LLM LLP Limited Liability PDF

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LIMITED LIABILITY PARTNERSHIP

IN INDIA
CONTENTS
NAME PAGE NO.
Introduction 3
Research methodology 4
CHAPTER - 1
What is Limited Liability Partnership? 5
CHAPTER - 2
Limited Liability Partnership in India 6
CHAPTER - 3
Need for the Limited Liability Partnership in India 9
CHAPTER – 4
International Experiences with LLPs 10
CHAPTER - 5
Issues against the present legal position for LLPs in India 18
Conclusion 19
Suggestions 20
Bibliography 21
Electronic copy available at: http://ssrn.com/abstract=1708215

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INTRODUCTION
One of the oldest forms of business relationships is Partnership. It can be evidenced that
in terms of the complex business, partnerships have been replaced by the limited liability
companies, but still it is preferred form of business for small trading and business
enterprises, especially the professionals in India as well as abroad. But gradually, the
general form of partnership has lost its demand because of inherent disadvantages in it;
the primary is unlimited liability of partners. Each partner has risk of exposure to
personal assets in case any liability arises. For a long time, a need has been felt to provide
for a business format that would combine the flexibility of a partnership and the
advantages of limited liability of a company at a low compliance cost.1The beginning of
the twenty first century have witnessed an amount of activity around the law relating to
business forms operating within the world not seen since the private company and limited
partnership were introduced in 1907. Since then there has been reviews of partnership
law carried on by law commissions in various countries with a view to reform and
modernization. Given the emphasis on law reform and modernization for small
businesses it may not seem surprising that the first new form available for such
businesses to be introduces as the Limited Liability Partnership or LLP. The importance
of the subject of Limited Liability Partnerships has been growing day by day with the
increasing trend of LLP registrations and the conversion of traditional unlimited
partnerships to LLP status in the world panorama. One can experience an increasing level
of serious interest in conversion to LLP status in recent years in the whole world. The
move towards conversion to LLP is building momentum day by day. There are now over
13,000 LLPs in the UK. Many are special purpose vehicles but an increasing number are
professional firms. The main drivers are risk management and succession. For most
professional firms the question now is not whether they will convert to LLP, but when.
The latest surveys suggest that the majority of the Top 50% accounting firms and about
60% of the Top law firms will be LLPs by the end of 20015. However, we are also seeing
an increase in conversions and an interest in the concept from smaller professional firms
who were previously operating a wait and see approach.
The professional and entrepreneurs are attracted by lower compliance cost, better
control and management, greater flexibility in operations and limited liability of member
of the LLP. With effect from 1st April, 2008 any two or more persons wishing to carry on
business together have an additional choice of vehicle for that purpose. This is the limited
liability partnership and those persons are referred to as the members of the LLP.
The origin of this relatively new institution is generally attributed to the German law of
1892.2 This business form has its origin in the 1892 German company law known as
Gesellschaft mit beschrnkter Haftung (GmbH). Once established in Germany, the concept
of the Limited Liability Company had a very active and fast growth. A corporate business
vehicle that enables professional expertise and entrepreneurial initiative to combine and
1
news.vakilno1.com/2009/.../limited-liability-partnership-llp-bill.html
2
http://en.wikipedia.org/wiki/Limited_liability_company
Electronic copy available at: http://ssrn.com/abstract=1708215

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operate in flexible, innovative and efficient manner, providing benefits of limited liability
while allowing its members the flexibility for organizing their internal structure as a
partnership. 3 Its primary advantage is the benefit of limited liability, a feature not
prevalent in general partnerships. The partners in an LLP are liable only to the extent of
their individual contributions; they would not be held responsible for loss caused on
account of other partners, of which they had no knowledge.
AIMS AND OBJECTIVES:
The aim of this research is to highlight some loopholes in the current legal position
related to the taxation of the Limited Liability Partnerships in India; as well as, highlight
some of the problems related to the conversion of general partnership firms and limited
companies into the Limited Liability Partnership in the light of the following acts:
 LIMITED LIABILITY PARTNERSHIP ACT, 2008
 THE FINANCE ACT, 2009
SCOPE AND LIMITATIONS:
The researcher has made the best possible effort to point out the various loopholes
present in current legal position related to the Limited Liability Partnerships in India,
particularly in relation to the taxation and convertibility. The study has been made in the
light of the current legal position in various countries like U.S.A., Germany, Australia
and U.K. etc. The researcher also thinks there is ample scope for further research in this
issue.
HYPOTHESIS:
Though the concept of Limited Liability Partnership has proved to be a boon for the
professionals in all over the world; but the inconsistency and ambiguity related to the
legal position of Limited Liability Partnerships is a big concern. The only solution is an
amendment to the current Limited Liability Partnership Act and the Finance Act. Some
explanations are also sought from the Government on certain issues related to the
investment done by the foreigners in the Indian LLPs.
3
http://www.llp.gov.in/
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CHAPTER – 1
WHAT IS A LIMITED LIABILITY PARTNERSHIP?
An LLP is best described as a partnership that has been protected with an outer
shell of limited liability. It is a hybrid corporate business vehicle that has a perpetual
succession and separate legal entity.4 LLP is a new corporate structure that combines the
flexibility of a partnership and the advantages of limited liability of a company at a low
compliance cost.5 It is a body corporate with separate legal entity and it has continuous
existence like a company. Its members have limited liability to the contribution made by
that member, except in case of fraud, malpractice, wrongs etc., in which case the liability
is unlimited. However, unlike the company shareholders, the partners have the right to
manage the business directly. LLP also limits the personal liability of a partner for the
errors, omissions, incompetence, or negligence of the LLP‟s employees or other agents. 6
An LLP can sue and be sued in its own name. It can enter into contracts and deeds in its
own name, unlike a general partnership. There is no restriction on the number of
members. There is no equivalent of a Memorandum and Articles of Association so there
are no restrictions on what an LLP can do. LLPs are the artificial persons in the eyes of
law, unlike general partnerships.
The liability of a member is limited to his capital in the firm. Where a claim is
made against a member who is personally at fault (for example in a claim for negligence)
he should be protected by the limited liability unless he accepted a personal duty of care
or a personal contractual obligation. It is strongly recommended that an LLP should have
a bespoke members‟ agreement, which is a private document. Otherwise, there are
default provisions provided in the LLP regulations that would not be appropriate for most
businesses. An LLP does not have a share capital and one of the matters that the
members' agreement needs to address is the level of capital contributions from members.
Where an existing partnership converts to LLP status, many of the clauses in the existing
partnership deed can be adapted for use in the members' agreement. However, the
members' agreement will need to be more comprehensive and will need to deal with
aspects of company law and the Insolvency Act 1986. An LLP is treated like a general
partnership for the purpose of taxation, i.e. the members are taxed on their individual
share of profits or capital gains. The entity itself is not taxed on its profits. The legislation
has been drafted with the intention of making the conversion of a partnership to an LLP a
neutral event for tax purposes. However expert advice needs to be taken to avoid certain
pitfalls. One of the key aspects is that the internal flexibility of a general partnership is
maintained within an LLP. The introduction and retirement of members and alterations of
profit shares and capital contributions are very easy to arrange and have minimal tax and
legal consequences. LLPs are not restricted to professional firms and are an exciting new
structure for various business situations.
4
www.icsi.edu/.../limitedliabilitypartnership-anewbusinessmodel.pdf
5
http://www.blonnet.com/2009/04/02/stories/2009040252220500.htm
6
http://www.lawyersclubindia.com/forum/files/33_33_limited_liability_partnership_llp__registration__indi
a.pdf
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CHAPTER - 2
LIMITED LIABILITY PARTNERSHIP IN INDIA
The aspirations of the people and the situation keep on changing time to time and the States,
particularly with a democratic setup, tend to keep pace with that. These aspirations can be as
much commercial or economic, as they can be political. In order to secure better for the
commercial aspirations the States have, from time to time, provided regulatory legitimacy to
several forms of business organization. The spectrum of State responsiveness varies from a
mere “recognition” of newer manners of conducting business activities to “creation” of newer
business forms. 7 India has witnessed considerable growth in the recent years and the
quality of our entrepreneurs, and technical and professional man power has been
acknowledged globally. This is also widely accepted that the service sector in the Indian
economy has grown in its role to a great extent. It has thus become necessary to combine
the entrepreneurship knowledge and risk capital to provide a further boost to the
economic growth. For particularly this purpose the introduction of a new corporate entity
was felt needed, which could combine the characteristics of both the corporate and non-
corporate entities. As a result of which the Limited Liability Partnership (LLP) came into
existence with the enactment of Limited Liability Partnership Act in the year 2008. The
professionals and entrepreneurs will now be able to organize and provide a wide range of
services to the corporate sector in an efficient manner.
The law, as the name suggests, is to provide the advantage of limited liability by
creating a corporate form of partnership. According to section 2(n) of the Limited
Liability Partnership Act, 2008, Limited Liability Partnership means a partnership formed
and registered under the Act. Again section 3(1) of the Act says that a limited liability
partnership is a body corporate formed and incorporated under this act and is a legal
entity separate from its partners.
In an LLP form of business there is an advantage of limited liability of a company

