CONCEPT PAPER ON LIMITED LIABILITY PARTNERSHIPS
EXPLANATORY NOTES
(Contd. from Dec05 issue)
Chapter V - Extent and limitation of liability
Each partner of the LLP is an agent of the LLP but not of other partners. Therefore, a partner shall be held personally liable for his own wrongful act or omission, but will not be liable for the wrongful act or omission of any other partner of the LLP. An LLP is however, not bound by the actions of a partner where that partner has not authority to act for the LLP, and the person dealing with the partner is aware of this or does not know or believe that the partner was in fact a partner of the LLP.
Further, where a partner of an LLP is liable to a person for a wrongful act or omission in the course of business of the LLP or with its authority, the LLP will be liable to the same extent as the partner. An LLP being a separate legal entity is liable for an obligation arising in contract or otherwise and the liabilities of the LLP shall be met out of its property.
A partner will not be held personally liable, directly or indirectly for an obligation of the LLP, solely by reason of being a partner of the limited liability partnership. However, this liability shield will be withdrawn in case of an act carried out by an LLP with the intent to defraud creditors or for any other fraudulent purposes.
Chapter VI- Duties and standards of conduct
This Chapter deals with the duties and standards of conduct of partners. The more important of these provisions include obligations of loyalty, due care and good faith.
Chapter VII - Contributions
This Chapter deals with the form and liability of partner's contribution.
Chapter VIII- Financial disclosures
A limited liability partnership is required to maintain proper books of accounts at its registered office relating to its affairs for each year of its existence on accrual basis and according to the double entry system of accounting. An LLP shall take reasonable precautions to maintain the records so as to prevent loss or destruction, falsification of entries and facilitate detection and correction of inaccuracies. If default is made in complying with these provisions, the manager shall be punishable under the Act.
The manager of an LLP shall lodge with the Registrar a declaration as to whether in his opinion the LLP appears to be able to pay its debts in the normal course of business or not. The declaration is to be lodged within 15 months of registration and subsequently every financial year at intervals of not more than 15 months.
If the manager fails to lodge the declaration or makes a declaration without having reasonable grounds for his opinion, he shall be punishable under the Act. Further, if any person makes a statement or furnishes information to a manager that is false or misleading in a material particular, then that person shall also be punishable under the Act.
The Registrar shall have the power to call for further information as he may require and any person, who fails to comply with any summons or requisition of the Registrar or provides false information, shall be punishable under the Act. He shall also have the powers to enforce the lodging or filing of any return, account or other document. Further, the Registrar may destroy any document lodged, filed or registered with it, if it is no longer necessary or desirable to retain the same.
Regulations to the Act shall prescribe the offences which may be compounded by the Central Government under the Act.
A limited liability partnership shall take all reasonable precautions to maintain the records it is required to maintain the records it is required to maintain under sub-section (1) of section 27 in a manner so as to prevent loss or destruction thereof prevent falsification of entries and facilitate detection and correction of inaccuracies.
Chapter IX - Taxation
This chapter ensures that the partners of an LLP which is carrying on a business with a view to profit are treated for the purposes of income-tax and capital gains tax as if they were partners carrying on a business in partnership, despite the fact that an LLP is a body corporate. It also provides that the property of the LLP shall be treated for those purposes as property of its partners. This ensures that partners will be individually liable to tax on their share of the profits of the trade, profession or business carried on by the LLP.
Further, the assets of the LLP shall be treated as assets held by the partners for the purpose of taxing capital gains. This ensures that the partners of the LLP, rather than the LLP itself, will be liable to tax for capital gains on the disposal of LLP assets. The chapter brings LLPs in line with the approach adopted for partnerships, which similarly treats assets as held by the partners rather than by the partnership.
Chapter X- Assignment and transfer of partnership rights
This Chapter deals with the partner's transferable interest. A partner's economic rights, which include the rights of the partner to a share of the profits and losses of the partnership and to receive distributions in accordance with the limited liability partnership agreement, are freely transferable. However, a transfer in whole or in part of the transferable interest does not imply the partner's disassociation or dissolution and winding up of the LLP's activities. Further, they do not entitle the assignee to participate in the management or conduct of the LLP's activities or access information concerning the LLP's transactions. Moreover, the non-economic rights of a partner shall not be transferable unless specified by the LLP agreement.
Chapter XI- Investigation
This Chapter deals with the investigation of the affairs of a limited liability partnership.
Chapter XII - Conversion to limited liability partnership
This Chapter contains provisions which provide for the conversion from firm, private company and unlisted public company to a limited liability partnership. The Second Schedule contains provisions for conversion from firm to LLP; the Third Schedule contains provisions for conversion from private company to LLP and the Fourth Schedule provides for conversion from unlisted public company to LLP.
Chapter XIII- Foreign limited liability partnership
This Chapter deals with the foreign limited liability partnership. The Regulations shall make provisions about the features of foreign limited liability partnership.
Chapter XIV - Amalgamation, merger and demerger of limited liability partnerships
This Chapter deals with the amalgamation, merger and demerger of limited liability partnerships. The Regulations shall make provisions for the same.
Chapter XV - Winding up and dissolution
This Chapter deals with the winding up and dissolution of limited liability partnerships. The winding up of a limited liability partnership may be either voluntary or by the Tribunal. The Regulations shall make provisions for the winding up and dissolution of limited liability partnerships.
Chapter XVI- Miscellaneous
This Chapter deals with business transaction of partner with partnership, application of company law ect., electronic filing service, penalties, application of other laws, enabling provision for Regulations, powers of Registrar, offences by limited liability partnerships, jurisdiction of the Tribunal and general penalties.
Congratulations
Dr. A.G. Venugopal Reddy, FCA
nominated as Member to the
Sri Krishnadevaraya University
Academic Senate
by the
A.P. Government. |
