The Limited Liability Partnership (LLP) Bill, which proposes to provide an alternative model for doing business in India, may be passed in the forthcoming session of Parliament, scheduled to begin on October 17.
The Bill has already been cleared by the Cabinet and incorporates suggestions of the Parliamentary Standing Committee, a senior official in the Ministry of Corporate Affairs said. “We are hopeful that the Bill would be passed by Parliament in the coming session itself,” the official added.
A limited liability entity is a hybrid of existing partnership firms and full fledged companies. It is a separate legal entity, liable to the full extent of its assets with the liability of the partners being limited to their agreed contribution in LLP. Interestingly, no partner is liable on account of the independent or unauthorised actions of other partners.
The official expects that a large number of existing companies (public as well as private) will convert themselves into LLP entities with an eye on the practical benefits, including those related to taxation that it provides.
They also expect overseas professionals, who are not coming to India, like chartered accountants (CAs) and company secretaries (CSs), to come to India and set up business here, as the proposed law allows such foreign nationals to become partners in any LLP incorporated under the proposed provisions. The framework of LLP is not restricted to professional services alone. Several business activities can be undertaken through the structure (see chart).
Under the LLP model, CAs and CSs or even advocates can set up multi-disciplinary firms, which would act as “one-stop” shop for people to avail of various professional services. Existing laws impose restriction on carrying out of these professional services through companies.
India recognises several forms of business entities, including sole proprietorship, Hindu Undivided Firms, partnership firms (which provide flexibility, but with unlimited liability jointly or severally) and companies, which have limited liability but far less flexibility and high compliance requirements.
“The LLP will mean that professionals of these kinds will be able to do business together. There will be no limit on the number of partners, unlike the current limit of 20 members in a partnership firm,” the official added.
The LLP Bill is one of the fastest instances of reforms in the country as it has taken only two years for the Bill to reach Parliament.
The taxation of LLPs, the official added, is being addressed separately by the finance ministry under the Income Tax Act, 1961.
Indian LLPs would eventually extend their operations in the global markets like the US and UK. In such a scenario, the taxation regime would have a significant impact on the viability of LLPs as it would determine the manner in which the LLP and its individual partners would be taxed, avoid situations of double taxation and provide for carrying forward the losses in the event of conversion from other forms to LLP and vice-versa.