along the flexibility of organizing the internal management on the basis of a mutual
agreement like any partnership firm. It is a model which amalgamates in it the features of
both of a corporate structure' as well as 'a partnership firm structure' providing an
efficient combination of professional expertise and entrepreneurial initiative in an
innovative manner. LLP is be a Body Corporate formed and registered under the LLP Act
2008 that gives the flexibility of a partnership firm. It is to be organized and operated on
the basis of an agreement known as "LLP Agreement” and shall have the following
characteristics:
_ Perpetual succession
_ Capacity and power of suing and being sued
_ Capacity to buy and sell property in its own name
_ Common seal
7
www.qub.ac.uk/mgt/efirg/Corporation.pdf
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ORIGIN AND DEVELOPMENT:
 1957: The 7th Law Commission on Partnership Act, 1932 rejected the suggestion
to introduce LLP legislation made by the iron, steel and hardware merchants’
chamber, because they did not want to fail the purpose of recent Companies Act
amendment.
 1997- The AbidHussain Committee on Small Scale Industries recommended
legislation on LLP in India.
 2003- The Naresh Chandra Committee set up on regulation of private
companies and Partnerships suggested application of Limited Liability
Partnerships to service industry.
 2005- The recommendation for introducing a LLP law was again made by the JJ
Irani Expert Committee on Company Law (2005). It suggested to have a
separate LLP Act and to include the small enterprises with the scope of LLPs.
They were of the view that in this way flexibility could be provided to the small
enterprises to enter into the joint venture agreements and to access technology.
 23rd July 2005- The 2ndNaresh Chandra Committee submitted its report and
made the following observations: "In increasing litigious market environment,
prospect of being a member of a partnership firm with unlimited liability is, to
say the least, risky and unattractive. Indeed the chief reason why the firms of
professionals, such as accountants, have not grown in size to successfully meet
the challenge of the international competition. This makes an L.L.P a most
attractive vehicle for partnership among professionals such as lawyers and
accountants."8
 2006- On December 7th, LLP bill was approved by Union Cabinet. On December
15th, LLP bill was introduced in Rajya Sabha.
 2007- The LLP bill of 2006 was referred to Parliamentary Standing Committee
(PSC). On November 27th, PSC submitted its report to the Parliament with
recommends for some changes to the 2006 LLP bill.
 2008- On May 1st, the introduction of new bill (2008 LLP bill) was approved by
the Union Cabinet replacing the 2006 LLP bill. On October 21st, the LLP bill was
introduced in the Parliament. On October 24th, the LLP bill was passed by the
Rajya Sabha. On December 13th, LLP bill was passed by Lok Sabha.
 2009- On January 7th, President gave his assent to the LLP bill 2008. On January
9th, LLP Act 2008 was published in the Official Gazette. The rules in respect of
operational aspects under the LLP Act, 2008 (the LLP Rules 2009), were broght
on 1st April, 2009. The rules in respect of conversion of a partnership firm, a
private company and an unlisted public company into LLPs were made effective
w.e.f. 31st May, 2009. The Government has also launched a website namely,
www.llp.gov.in on 1st April, 2009 for operationalization of various processes
provided under the LLP Rules, 2009.9
8
http://www.icai.org/resource_file/11703nccr_pc.htm
9
http://www.llp.gov.in/tolink/pressreleaseonLLPtaxation.pdf
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CHAPTER – 3
NEED FOR THE LIMITED LIABILITY PARTNERSHIP IN INDIA
It may be possible that in the coming years various useful services like legal,
accountancy and other technical/professional services will be provided by the Indian
professionals to a large number of entities across the world. In order to provide variety of
solutions to the international clients, the multidisciplinary combinations will be required.
But in an increasingly litigious environment, it is really a very risky job to be a member
of a partnership firm with unlimited personal liability and hence unattractive. Indeed, this
is the prime reason that the partnership firms of professionals, such as accountants,
lawyers etc. have not grown in size to successfully meet the challenges posed today by
international competition. So it is felt needed that there should be a new corporate entity
as an alternative to the traditional partnership with limited liability and flexible business
environment to organize and operate in flexible and efficient manner. It will be possible
for the entrepreneurs, professionals and service providers to combine and operate in an
efficient manner to give competition in the international market.
Many professionals in India, such as advocates/lawyers, chartered accountants and

doctors are precluded from practicing through companies. The LLP structure would be
particularly advantageous for providing such professional services.10 Hence it would be a
suitable vehicle for partnership among professionals who are already regulated such as
company Secretaries, Chartered Accountants, Cost Accountants, Lawyers, and
Architects, Engineers and Doctors etc., particularly accountants and auditors who are not
legally permitted to operate as company. As is the practice outside India, LLPs could
prove very useful for certain professionals who are unable to use the corporate structure
and who do not find the partnership structure viable.
Further, allowing FDI in entrepreneurial projects carried out through the LLP
model would encourage small entrepreneurs in India to explore business ventures with
foreign investment/collaboration. It may also be considered for small enterprises not
seeking access to capital markets through listing on stock exchange. Other than
professionals and small entrepreneurs, the LLP structure may also be preferred by small
businesses. Additionally, foreign entities having project offices in India could consider
reducing risk by using the LLP structure. Further, any structure where different members
want to control different segments and also bear full responsibility for their acts could
conveniently use the LLP structure. This includes infrastructure project SPVs where
different partners bring in different expertise into the project.
10
Professional services are those where unique functions are performed by independent contractors or
consultants, whose occupation is the rendering of such services. Such service providers would include
accountants, brokerage firms, business consultants, business development managers, engineers, law firms,
software engineers and web designers. Such services may be delivered through a host of structures,
including partnerships, firms and corporations, in addition to delivery by individuals holding professional
licenses.
8
A LLP is indeed advantageous because of comparatively lower cost of formation,

lesser compliance requirements, easy to manage and run and also easy to wind-up and
dissolve, no requirement of minimum capital contributions, partners are not liable for the
acts of the other partners and importantly no minimum alternate tax (as of date).
There are some disadvantages attached to the traditional types of businesses prevalent in
India which make it really a dire necessity to have a hybrid entity like Limited Liability
Partnership.
Disadvantages of the tradition partnership firm: The law does not permit incorporated
companies to practice as company secretaries, chartered accountants, lawyers or related
professionals. The only option that remains is to either work in a conventional partnership
firm setup or as a sole proprietor. The administration and enforcement of partnership
firms under the Indian Partnership Act, 1932 is at the State level. The traditional
partnership is also considered unsuitable because it is not possible to make multi
disciplinary combinations comprising a large number of partners with a limited liability
and flexible working environment. LLP Structure would promote growth and enable such
firms/enterprises expand their trade/business or services across states in India as also
abroad.
1. UNILIMITED LIABILITY OF THE PARTNERS IN A PARTNERSHIP: The

unlimited personal liability of a partner in a partnership firm has proved to be
really an un-attractive prospect. The unlimited liability of partners in a partnership
firm and the increasing number of claims valuing beyond the assets of the firm
make this an option that is not only risky but also at times unfeasible. It does not
recognize the distinction between a partnership and its members (i.e. the partners);
it imposes unlimited liability on each partner for acts committed by any other
partner and by the partnership as a whole. Because of this many firms engaged in
Biotech, Information technology, Intellectual property and other knowledge based
sectors find traditional partnership unsuitable. There will be an option available to
the LLP to have one or more general partner with unlimited liability, but it
doesn‟t mean that the other partners will not be subjected to any legal liability
arising out of their own personal acts not done for and on behalf of the LLP.
Personal assets of the partners are not exposed except in case of fraud.
Section 25 of the Indian Companies Act says that 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. It is declaratory of the general principal of the liability of partners
for the acts of their firm. It rather lays down the foundation of their liability to third
parties. Its proper place should have been at the beginning of the chapter dealing with
relations of partners to third parties. It would have served to clarify at that very stage the
basis of liability that was provided in the sections that would have followed it. The
section does not talk of liability for any act in particular; it rather talks of a general
principle of liability. The declaration lays stress upon three main points of the general
principle of liability.
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The first is that the liability of the partners is joint as well as several.
The second is that they are liable only for the “acts of the firm”.
The third is that a partner is liable for an act of the firm only if the act was done while he
was still a partner.11
The liability of the partners of a firm is joint and several. It is open to a creditor of
a firm to recover the debt of the firm from any one or more of the partners.12 The
significance of joint and several liability is that for every act of the firm a partner
can be sued individually and also jointly with his co-partners. The English law on
this point is, however, slightly different. In that law “the liability of each partner
in respect of the firm‟s contract is joint, and in respect of the firm‟s wrongs joint
and several”.13
2. LIMITED MEMBERSHIP IN A PARTNERSHIP: Section 11 of the Companies

