,000 pa, deductions under Section 80C may not be sufficient to reduce the overall tax liability. In such cases they can consider the following:

Home loan: Individuals intending to buy a house should consider opting for a home loan. Interest payments of upto Rs 150,000 pa are eligible for deduction under Section 24.

Medical insurance: An individual who pays medical insurance premium for self or spouse/dependent children is allowed a deduction of upto Rs 15,000 pa under section 80D.

An additional deduction of up to Rs 15,000 pa is allowed for premium payment made for parents. In case the parents are senior citizens, then the maximum deduction allowed is Rs 20,000 per year.

Donations: Subject to the stated limits, donations to specified funds/institutions are eligible for tax benefits under Section 80G.

Salaried individuals who plan to pursue higher education should avail of an education loan as the entire interest is eligible for deduction under Section 80E. The loan can be for self, spouse or child from an approved charitable institution or a notified financial institution.

3. Restructure the salary

Restructuring the salary and including certain components can go a long way in reducing the tax liability. Unlike eligible investments which lead to an additional cash outflow, restructuring the salary is a more ‘efficient’ means of claiming tax benefits. The following can form a part of one’s salary structure:

• Medical expenses which are reimbursed by the employer are exempt up to Rs 15,000 per year.
• Individuals living in a rented accommodation should have House Rent Allowance (HRA) as part of their salary.
• Transport allowance is exempt upto Rs 800 per month.
• Leave Travel Allowance (LTA) can be claimed twice in a block of four years for domestic travel.

4. Claim tax benefits on house rent paid

Salaried individuals can claim rent paid by them for residential accommodation, if HRA doesn’t form part of their salary. This deduction is available under Section 80GG and is least of the following:

• 25% of the total income or,
• Rs 2,000 per month or,
• Excess of rent paid over 10% of total income

Please note that the above deduction will be denied if the taxpayer or his spouse or minor child owns a residential accommodation in the location where the taxpayer resides or performs his office duties.

5. Opt for a joint home loan

As discussed earlier, the principal repayment on a home loan is eligible for a deduction of up to Rs 100,000 pa and the interest paid is eligible for a deduction of up to Rs 150,000 per year.

In cases where the home loan is for a substantial sum, it is not uncommon for the interest and principal repayment to exceed the stated limit. To ensure that the tax benefit is optimally utilised, an individual can consider opting for a joint loan with his spouse or parent or sibling.

This will ensure that both the co-owners can claim tax deductions in the proportion of their holding in the loan. The co-owner falling in the higher tax bracket should hold a higher proportion of home loan to ensure that the tax benefits are maximized.

This post is written by Praveen of Reach Tax. He is reachable at praveen@reachtax.com

What is a Advance Tax?

Tax shall be payable in advance during any financial year in every case      where the amount of such tax payable by the assessee during that year is Rs.10000 or more.

Instalments of advance tax and due dates:

WHAT IS INPUT TAX CREDIT ?

The essence of VAT is in providing set-off for the tax paid earlier, and this is given effect through the concept of input tax credit or rebate. The Input tax credit in relation to any period means setting off his Output tax. The value addition to the goods, and the related VAT liability of the dealer is calculated by deducting input tax credit from tax collected on sales during the payment period

Provision Illustrated:

Mr. Shri purchases input worth Rs. 22,00,000 and record sales of Rs. 27,00,000 in the month of January 2010. Input tax rate and output tax rate is 12.5 %. Compute Input tax credit.

Input procured within the State         (a) Rs. 22,00,000

Output Sold in the month                       (b) Rs. 27,00,000

Tax collected @ 12.5% on (b)               (c) Rs.   3,37,500

Input tax paid @ 12.5% on (a)               (d) Rs.   2,75,000

VAT payable during the month            (c)-(d)  Rs.62,500

Are you wondering if you ever have to face the taxman when your business is making losses?  The answer is a big YES! and even better before the due date. You might want to file a tax return to set off losses of the current year against profits which you start making later ( so that your tax burdern is reduced when you start making profits ).

If you are making losses, watch out for the due dates. If you do not file for your losses before due date, the loss for that year can not be carried forward. ( The only exception to this rule is loss from house property – this loss can be carried forward even if the IT return is not filed in time.)

So, even when the going gets tough, Taxes get going.

This post is written by praveen from Reach Tax. He is reachable at praveen@reachtax.com

What is Excise?

An excise or excise tax (sometimes called a duty of excise or a special tax) may be defined broadly as an inland tax on the production for sale; or sale, of a specific good (Goods specifically identified at the time a contract of sale is made) or narrowly as a tax on a good produced for sale, or sold, within the country.

Persons requiring registration

1. Every manufacturer of excisable goods on which excise duty is leviable .
2. Persons who desire to issue CENVATABLE invoices under the provisions of the CENVAT Credit Rules, 2001.
3. Persons holding private warehouses.
4. Persons who obtain excisable goods for availing end-use based exemption notification.
5. Exporters manufacturing or processing export goods by using duty paid inputs and intending to claim rebate of such duty or by using inputs received without payment of duty and exporting the finished export goods.

Separate registration is required in respect of separate premises except in cases where two or more premises are actually part of the same factory but are segregated by public road, canal or railway-line.

Exemption from Registration

• Persons who manufacture the excisable goods, which are chargeable to nil rate of excise duty or are fully exempt from duty by a notification.
• Small scale units availing the slab exemption based on value of clearances under a notification. However, such units will be required to give a declaration once the value of their clearances touches Rs.90 lakhs.
• In respect of ready-made garments, the job-worker need not get registered if the principal manufacturer undertakes to discharge the duty liability.
• Persons manufacturing excisable goods by following the warehousing procedure under the Customs Act, 1962.
• The person who carries on wholesale trade or deals in excisable goods (except first and second stage dealer, as defined in Cenvat Credit Rules, 2001).
• A Hundred per cent Export Oriented Undertaking, or a unit in Free Trade Zone or Special Economic Zone licensed or appointed, as the case may be, under the provisions of the Customs Act, 1962.

How to Register Excise?

Choose and fill any one of the following forms.

• New Central Excise Registration form (Others) – FORM A-1. To fill this form Please see            Instruction-1 and Instruction-2
• Application form for central excise registration of power loom weavers / hand processors / Dealers of Yarns and Fabrics/manufacturers of ready made Garments – FORM A-2
• Application form for central excise registration of manufacturers of hand rolled cheroots of tobacco falling under sub-heading no. 2402.00 of central excise tariff act, 1985. – FORM A-3

This post is written by Sharmila of Reach Tax. You can contact her at sharmila@reachtax.com

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