The Chartered Accountant

LLP from the Register.
CORPORATE AND ALLIED LAWS
The concept of LLP is being recognised in our country after a long
debate over the past some years. We should welcome it. LLP structure
will enable small and medium size organizations and family partnerships
to expand as they will be able to admit outsiders with capital or skill
as partners. Since the financial liability will be limited, there will be no
danger of promoter partners being saddled with the personal liability of
outside partners.
(xi) The LLP Act also provides for prosecution
of partners or designated partners
for certain offences committed under the
Act.
(xii) The Central Government has power to
make Rules for carrying out the provisions
of LLP Act.
(xiii) The Tribunal has been given powers to
sanction compromise. Arrangement or Reconstruction
of LLPs in sections 60 to 62
of LLP Bill. This will include proposals
for merger or demerger of two or more
LLPs and compromise with creditors.
(xiv) Central Government is given power to
alter the contents of schedules to LLP
Act.
(xv) It is provided that till the Tribunal or Appellate
Tribunal is contributed the powers
of Tribunal shall be exercised by the
“Company Law Board” and the powers of
Appellate Tribunal shall be exercised by
the “High Court”.
to Sum Up
The concept of LLP is being recognised in our
country after a long debate over the past some
years. We should welcome it. LLP structure will
enable small and medium size organizations and
family partnerships to expand as they will be able
to admit outsiders with capital or skill as partners.
Since the financial liability will be limited, there
will be no danger of promoter partners being saddled
with the personal liability of outside partners.
Further, there will be no danger of stoppage of
business due to non-co-operative attitude of outside
partners as LLP is a legal entity with common
seal and perpetual succession. One advantage of
this structure, in preference to a limited company,
is that the partners will have flexibility in the matter
of internal working and at the same time
their liability will be limited and they will not have to
comply with the complicated provisions of Companies
Act. Any outsider cannot attach the personal
property of the partners for debts due by LLP.
He can only proceed against the LLP and recover
his dues from the assets of LLP. It may be noted
that most of the procedural provisions of LLP
Act are to be governed by the Rules to be framed
by the Central Government. In particular, the form
of accounts, form of annual financial statements,
solvency statement, auditor’s report etc., are to be
prescribed by Rules. Let us hope that the Government
will publish draft rules for public comments
so that practical difficulties can be pointed
out before finalizing the rules. So far as matters
relating to accounts and audit are concerned, let us
hope that the Government takes the Institute of
Chartered Accountants of India into confidence
before framing the Rules for this purpose.
LLP Act is silent regarding taxation of LLP under
the Income tax Act. Since the basic structure
is that of a partnership and the only difference
is that the liability of partners is limited, it is possible
that under the Income tax Act LLP will be
recognized as a ‘Firm’. In that case LLP will be
taxed at the rate applicable to a ‘Firm’ and deduction
for interest to partners and remuneration
to partners will be allowed as provided in section
40 (b) of the Income tax Act. The balance profit
which is distributed to partners will be treated as
exempt as provided in section 10 (2A). Since there
is no distribution of dividend, there will be no
dividend distribution tax. For this purpose, we
will have to wait for enactment of LLP Act and,
thereafter, for consequential amendments in the
Income tax Act.q
THE CHARTERED ACCOUNTANT 1025 DECEMBER 2008