Act provides that no company, association or partnership consisting of more than
20 persons shall be formed for the purpose of carrying on a business unless it is
registered under the Companies Act or is formed in pursuance of some other
Indian Law. In a partnership of banking business there cannot be more than 10
partners while in any other kind of business there cannot be more than twenty.14
In the case of a private limited company maximum number of members can be 50.
That means a general Partnership Firm registered under the Indian Partnership
Act cannot be formed with more than 20 partners, preventing the growth of
professional firms to the large entities operating on an international scale. This
can have a depressing effect on the economy and the development prospects of
the firm, as every business organization would ideally need to grow to reach and
acquire a larger client base around the world. This restriction for number of
partners will not apply for carrying on any business, trade, profession, service or
occupation if the partnership is registered as LLP. In other words, LLP with
unlimited number of partners can be formed for carrying on any business or
profession.
Disadvantages of the limited companies: 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 to bring about a separate legislation for
LLPs. Some of the disadvantages related to the statute based limited companies can be
discussed under the following headings:
1. STATUTE GOVERNED STRUCTURE OF A COMPANY: The internal

governance of a company is regulated by statute (i.e. Companies Act, 1956)
whereas for a Limited Liability Partnership it would be by a contractual
11
AVTAR SINGH, Law of Partnership(Principles, Practices and Taxation), (3rd Edn.2001), at p. 321
12
Sahu Rajeshwar Nath v. I.T.O., AIR 1969 SC 667: (1969) 1 SCR 999: 72 ITR 617
13
Section 9 of the English Partnership Act, 1890.
14
S.D SINGH, Law of Partnership in India, (3rd Edn.1988), at p. 114
10
agreement between partners. There will flexibility of a partnership in LLP while

allowing the owners to adopt any form of internal organization, and limitation to
the owner‟s liability.
2. THE DICHOTOMY OF MANAGEMENT-OWNERSHIP: There is no

dichotomy of management-ownership in LLP as prevalent in a company. There
are lesser requirements for compliance in LLP which makes it more flexible.
An LLP will provide Indian professional organizations a level playing field with
international counterparts. It will provide a platform to small and medium enterprises and
professional firms of Company Secretaries, Chartered Accountants, and Advocates etc. to
conduct their business/profession efficiently which would in turn increase their global
competitiveness. An LLP is an entity that acts as an intermediary between a partnership
firm and a limited company. On the one hand, an LLP offers the benefit of limited
liability to its partners, while on the other hand it does so by minimizing the onerous
procedures that an incorporated company is required to follow. In addition, an LLP also
does away with the ownership-management divide that is a necessary consequence of an
incorporated company. Every partner of the LLP is an agent of the LLP but not of other
partners. So no partner is liable for the acts of any other partner.
Advantages of the Limited Liability Partnership: In the light of above mentioned

disadvantages with regard to traditional partnership form of business as well as the
limited company it was aimed to make such a business entity that would overcome all
these disadvantages and could give an environment to the entrepreneurs to grow in the
business without any hindrances. It is not advisable to discuss some of advantages that an
entrepreneur can have with the limited liability partnership. These are:
1. SEPARATE LEGAL ENTITY: This is again an advantage of a limited liability

partnership that it is a separate legal entity independent from its members. A firm
is not a separate legal entity but is only collective or compendious name for all the
partners. So if a suit is to be instituted „by a firm‟ against a third party, the firm
would be the plaintiff. If the suit is to be instituted “on behalf” of a firm, his
partner or partners, who wants or want to institute the suit on behalf of (i.e. for the
benefit of) the firm would be the plaintiff. But, in both the cases the suit would in
effect be by or on behalf of all the partners of the firm.15 The question arises that
why we need a separate legal entity to a business entity. What are the advantages
attached to it?
Why do we recognize the legal personality of companies? In the field of commercial

law, more than many other areas of law, we can say with some confidence that the
economic benefits of an institution are co-extensive with its social benefits, and so with
the policy rationale for its existence. The institution of the company, and the legal and
administrative edifice that supports it, can be justified only by the economic benefits it
creates. Absent those benefits, the institution‟s rationale is exhausted. And the same
15
Sankar Housing Corporation v. Smt. Mohan Devi & Others, AIR 1978 Delhi 225.
11
reasoning applies to features of the institution, as it does to the institution as a whole. If

there is not a good economic reason for some facet of company law, it is probably
unjustified and in need of reform.16
The facet of company law we are concerned with here is fundamental to the
institution, distinguishing it from the law of partnership or, for example, the law of trusts.
A business can be carried on by a sole proprietor, or by a partnership, or by a trustee for
the beneficial owners of the enterprise. But only if the business is carried on as a
company will the law treat the enterprise as a legal person in, separate from its owners
and managers, continuing unchanged as owners or managers change, and with no right of
recourse on the part of creditors to the personal wealth of any of the current owners and
managers (at least in normal circumstances).
There is an extensive academic literature on the economic rationale for separate legal
personality and limited liability. In brief, the doctrines of legal personality and limited
liability are practically important because they:
(a) Enable to collect the capital for a business venture from a number of investors,
over time, while avoiding costs of transfer of the venture‟s assets when new
participants are admitted, or existing participants depart;
(b) Reduce the costs of transfer of the business venture (or interests in it)- instead of
needing to transfer all the different assets of the business venture, all that need be
transferred is the shares; and
(c) Enable the business venture to be conducted on a standard from limited recourse
basis.17
2. FLEXIBILITY: Flexibility without imposing detailed legal and procedural

requirements. It is not required to maintain statutory records like companies
except the Books of Accounts. No requirement of minimum capital contribution.
Its dissolution or winding-up is rather easy. It is possible to form multi-
disciplinary entities for the professionals like CS / CA / CWA / Lawyers. The
LLP is also free from complicated procedures applicable to companies, such as
minutes, annual meetings, etc. The partners have a right to directly manage the
business of the LLP, unlike a company where the business must be managed
through the directors.
3. PERPETUAL EXISTENCE: There is no perpetual existence in case of the

general partnership. It is dissolved by the admission, retirement, death, etc. of any
of the partners. The partnership can be dissolved by the death of any partner,
unless the articles provide (as they frequently do) for the continuance of the
business by the survivors, either alone, or in partnership with the representatives
of the deceased.18
16
CHARLES E. F. RICKETT & ROSS B. GRANTHAM, Corporate Personality in the 20th Century, (1st Edn.), at p. 17
17
CHARLES E. F. RICKETT & ROSS B. GRANTHAM, Corporate Personality in the 20th Century, (1st Edn.), at p. 18
18
SIR ARTHUR UNDERHILL, Principles of the Law of Partnership, (9th Edn.), at p. 108
12
CHAPTER – 4
INTERNATIONAL EXPERIENCES WITH THE LLPs
The hybrid entities like Limited Liability Partnership are prevalent across the globe.
Before being introduced in India it has been accepted in countries like U.S.A, U.K,
Australia, and Germany. This structure is recognized as the “world‟s best practice”
structure, designed to not only attract venture capital from offshore institutional investors
but also to retain domestic investment. They are commonly used by Private
Equity/Venture Capital Funds and professionals. In countries like the United States (some
states), Canada, Germany, Poland and China, LLPs can be formed only by professional
service providers. Good results with the LLPs in those countries have again encouraged
Indian government to introduce LLP module in India also.
 In the United States of America, each individual state has its own law governing
the formation of Limited Liability Partnerships. The concept of LLP originated in
1991, through the Texas Statute. It is now adopted by almost every state in the
US. Over forty had adopted LLP statutes by the time LLPs were added to the
Uniform Partnership Act in 1996. Other „hybrid” entities include Limited
Partnerships and Limited Liability Companies. 19 In the United Kingdom, LLPs
are governed by the LLP Act, 2000.
Although found in many business fields, the LLP is an especially popular

form of organization among professionals, particularly lawyers, accountants, and
architects. In some U.S. states, namely California, New York, Oregon, and
Nevada, LLPs can only be formed for such professional uses. Although specific
rules vary from state to state, all states have passed variations of the Revised
Uniform Partnership Act. The liability of the partners varies from state to state.
Section 306(c) of the Revised Uniform Partnership Act (1997) (RUPA) (a
standard statute adopted by a majority of the states) grants LLPs a form of limited
liability similar to that of a corporation.
An obligation of a partnership incurred while the partnership is a limited

liability partnership, whether arising in contract, tort, or otherwise, is solely the
obligation of the partnership. A partner is not personally liable, directly or
indirectly, by way of contribution or otherwise, for such an obligation solely by
reason of being or so acting as a partner. However, a sizable minority of states
only extend such protection against negligence claims, meaning that partners in an
LLP can be personally liable for contract and intentional tort claims brought
against the LLP. While Tennessee and West Virginia have otherwise adopted
RUPA, their respective adoptions of Section 306 depart from the uniform
language, and only a partial liability shield is provided.
19
ROBERT W. HAMILTON, Corporations including Partnerships and Limited Partnerships, (4th Edn.), at p. 1167
13
 In Singapore, LLPs are governed by the LLP Act, 2005, which is similar to the
UK legislation. This legislation draws on both the US and UK models of LLP,
and like the latter establishes the LLP as a body corporate. However for tax
purposes it is treated like a general partnership, so that the partners rather than the
partnership are subject to tax (tax transparency).
 In UK, the LLPs are governed by the Limited Liability Partnerships Act 2000 (in
Great Britain) and the Limited Liability Partnerships Act (Northern Ireland) 2002
in Northern Ireland. A UK limited liability partnership is a corporate body - that is
to say, it has a continuing legal existence independent of its members, as
compared to a Partnership which may (in England and Wales, does not) have a
legal existence dependent upon its membership. The Limited Liability
Partnerships Act 2000 („the LLP Act‟) and the Limited Liability Partnerships
Regulations 2001 (SI 2001/1090 – „the LLP Regulations‟) came into force on 6th
April 2001. The scheme of the LLP legislation is that the LLP Act itself creates
the new entity and sets out its core principles, with the LLP Regulations applying
– with modifications – particular parts of the Companies Act 1985, the Insolvency
Act 1986 and the Company Directors Disqualification Act 1986 to the entity and
its members.20
 In Japan, the Limited liability partnerships (有限責任事業組合 yūgen sekinin

jigyō kumiai) were introduced to Japan in 2006 during a large-scale revamp of the
country's laws governing business organizations. Japanese LLPs may be formed
for any purpose (although the purpose must be clearly stated in the partnership
agreement and cannot be general), have full limited liability and are treated as
pass-through entities for tax purposes. However, each partner in an LLP must take
an active role in the business, so the model is more suitable for joint ventures and
small businesses than for companies in which investors plan to take passive roles.
A Japanese LLP is not a corporation, but rather exists as a contractual relationship
between the partners, similarly to an American LLP. Japan also has a type of
corporation with a partnership-styled internal structure, called a godo kaisha,
which is closer in form to a British LLP or American limited liability company.21
20
JOHN WHITTAKER AND JOHN MACHELL, Limited Liability Partnerships-Legislation Handbook, (1st Edn.), at p. 1
21
http://en.wikipedia.org/wiki/Limited_liability_partnership
14
CHAPTER – 5
ISSUES AGAINST THE PRESENT LEGAL POSITION FOR INDIAN LLPs
The grass is, however, not entirely green. There are in this Act, just as any other law,
certain issues that need to be addressed in order for the LLP regime to take its full colour.
Pending this, there remains some ambiguity as to what actually lies in store. For some of
the issues, one may draw persuasion from the legal position in other countries and
proceed on assumptions; but there are other more vital ones where the law must be
clarified before one would wish to tread.
1. TAXATION OF THE LLPs:
Since the taxation related matters in India are provided under Tax Laws, the
taxation of LLPs was not provided in the LLP Act. The Finance Bill, 2009 has made
provisions in this regard, pursuant to which the taxation scheme of LLPs has been
proposed to be introduced in the Income Tax Act. It has been proposed to tax LLPs on
the lines similar to general partnerships under Indian Partnership Act, 1932, i.e. taxation
in the hands of the entity and exemption from tax in the hands of its partners. The
Finance Bill, 2009 has accorded a “limited liability partnership” and a general partnership
the same tax treatment. Consequent changes in the Income-tax Act, 1961 like (i) the word
„partner‟ to include within its meaning a partner of a limited liability partnership, (ii) the
word „firm‟ to include within its meaning a limited liability partnership and (iii) the word
„partnership‟ to include within its meaning a limited liability partnership as these terms
have been defined in the Limited Liability Partnership Act, 2008 have also been proposed
in the Finance Bill, 2009. It has also been proposed in the Finance Bill, 2009 that the
designated partner shall sign the income tax return of an LLP, or, where, for any
unavoidable reason such designated partner is not able to sign the return or where there is
no designated partner as such, any partner shall sign the return. The Finance Bill has also
proposed that in case of liquidation of an LLP, every partner will be jointly and severally
liable for payment of tax unless he proves that non-recovery cannot be attributed to any
gross neglect, misfeasance or breach of duty on his part. The Bill further provides that as
an LLP and a general partnership is being treated as equivalent (except for recovery
purposes) in the Income-tax Act, the conversion from a general partnership firm to an
LLP will have no tax implications if the rights and obligations of the partners remain the
same after conversion and if there is no transfer of any asset or liability after conversion.
The Finance Bill, 2009 also provides that if there is a violation of these conditions, the
provisions of section 45 of Income-tax Act shall apply.
15
The Finance Bill, 2009 has further proposed to make the amendments effective
from the 1st day of April 2010 i.e. assessment year 2010-11.22 Hence, LLPs will pay an
effective tax of 30.9%. They are exempted from 10% surcharge. LLPs tax payment is
lower than that of companies, which pay a 33.99% tax on profits. The tax will be
imposed only on 10% or 40% of the LLP‟s income, since the firm will be allowed to pay
the balance 90% or 60% to the partners as remuneration. This means, the partners will
have to pay tax on the amount paid to them. So, there will be no double taxation of
income. Unlike Private or Public Companies, no requirement for payment of Dividend
distribution/Corporation Tax on distribution of income/profits among partners and there
is no requirement as to Minimum Alternate Tax.
TAXATION OF A PARTNERSHIP FIRM UNDER THE INCOME TAX ACT:
Sections 182 to 189 (in Chapter XVI) of the Income Tax Act, 1961 provide for the
assessment of firms and their partners. Among them sections 184 and 185 provide for the
registration of partnership firms with Income Tax Authorities; Section 182 prescribes the
manner in which registered firms are to be assessed to tax; and Section 183 makes similar
provision in the case of unregistered firms, and since certain concessions are permitted to
the assessee in the case of registered firms (registered with Income Tax Act and not under
Partnership Act), the registration of firms with the Income-tax Authorities assumes
importance.
Section 26-A of the Income-tax, 1922 reads as-

(1). Application may be made to the Income-tax Officer on behalf of any firm constituted
under an instrument of partnership specifying the individual shares of the partners, for
registration for the purposes of this Act and of any other enactment for the time being in
force relating to income-tax or super-tax.
(2). The application shall be made by such person or persons, and at such times and shall
contain such particulars and shall be in such form, and be verified in such manner, as may
be prescribed, and it shall be dealt by the Income-tax Officer in such manner as may be
prescribed.23
Section 184 says that (1) An application for registration of a firm for the purpose of this
Act may be made to Income-tax Officer on behalf of any firm, if- the partnership is
evidenced by an instrument; and the individual shares of the partners are specified in that
instrument. (2) Such application may, subject to the provisions of this section, be made
either during the existence of the firm or after its dissolution. (3) The application shall be
made to the Income-tax Officer having jurisdiction to assess the firm, and shall be
signed-
22
http://www.llp.gov.in/tolink/pressreleaseonLLPtaxation.pdf
23
S.D SINGH, Law of Partnership in India, (3rd Edn.1988), at p. 755
16
ASSESSMENT AS A FIRM (Section 184)
(1) A firm shall be assessed as a firm for the purposes of this Act, if -
(i) The partnership is evidenced by an instrument; and
(ii) The individual shares of the partners are specified in that instrument.
(2) A certified copy of the instrument of partnership referred to in sub-section (1) shall
accompany the return of income of the firm of the previous year relevant to the
assessment year commencing on or after the 1st day of April, 1993, in respect of which
assessment as a firm is first sought.
Explanation : For the purposes of this sub-section, the copy of the instrument of
partnership shall be certified in writing by all the partners (not being minors) or, where
the return is made after the dissolution of the firm, by all persons (not being minors) who
were partners in the firm immediately before its dissolution and by the legal
representative of any such partner who is deceased.
(3) Where a firm is assessed as such for any assessment year, it shall be assessed in the
same capacity for every subsequent year if there is no change in the constitution of the
firm or the shares of the partners as evidenced by the instrument of partnership on the
basis of which the assessment as a firm was first sought.
(4) Where any such change had taken place in the previous year, the firm shall furnish a
certified copy of the revised instrument of partnership along with the return of income for
the assessment year relevant to such previous year and all the provisions of this section
shall apply accordingly.
(5) Notwithstanding anything contained in the foregoing provisions of this section,

where, in respect of any assessment year, there is on the part of a firm any such failure as
is mentioned in section 144, the firm shall not be assessed as such for the said assessment
year and, thereupon, the firm shall be assessed in the same manner as an association of
persons, and all the provisions of this Act shall apply accordingly.
No Pass through Mechanism: The Naresh Chandra committee suggested that LLP be
conferred „pass through status‟. Under such a structure the LLPs will not be taxed at all
and the tax burden shall be borne entirely by the partners of the LLP. This was the case
with the taxation of partnership up to the year 1993. For the purposes of the Tax Acts, a
trade, profession or business carried on by a limited liability partnership with a view to
profit shall be treated as carried on in partnership by its members (and not by the limited
liability partnership as such); and, accordingly, the property of the limited liability
partnership shall be treated for those purposes as partnership property. 24 The Indian LLP
Act is similar to the UK and Singapore LLP statutes, though it is unique in its tax
treatment.
24
JOHN WHITTAKER AND JOHN MACHELL, Limited Liability Partnerships-Legislation Handbook, (1st Edn.), at p. 370
17
The new provisions introduced in relation to the taxation of LLP do not treat the
LLP as a transparent entity but treat the same at par with the general partnerships under
the Indian Partnership Act, 1932. Accordingly, the profits and losses of the LLP would
not pass through in the hands of the partners but would be assessable in the hands of the
LLP. The definition of “firm”, “partner” and “partnership” under section 2(23) of the
Income Tax Act, 1961 („IT Act‟) have also been extended to include LLP, a partner in a
LLP and LLP respectively within their scope. Accordingly, all the provisions relating to
the firm incorporated apply mutatis mutandis to LLP.
This tax treatment has however caused some unrest to potential foreign investors
who would now be exposed to double taxation in respect of income arising from an LLP
incorporated in India since profits would be liable to tax in the hands of the LLP in India
and when the profits are distributed to the partners, such profits would be liable to tax in
the respective jurisdiction where the partner is resident. This situation is not even
addressed by the double taxation avoidance agreements entered into by India with other
countries. Partners would, therefore, be unable to benefit from tax-structuring of profit
distribution. However, there are still some tax advantages available to the LLPs, like
exemptions from some of corporate taxes, such as presumptive tax, dividend distribution
tax or minimum alternate tax.
Since the LLPs have been treated at par with the general partnership, they would
not be liable to Dividend Distribution Tax and Minimum Alternate Tax. Further, the
Budget has also scrapped the surcharge on tax for firms. Also, if the LLP is a non-
resident under the IT Act (its control management is wholly situated outside India), it
would continue to be taxed at 30% plus applicable cess. All the aforesaid factors make
LLP an attractive mode of business so far as the tax cost is concerned. However, LLP,
which is a hybrid structure between a company and a firm, could have been more
attractive mode of investment if a pass through status was accorded to it for tax purposes.
The practice of taxing the income of the LLP in the hands of the firm is a
divergence from the practice of treating the LLP as a tax transparent entity in certain
other countries like UK and USA, which tax the income of the LLP in the hands of the
partners. Thus, in case of the income of the LLP is also taxed in other jurisdiction where
the income is taxed in the hands of the partners, the availability of tax credit to LLP in
India might lead to certain difficulties.
TAX TREATMENT IN USA TO LLPs: As in a partnership or limited liability company

(LLC), the profits of an LLP are allocated among the partners for tax purposes, avoiding
the problem of "double taxation" often found in corporations. In relation to tax, the LLP
is a "fiscal transparency". In other words, it is not subject to taxation despite being a body
corporate with separate legal personality and providing limited liability to all its
members. Only the members are liable to taxation. In USA, a flexible system exists
where the partners decide whether the tax is to be borne by the firm or the partners
themselves. However, the pass through principle is also adopted in the USA.
18
TAX TREATMENT IN UK TO LLPs: Pertinently, LLPs in UK enjoy the „pass through

status‟. The LLP Act, 2000 in UK contains four sections (10 to 13) which made
amendments to legislation dealing with tax and national insurance matters so as to apply
that legislation to those LLPs carrying on a business with a view to profit. These sections
apply to Northern Ireland as well as to Great Britain.25 The following is the summary of
the tax status of LLPs in UK.
Income and corporation taxes: Section 118ZA(1) of the Income and Corporation
Taxes Act 1988 (the Taxes Act) provides that for an LLP carrying on a trade, profession
or other business with a view to profit, income tax is to be charged as if: (a) its acitivities
were those of a partnership carried on by its members; (b) anything done by, to or in
relation to the LLP for the purpose of, or in connection with any of its activities, is treated
as done by, to or in relation to the members as partners; and (c) that the property of the
LLP is to be regarded as partnership property for that purpose. Without that provision all
LLPs, being bodies corporate, would have been naturally taxed as companies. It follows
that an LLP which is not so carrying on a business or profession with a view to profit will
still be subject to corporation tax as if it were a company. Section 118ZA (2) confirms
that where subsection (1) applies, references to a partnership and members, whereas
references to companies and members of companies do not. This is almost the reverse of
the status of an LLP for non-tax purposes where it is a body corporate subject in the main
to applied company and corporate insolvency law and to which partnership law is rarely
applied. The application of the partnership transparency model for tax purposes may have
its origins in the fact that the Inland Revenue formulated their proposals at a time when
the LLP form was only going to be available to the regulated professionals and it still
clearly believes that the LLP form will be chosen mainly by existing professional
partnerships. The thrust of much of the guidance provided by the Inland Revenue is also
addressed to such conversions and there are no special tax provisions and there are no
special tax provisions made for converting a company into an LLP.26
The taxation of a business LLP as a partnership will continue even if it ceases to

carry on any business, etc., where that cessation is only temporary. It will also continue to
apply during the winding up of such a LLP, provided the winding up is not connected
with avoiding tax and the period of winding up is not unduly prolonged. But if the LLP is
placed in a formal liquidation the LLP will then be taxed as if it were a company. The
effect of applying the partnership model of taxation is that LLPs will be regarded as
transparent for tax purposes. The Inland Revenue has indicated that since each member is
therefore deemed to carry on a personal business or profession, the basis period rules and
any overlap profits (on the commencement and cessation of that business or profession)
will be personal to each member.27
Converting a partnership into an LLP: In relation to the conversion from a

partnership into an LLP the Inland Revenue have stated that where the LLP succeeds to
the business of the old partnership, the partner or member‟s personal business or
25
GEOFFREY MORSE, PAUL DAVIS, etc., Palmer’s Limited Liability Partnerships Law, (1st Edn.), at p. 42
26
GEOFFREY MORSE, PAUL DAVIS, etc., Palmer’s Limited Liability Partnerships Law, (1st Edn.), at p. 43 and 44
27
Ibid, at p. 44
19
profession will be regarded as continuing so that the commencement and cessation

provisions will not apply. Where only part of the business of the old partnership is
transferred to the LLP the position will depend upon whether as a question of fact the
LLP carries on the business of the old partnership. If it does, then there will be no tax
consequences other than the fact that the old partnership (and so the partners) will be
deemed to have commenced a new business in the part retained. If does not, then there
will be a demerger and the cessation and commencement provisions will be applied.
Similarly, where the LLP succeeds to a business carried on by the old partnership that
will not be a balancing event for the purposes of calculating the capital allowances
provisions and tax relief for those paying partnership annuities will be continued if the
obligation is transferred to LLP. If it is not so transferred but the members continue to
pay as members of the old partnership the relief will continue until either the payers cease
to be members of the LLP or the business of the old partnership ceases, whichever is the
earlier.28
Capital Gains tax: As with income tax, the general tax position of an LLP carrying on a
trade or business with a view of profit for capital gains tax will be the same as that
currently applied to partnership; i.e. as tax transparent. Thus provided an LLP is carrying
on a trade or business with a view to profit, the capital assets owned by the LLP are
treated as being owned by the members and any disposals by the LLP in those assets are
regarded as disposals by the members in accordance with their interest in those assets.
Thus the tax on such disposals is to be assessed and charged separately on each member.
It also follows that a member‟s interest in the LLP will not be a chargeable asset in its
own right either when it arises or ceases. Similarly this tax transparency will not be lost
where there is a temporary cessation of the trade or business, e.g. a cessation of the
business and disposal of its assets in order to fund a new business or during the winding
up of an LLP unless the winding up is connected with the avoidance of tax or the period
of winding up is unduly prolonged. But that tax transparency will be lost if the LLP goes
into a formal liquidation and the LLP will then be taxed as a company. There will be no
charges, however, on the members of an LLP either commencing or ceasing to apply to
an LLP simply because of that fact.29
On the transfer of a business from a partnership to an LLP, there will be therefore no

disposal by the members of their interests in the old partnership. Further such a transfer
will not affect the availability of indexation relief, or the accruing time periods for
retirement or taper relief. Nor will the transfer of a partner‟s annuity rights annuity rights
(or the annuity obligations to former partners) from a partnership to an LLP be a
chargeable disposal provided the rights remain substantially the same. The same is true
where the LLP is substituted, by agreement, as the payer of the annuity in place of the
former partners.
Non – business LLPs: Since it is possible for an LLP to exist even though it is not
carrying on a trade, business or profession, as we have seen, such non-business LLPs will
be taxed as companies and not partnerships; i.e. they will not be tax transparent. But the
28
Ibid, at p. 45
29
GEOFFREY MORSE, PAUL DAVIS, etc., Palmer’s Limited Liability Partnerships Law, (1st Edn.), at p. 47
20
Inland Revenue has always been concerned about such non-business LLPs being used for
tax avoidance purposes and, as it had previously indicated, it introduced such legislation
into the Finance Act 2001 as section 76 and Schedule 25 to that Act. There are definitions
for tax purposes of an “investment LLP” and “a property investment LLP” based on the
current definition of an investment company. Thus an investment LLP is one whose
income is derived therefrom. A property investment LLP is an investment LP where the
investments are wholly or mainly in land. The schedule then removes any interest relief
for individuals borrowing money to invest in an investment LLP and the exemptions for
pension business of life insurance companies and the tax exempt business of friendly
societies where they are received in their capacity as members of a property investment
LLP.
A NEW TAX POLICY FOR A MIXED ECONOMY:
The desirability of a mixed economy with a large private sector is generally accepted by
all the major economies in the world. It would also appear to be accepted by the main
parties that the overriding consideration of government policy and legislation should be
the efficient operation of this mixed economy. At this point, however, the serious
consideration of the principles (and even more agreement on the principles themselves)
which should inform public policy terminates.
In the absence, however, of such guiding principles based on a comparative assessment

of the contribution which each sector can make to the efficiency of the economy, the
general consensus is negated or rendered ineffectual by policies and measures introduced
by successive governments in an ad hoc manner in their attempt to resolve major long-
term economic problems. This contradiction is seen very clearly in the private company
sector: on the one hand, effective control and management of companies is assailed by
capital gains taxes, increasingly tight estate duty legislation and the threat of a wealth tax;
on the other hand, it is being assisted by investment grants, export guarantees, etc.
The principles which should form the basis of policy towards the mixed economy would
require major empirical research and a volume to themselves. In the specific context of
the role of the private company and business, following comments can be made. This
sector has the following highly important functions:
1. Maintaining, by its diversity and capacity for renewal, competition right across
industry.
2. Providing a specialized vehicle for innovation and growth which it is extremely
difficult to organize and control in a quoted company, given that this commonly
involves unfettered personal dedication and major long-term risks.
3. Supplying the myriad and diverse markets in which production and marketing
economies do not outweigh the administrative and motivational economies do not
outweigh the administrative and motivational costs of size. These markets are
extensive, and their efficiency must be an important contributory factor to the
efficiency of the quoted sector as well as to general living standards.
21
4. Perhaps the most important of all, in terms of quality of life, the private company
must be seen as an area of opportunity for the successive generations of gifted and
possibly less orthodox individuals who prefer their own companies and believe
themselves to be possessed of particular talents, ideas or innovations which could
best be exploited by owning their own company.
These functions appear to be of major importance to the efficiency of the economy and
by their nature they could not be performed with equal efficiency by larger public
companies, whose fragmented shareholding results in the loss of that individual control
and power of commitment which accompanies the owner manager system characteristic
of private companies. A guiding principle of policy as regards this part of the mixed
economy should therefore be the preservation and improvement of this sector‟s efficiency
in respect of these functions.30
In this context the practical requirements of a tax system that might be expected to yield a
worth-while net benefit are as follows:
1. A system should be simple and thus minimize collection costs, which in the case
wealth taxation tend to be extremely high.
2. A rate of tax should not be so high as to have significant adverse side effects
through the export or consumption of capital.
3. Within the limits of 1 and 2, a system should be strongly biased is favour of
efficiency in the management of assets and the creation of new wealth.
2. PROBLEM OF DOUBLE TAXATION:
The limited liability partnerships in India offer the foreign investors the much awaited
form of business organization with limited liability and without double taxation. The LLP
Act will have a remarkable effect on the ability of small and closely-held US businesses
to target the impending and ever-growing Indian market. LLP would also make a lot of
commercial sense in that it enables get around the taxability of a company at both levels,
i.e. in the hands of the company and in the hands of the shareholders, though in case of
foreign partners, until negotiated as part of a tax treaty, this concern remains. Tax in a
foreign jurisdiction is, of course, often seen as a wasteful expenditure entailing
disproportionately low returns. This tax treatment has however caused some unrest to
potential foreign investors who would now be exposed to double taxation in respect of
income arising from an LLP incorporated in India since profits would be liable to tax in
the hands of the LLP in India and when the profits are distributed to the partners, such
profits would be liable to tax in the respective jurisdiction where the partner is resident.
This situation is not even addressed by the double taxation avoidance agreements entered
into by India with other countries. However, when judged against a company, an LLP is
30
AJ MERRETT AND ME LEHR, The Private Company Today, (1st Edn.), at p. 59 and 60
22
taxed only at one, and not both, levels (except, may be, in cases of foreign partners).
LLPs are also not liable to the 10% surcharge leviable on companies. This means that the
businesses would not have to share a big chunk of its money with the government. This is
a formidable incentive. Nobody, after all, minds a few extra dollars. The Union Budget
also tried to do away with the ambiguity as to the taxability or otherwise of conversion of
an existing entity into an LLP by providing that the conversion from a general partnership
firm to an LLP will have no tax implications if rights and obligations of the partners
remain the same after conversion and if there is no transfer of any assets or liability after
conversion. This endorses the premise that conversion of an existing entity into an LLP
does not involve any transfer but a mere internal reorganization taking place as a result of
operation of law. However, there continues to be serious ambiguity as far as the unlisted
companies are concerned, particularly considering that the Government is not willing to
allow tax free conversion of unlisted companies into LLPs.31
3. NO MENTION ABOUT THE TAX IMPLICATION ON CONVERSION OF A

COMPANY:
The Explanatory Memorandum attached to the Finance Bill states that since a partnership
firm and LLP is being treated as equivalent, there will not be any tax implications on the
conversion of a partnership firm to LLP if the rights and obligations of the partners do not
change but remain the same after conversion and if there is no transfer of any asset or
liability after conversion. If there is a violation of these conditions, the provisions of
section 45 will apply and capital gains tax will be payable.
There is no specific mention in this Explanatory memorandum about the liability on

conversion of a company into LLP. There is also no provision made in the Income-tax
Act for granting exemption when conversion of a partnership or limited company is made
into LLP and all assets and liabilities of the firm/company are transferred to and vest in
the LLP.
4. NO EXEMPTION FROM CAPITAL GAINS TAXATION:
Section 47 of the Income Tax Act, 1961 specifically provides that the transfers from sole
proprietorships to companies or partnerships to companies, in case of certain conversions,
would not be treated as transfers. In other words, it provides for exemption from capital
gains when a proprietary concern or firm is converted into limited company if certain
conditions are complied with. No similar exemption is provided on conversion of
firm/company into LLP. Unless a specific provision granting such exemption is made in
the Income-tax Act, any firm/company will hesitate before converting itself into a LLP.
However, if the following conditions are fulfilled, then there will no Capital Gains tax
chargeable on transfer of property from Company to LLP:
31
http://economictimes.indiatimes.com/
23
1. The total sales, turnover or gross receipts in business of the company do not
exceed sixty lakh rupees in any of the three preceding previous years.
2. The shareholders of the company become partners of the LLP in the same
proportion as their shareholding in the company;
No consideration other than share in profit and capital contribution in the LLP arises to
partners;
The erstwhile shareholders of the company continue to be entitled to receive at least 50
per cent of the profits of the LLP for a period of 5 years from the date of conversion;
All assets and liabilities of the company become the assets and liabilities of the LLP.
Questions would also arise on what is the consideration that is paid, as on conversion,
usually no consideration would be paid?? In other words, where is the gain?
4. UNLIMITED LIABILTY IN TAXATION:
A new section 167C has been introduced in the IT Act, which makes every partner of a
LLP jointly and severally liable for the taxes to be paid by the LLP for the period during
which he was a partner, unless the non-recovery of taxes cannot be attributed to gross
neglect, misfeasance or breach of duty on his part. The aforesaid is irrespective of any
contrary provision in the LLP Act. Although this section appears to be in conflict with the
scheme of the LLP Act, which does not make the partners personally liable for the
liabilities of the firm, it seems to be in line with existing provisions of section 179 of the
IT Act, which cast a similar liability on the Directors of a private company in liquidation.
5. CONVERSION OF THE COMPANY:
One key condition for the conversion of a company (Private or unlisted Public) to an LLP
is that the company may convert into an LLP provided there is no security interest
subsisting on its assets or in force at the time of application. It is difficult for most
companies to be in a scenario where there is no security interest subsisting on any assets.
One needs to analyze and understand the reason for such a clause. Under the provisions,
all assets and liabilities vest in the LLP. In such an event, why such a clause? Why
restrict the convertibility of a private limited company or an unlisted public company? In
matters arising under Part IX of the Companies Act, 1956, which provides for the
conversion of a partnership firm into a company limited by shares, the Courts have taken
the view that in cases of conversion under Part IX, there is an automatic statutory vesting
of all the property of the partnership firm on the date of registration in the company and
that there is no transfer or conveyance. This view has been taken, inter alia, in the cases
of Vali Pattabhirama Rao 32 and Ramasundari Ray v. Syamendra Lal Ray. 33 On that
reasoning, it is also likely that since no instrument will be required to be executed, there
will be no incidence of stamp duty on such conversion. However, the conversion of a
32
(1986) 60 Com Cas 568
33
(1947) ILR (2) Cal 1
24
general partnership into an LLP would have the effect of altering the obligations of the
partners inter se as well as vis-à-vis third parties. In that sense, the Revenue may have an
arguable case for imposing capital gains tax under Section 45 of the Income-tax Act. This
aspect also needs to be clarified.
The Union Budget also tried to do away with the ambiguity as to the taxability or
otherwise of conversion of an existing entity into an LLP by providing that the
conversion from a general partnership firm to an LLP will have no tax implications if
rights and obligations of the partners remain the same after conversion and if there is no
transfer of any assets or liability after conversion. This endorses the premise that
conversion of an existing entity into an LLP does not involve any transfer but a mere
internal reorganization taking place as a result of operation of law. However, there
continues to be serious ambiguity as far as the unlisted companies are concerned,
particularly considering that the Government is not willing to allow tax free conversion
of unlisted companies into LLPs.24
6. NO CONVERSION BACK:
While you can convert from a firm or a company to an LLP, there are no provisions for
erring and deciding to reconvert back into a partnership or a company.
7. INVESTMENT BY FOREIGN PARTNER:
The Act permits an Indian LLP to have foreign partners. Of course, in order to be
admitted, the foreign partner would be required to bring his contribution. However, as of
now, no corresponding changes have been made in the Foreign Exchange Management
Act, 1999 and delegated legislations made there under, which continue to allow only a
“company” to being foreign direct investment into India. The further requirement that
foreign investment may be brought into India only through an issue of shares adds a
further impediment in any effective and meaningful realization of this provision of the
Act that enables foreign residents also to be partners in an Indian LLP. This is being
viewed as a very serious lacuna in the present state of the law. It has put a number of
foreign restructuring assignments to a halt since foreign investors wish to wait and watch
the reaction of the government at this front.
Regulations pertaining to issue of shares by Indian companies to foreign

collaborators/investors:
Automatic Route
 FDI up to 100% is allowed under the automatic route in all activities/sectors except
the following which require prior approval of the Government:
i) where provisions of Press Note 1 (2005 Series) issued by the Government of India are
attracted.
25
ii) where more than 24% foreign equity is proposed to be inducted for manufacture of
items reserved for the Small Scale sector.
iii) FDI in sectors/activities to the extent permitted under Automatic Route does not
require any prior approval either by the Government or the Reserve Bank of India.
iv) The investors are only required to notify the Regional Office concerned of the
Reserve Bank of India within 30 days of receipt of inward remittances and file the
required documents along with form FC-GPR with that Office within 30 days of issue of
shares to the non-resident investors.
Government Route
 FDI in activities not covered under the automatic route requires prior Government
approval and are considered by the Foreign Investment Promotion Board (FIPB),
Ministry of Finance. Application can be made in Form FC-IL, which can be downloaded
from http://www.dipp.gov.in. Plain paper applications carrying all relevant details are
also accepted. No fee is payable.
General permission of RBI under FEMA
 Indian companies having foreign investment approval through FIPB route do not
require any further clearance from the Reserve Bank of India for receiving inward
remittance and issue of shares to the non-resident investors. The companies are required
to notify the concerned Regional Office of the Reserve Bank of India of receipt of inward
remittances within 30 days of such receipt and submit form FC-GPR within 30 days of
issue of shares to the non-resident investors.
FDI is not allowed in India in the following sectors, under the Automatic Route as
well as Government Route: (i) Retail Trading (except single brand product retailing),
(ii) Atomic Energy, (iii) Lottery Business, (iv) Gambling and Betting, (v) Business of
Chit Fund, (vi) Nidhi Company, (vii) Agricultural or plantation activities, (viii) Housing
and Real Estate business(except development of townships, construction of residen-
tial/commercial premises, roads or bridges to the extent specified in Notification No.
FEMA 136/2005-RB dated July 19, 2005), (ix) Trading in Transferable Development
Rights (TDRs).
Transfer from Non-Resident to Resident:
The FEMA Regulations give specific permission covering the following forms of transfer
i.e. transfer by way of sale and gift. These permissions are discussed below:
A: Transfer by way of sale:

26
A person resident outside India can freely transfer share/convertible debenture by way of
sale to a person resident in India as under:
 Any person resident outside India (other than NRIs/OCBs) can transfer by way of sale
the shares/convertible debentures to any person resident outside India; subject to the
condition that the acquirer or transferee does not have any previous venture or tie up in
India in the same field or sector.
 A non-resident Indian (NRI) or an erstwhile Overseas Corporate Body may transfer by

way of sale, the shares/convertible debentures held by him to another NRI only.
 Any person resident outside India may sell share/convertible debenture acquired in
accordance with FEMA Regulations, on a recognized Stock Exchange in India through a
registered broker.
Transfer from Resident to Non-Resident:
A: Transfer by way of sale - General Permission under Regulation 10 of Notification

No. FEMA 20/2000-RB dated May 3, 2000.
 A person resident in India may transfer to a person resident outside India any
share/convertible debenture of an Indian Company whose activities fall under the
Automatic Route for FDI subject to the Sectoral Limits, by way of sale subject to
complying with pricing guidelines, documentation and reporting requirements for such
transfers, as may be specified by the Reserve Bank of India, from time to time.
This general permission is not available where:
 Indian Company whose shares or convertible debentures are proposed to be

transferred is in financial service sector (financial services sector means service rendered
by banking and non-banking companies regulated by the Reserve Bank, insurance
companies regulated by Insurance Regulatory and Development Authority (IRDA) and
other companies regulated by any other financial regulator, as the case may be).
 The transfer falls within the provisions of SEBI (Substantial Acquisition of Shares
and Takeovers) Regulations, 1997.
Guidelines on issue and valuation of shares in case of existing companies:
In case of listed companies, valuation shall be as per the Reserve Bank of India /SEBI
guidelines as follows:
 The issue price shall be either at:
i) The average of the weekly high and low of the closing prices of the related shares
quoted on the stock exchange during the six months preceding the relevant date or
27
ii) The average of the weekly high and low of the closing prices of the related shares
quoted on the stock exchange during the two weeks preceding the relevant date.
 In case of unlisted companies, valuation shall be done in accordance with the

guidelines issued by the erstwhile Controller of Capital Issues.
Other general permissions available under RBI Notification No.FEMA 20 dt.3-5-

2000:
 Issue of shares under ESOP by Indian companies to its employees or employees of its
joint venture or wholly owned subsidiary abroad who are resident outside India directly
or through a Trust up to 5% of the paid up capital of the company.
 Issue and acquisition of shares by non-residents after merger or de-merger or
amalgamation of Indian companies.
 Issueshares or preference shares or convertible debentures on rights basis by an
Indian company to a person resident outside India.
The LLP has not yet been recognized under FDI policy. The LLP structure lies
between that of a company where FDI is permitted and that of a partnership, where it is
generally not permitted. Under the present Foreign Direct Investment („FDI‟) policy,
foreign investment in Indian Companies is permitted under: (i) the automatic route and
(ii) the approval route (with prior approval of the Foreign Investment Promotion Board
(„FIPB‟)), depending on the sector in which FDI is being inducted. The Foreign
Exchange Management (Investment in Firm or Proprietary Concern in India)
Regulations, 2000 („FEMA 24‟) provide that, persons resident outside India are not
permitted to invest in firms and proprietary concerns, unless otherwise approved by the
Reserve Bank of India („RBI‟). There are, currently, no specific provisions addressing
LLPs. In the context of prescribing a regime for FDI in LLPs, five issues have been
identified for analyses, which are discussed below:
A. Ownership: The issue of „ownership‟ is relevant because FDI policy prescribes
caps on the level of FDI and prohibits foreign ownership in specified sectors. FDI
Policy lays down procedures for determining the level of foreign „ownership‟ and
„control‟ in a corporate entity. Under this, a foreign investor „owns‟ an Indian
company, if he/she owns more than 50% of the share capital of the company.
Such an approach may, however, not be applicable to an LLP, as the LLP Act
provides flexibility for partners to decide the manner in which they wish to
contribute to the capital of the LLP, extract profits, participate in voting and limit
their liability. Every partner of a LLP has two rights attached to the partnership
interest – one being an „ownership‟ right and the other being the right of
„management & control‟. The “ownership right” provides the partner with a right
to share in the profits/ losses of the LLP. The “right of management & control”
allows a partner to participate in the management of the LLP and also provides for
the right to vote. However, even if a partner is transferring his rights to a share in
28
the profits and losses of the LLP, does not affect his right to management and
control. There appears to be no requirement for an individual/ body corporate,
enjoying economic benefits, to be a legal partner in an LLP. Such flexibility in the
LLP Act can result in a variety of formulations being available to partners/ LLP.
It may, thus, be challenging to set norms for ascertaining ownership & control of
a Limited Liability Partnership.
One suggestion is that foreign ownership could be determined with
reference to the profit sharing percentages, i.e. right to the share of profits of the
LLP. This is akin to determining the beneficial interest in shareholding in
companies by rights over dividends. Another view is that, ownership, in the
context of LLPs, could be determined in accordance with the capital sharing
percentage of the foreign investors. Here, the analogue in companies is
determining ownership on the basis of equity contribution, regardless of whether
the shares issued to foreign investors are with or without the right to vote or
dividend. The latter view has been opposed on the ground that partners‟ capital
could be in different proportions, as compared to their profit or loss sharing ratios,
for variety of reasons. These could include differences in the time of entry,
differences in the withdrawal pattern etc. It is, thus, argued that the latter approach
is relevant only in case of distribution on liquidation of a LLP and should not be
used for determining ownership.
B. Valuation: The LLP Act states that every contribution to the capital of the LLP
shall have a monetary value, determined by a chartered accountant. However, no
valuation guidelines have been prescribed as yet. One approach could be
adopting, similar to companies, a discounted free cash flow method for valuations
in LLPs. Such valuations could take into account various factors, including the
extent of contribution in the partnership capital, the share in profits, the extent of
voting rights in the partnership, the extent of liability sharing and the share in
proceeds on liquidation of the partnership. This requires that adequate disclosure
requirements, with respect to transactions in LLPs, may need to be introduced.
RBI has prescribed valuation guidelines governing the acquisition and sale of
shares by a foreign investor in an unlisted Indian company. It needs to be
considered as to what extent these guidelines could be applied to LLPs.
C. Control: For companies, FDI policy defines „control‟ as the ability to appoint the
majority of the Board of Directors. As an LLP does not have a Board of Directors,
alternative formulations have to be sought. An LLP is managed by one or more of
its members (described as „Designated Partners‟ in the LLP Act), as provided in
the LLP‟s deed. The Designated Partners are appointed collectively by the
members of the LLP, by casting votes in accordance with the LLP deed. Thus, the
Designated Partners appointed to manage the affairs of the LLP, could be equated
to the Board of Directors of a company. The extent of voting interest that a
member may have, in terms of his ability to appoint a Designated Partner, could
determine the extent of control exercised on the LLP by such a member. This
would, possibly, be specified in the LLP deed.
29
Thus, for the purpose of the FDI Policy, one option could be to consider the voting rights
of a foreign investor in a LLP, for determining whether the LLP is controlled by a foreign
investor or by a domestic investor. The structure in the case of LLPs is similar to that of
companies, which are permitted to have different classes of shares, with differential
voting rights. Whether the different classes of shares should individually, or in the
aggregate, be considered to determine „control‟, also needs resolution.
However, it must be recognized that the LLP Act does not prescribe the manner of
management of the LLP. It leaves it to the discretion of the partners to agree upon
specific aspects related to powers of the partners, voting rights, meeting of partners and
other matters incidentals thereto. It is, thus, possible; to confer the management decisions
/ control of a LLP on a few identified partners, including non residents, irrespective of
their ownership holding. Further, as the law also delinks economic and legal ownership
i.e. a partner in a LLP can transfer his economic interest without transferring his share in
the LLP-ascertainment of „control‟ of an LLP can be extremely challenging. It can, thus,
be argued that interpreting 'control' as the right to take majority decisions, may not be
relevant in the context of LLPs.
The LLP Act itself has no provision which can provide a benchmark for the
determination of control in LLPs. It provides freedom to the partners to decide the
manner in which management decisions will be taken. It is possible that decision making
is divided in the LLP amongst committees or governing councils having partners from
different fields of expertise, instead of a single body of partners taking decisions
uniformly. Although this could be an efficient method for decision making, it is not
possible to determine the partners who take the majority management decisions of the
LLP. Although the LLP Act suggests that the decisions of the LLP shall be taken by a
majority (in the absence of a specific agreement), there do not appear to be guidelines
within either-the LLP Act, or the LLP rules-on how to determine the majority in making
key decisions.
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. 34 All the
responsibility for ensuring effective compliance with the provisions of LLP Act shall be
on those designated partners. The term „resident in India‟ means a person who has stayed
in India for a period not less than one hundred and eighty two days during the
immediately preceding one year.35 This definition makes it possible for a foreign resident
(who have stayed in India for more than one hundred and eighty-two days in the
preceding one year) also to be appointed as the designated partner in LLP.
Treatment of downstream investment: As per the FDI Policy for companies, all
downstream investments by an investing or investing-cum-operating company, which is
owned or controlled by non-resident entities, are to be considered as indirect foreign
investment. The issue is whether LLPs should be similarly treated.
34
Section 7(1) of the Limited Liability Partnership Act, 2008
35
Explanation to section 7(1) of the Limited Liability Partnership Act, 2008
30
CONCLUSION
We all know that no law is perfect. The law is volatile in nature because it always tries to
keep pace with the changing situations and to fulfill the aspirations of the people. It is the
degree and extent of objectives achieved by the law which makes a good law. After
economic liberalisation, a more dynamic business environment calls for entrepreneurs to
have a free hand to manage their business in an efficient manner, without wasting
resources on non-essentials. Such resources can be conserved, to a considerable extent,
by addressing concerns which arise from certain avoidable regulatory measures.
Businesses should have an open but accountable environment to operate in, to maximise
resource utilisation. One of the appreciable step forward in this regard is the introduction
of Limited Liability Partnerships in India. But, unfortunately there are still some
loopholes left by the government which may be of a great concern in future. One of the
areas in which reform is required is the regulatory regime governing private companies in
India. While this distinction has been recognised, it has not yet resulted in a fully
facilitative regime for private companies. The law reflects a "common minimum
standard" approach in order to regulate both types of companies, instead of regulating
each category differently. The justification for such differential treatment lies in the fact
that while public companies involve public funds and interest, as they have access to
equity contributions and deposits from the public, in the case of private companies such
public interest is minimal. The argument has greater force for private companies that are
really small in terms of paid-up capital and/or turnover.
The Ministry of Company Affairs has made efforts to do away with such lacunae
in the legal system of our country, but it is yet in an embryonic stage. While a great deal
of thought yet needs to be put into certain aspects of the law, some features can be
adopted from the laws of other countries. Nevertheless, even a law that is tried and tested
in any other country has to be moulded to suit Indian conditions and circumstances. LLP
is, after all, a new concept and will require a lot of deliberation. The Centre must try to
involve more and more people in the law-making process. The content of the law and its
manner of implementation must ensure maximum advantage to everyone involved, and
efforts must be made to make the LLP form of corporate governance widely accepted and
popular. As the saying goes, a project well begun is half done. The Ministry has made a
great beginning, and we hope that in future it culminates in the beginning of a new law in
the country.
It appears that the tax department has not visualized the above issues relating to
conversion of firm/company into LLP while drafting the provisions of the Finance Act.
The amendments made in the Income-tax Act appear to be half-hearted. Unless these and
several other related issues are amicably resolved, the new provisions for LLP will not
become popular. For this purpose, the Central and State Governments will have to pass
appropriate legislation granting exemption of any tax or duty payable on such transfer.
31
SUGGESTIONS:
 An amendment should be made in the Finance Act, 2009 and the pass through
mechanism should be introduced.
 There should be provision for the conversion back of the LLPs.
 Position should be made clear in case of taxation liability after the conversion.
 Exemption from Capital gains taxation should also be provided under Section 47.
 The policy of Government should be to promote the LLP, and not to discourage it
by the introduction of higher taxation.
 Position should be clear with regard to the investment by foreign partners under
the FEMA,1999.
After going through various issues related to the constitutionality of narco
analysis in the light of the laws and human rights, the researcher has reached to bring
forth some of the suggestions, so that this inhuman practice can be stopped from the same
moment.
1). Government should train the investigating agencies in a better way so that they can
enhance their investigating skills and resort to constitutional measures of investigation,
rather than to resort to unconstitutional and inhuman measures like narco analysis.
2). Intelligence systems must be made more sound and efficient.
3). Scientific technique of investigation should not be permitted to the extent they are
violative of human rights and constitute torture.
32
BIBLIOGRAPHY
.
1. Whittaker John and Machell John, Limited Liability Partnerships-Legislation
Handbook, (1st Edn., 2001) Jordan Publishing Limited, Bristol.
2. Hamilton W. Robert, Corporations including Partnerships and Limited
Partnerships, (4th Edn., 1991) West Publishing Co., Texas.
3. Morse Geoffrey, Paul Davis, etc., Palmer’s Limited Liability Partnership Law,
(1st Edn., 2002), Sweet and Maxwell, London.
4. http://www.llp.gov.in/tolink/pressreleaseonLLPtaxation.pdf
5. http://en.wikipedia.org/wiki/Limited_liability_partnership
6. http://www.lawyersclubindia.com/forum/files/33_33_limited_liability_partner
ship_llp__registration__india.pdf
7. Singh Avtar, Law of Partnership (Principles, Practice, and Taxation),(3rd
Edn. 2001) Eastern Book Company, Lucknow.
8. Underhill Sir Arthur, Principles of the Law of Partnership, (9th Edn. 1971)
Butterworth & Co. Ltd., London.
9. Singh S.D., Law of Partnership in India,(3rd Edn. 1988) Orient Law House,
New Delhi, Allahabad.
10. Rickett E. F. Charles & Grantham B. Ross, Corporate Personality in the 20th
Century, (1st Edn. 1998) Hart Publishing Oxford, UK.
11. Merrett AJ and Lehr ME, The Private Company Today, (1st Edn. 1971) Gower
Press Ltd., London.
12. www.icsi.edu/.../limitedliabilitypartnership-anewbusinessmodel.pdf
13. http://www.blonnet.com/2009/04/02/stories/2009040252220500.htm
14. http://www.icai.org/resource_file/11703nccr_pc.htm
15. www.qub.ac.uk/mgt/efirg/Corporation.pdf
16. http://economictimes.indiatimes.com/

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1

LIMITED LIABILITY PARTNERSHIP

LIMITED LIABILITY PARTNERSHIP

NAME PAGE NO.

Electronic copy available at: http://ssrn.com/abstract=1708215

Electronic copy available at: http://ssrn.com/abstract=1708215

AIMS AND OBJECTIVES:

SCOPE AND LIMITATIONS:

WHAT IS A LIMITED LIABILITY PARTNERSHIP?

LIMITED LIABILITY PARTNERSHIP IN INDIA

In an LLP form of business there is an advantage of limited liability of a company

ORIGIN AND DEVELOPMENT:

Many professionals in India, such as advocates/lawyers, chartered accountants and

A LLP is indeed advantageous because of comparatively lower cost of formation,

1. UNILIMITED LIABILITY OF THE PARTNERS IN A PARTNERSHIP: The

Section 25 of the Indian Companies Act says that every partner is

2. LIMITED MEMBERSHIP IN A PARTNERSHIP: Section 11 of the Companies

1. STATUTE GOVERNED STRUCTURE OF A COMPANY: The internal

agreement between partners. There will flexibility of a partnership in LLP while

2. THE DICHOTOMY OF MANAGEMENT-OWNERSHIP: There is no

Advantages of the Limited Liability Partnership: In the light of above mentioned

1. SEPARATE LEGAL ENTITY: This is again an advantage of a limited liability

Why do we recognize the legal personality of companies? In the field of commercial

reasoning applies to features of the institution, as it does to the institution as a whole. If

2. FLEXIBILITY: Flexibility without imposing detailed legal and procedural

3. PERPETUAL EXISTENCE: There is no perpetual existence in case of the

INTERNATIONAL EXPERIENCES WITH THE LLPs

Although found in many business fields, the LLP is an especially popular

An obligation of a partnership incurred while the partnership is a limited

 In Japan, the Limited liability partnerships (有限責任事業組合 yūgen sekinin

ISSUES AGAINST THE PRESENT LEGAL POSITION FOR INDIAN LLPs

1. TAXATION OF THE LLPs:

TAXATION OF A PARTNERSHIP FIRM UNDER THE INCOME TAX ACT:

Section 26-A of the Income-tax, 1922 reads as-

ASSESSMENT AS A FIRM (Section 184)

(5) Notwithstanding anything contained in the foregoing provisions of this section,

TAX TREATMENT IN USA TO LLPs: As in a partnership or limited liability company

TAX TREATMENT IN UK TO LLPs: Pertinently, LLPs in UK enjoy the „pass through

The taxation of a business LLP as a partnership will continue even if it ceases to

Converting a partnership into an LLP: In relation to the conversion from a

profession will be regarded as continuing so that the commencement and cessation

On the transfer of a business from a partnership to an LLP, there will be therefore no

A NEW TAX POLICY FOR A MIXED ECONOMY:

In the absence, however, of such guiding principles based on a comparative assessment

2. PROBLEM OF DOUBLE TAXATION:

3. NO MENTION ABOUT THE TAX IMPLICATION ON CONVERSION OF A

There is no specific mention in this Explanatory memorandum about the liability on

4. NO EXEMPTION FROM CAPITAL GAINS TAXATION:

4. UNLIMITED LIABILTY IN TAXATION:

5. CONVERSION OF THE COMPANY:

7. INVESTMENT BY FOREIGN PARTNER:

Regulations pertaining to issue of shares by Indian companies to foreign

General permission of RBI under FEMA

Transfer from Non-Resident to Resident:

A: Transfer by way of sale:

 A non-resident Indian (NRI) or an erstwhile Overseas Corporate Body may transfer by

Transfer from Resident to Non-Resident:

A: Transfer by way of sale - General Permission under Regulation 10 of Notification

This general permission is not available where:

 Indian Company whose shares or convertible debentures are proposed to be

Guidelines on issue and valuation of shares in case of existing companies:

 The issue price shall be either at:

 In case of unlisted companies, valuation shall be done in accordance with the