Thursday, December 15, 2011

LIMITED LIABILITY PARTNERSHIP - AN ATTRACTIVE CONSTITUTION OF CA FIRMS

The institute has come out with a guideline dated 4th November, 2011 permitting-

  • All existing CA firms can convert themselves into LLP;
  • New CA firms can be constituted as Limited Liability Partnership.
Process :

  • LLP Registrar will approve the name of the CA Firm, subject to necessary approval from ICAI, as the name of the firm will include the word "Chartered Accountant" or "Chartered Accountants";
  • Form 117 re approval of firm name in terms of Regulation 190 and Form No. 18 re constitution/ reconstitution of firm is to be submitted to the Institute.
  • The existing Firms registered with ICAI can get the similar name approved for the LLP conversion, subject to approval by the Registrar of LLP.
  • The seniority of the Firm, upon conversion into LLP shall be maintained.
  • The existing regulations of the Institute regarding the name allotment will continue to apply to LLP Firms also.
  • In case more than one Firm have same or similar name, and one of the firm get converted into a LLP, rest of the firms are required to be closed.
  • Even proprietorship firms can also be converted to LLP . This will need admission of at least one more partner.
Advantages :

The aforesaid decisions of the Council were long awaited and the following advantages can be availed of by the members of the Institute:
  • The limit of 20 on number of partners will not be applicable in case of LLP.
  • Limited Liability will ensure limited liability/risk.
  • The admission of partners, retirement or removal and other rights, responsibilities of partners will be governed by LLP Agreement and every time there will not be any need to execute fresh partnership deed.
  • The LLP so constituted will be a corporate entity with "perpetual succession" and its existence will not get affected by retirement or death of partner and will provide continuing goodwill to the heirs and successors.
Multi-disciplinary Firms

The Chartered Accountants Act is being amended to permit multi- disciplinary partnership and several other professions have been recognized for this purpose.

Flexibility :

The LLP law gives complete flexibility to the partners to define their mutual rights and responsibilities. The capital can be brought in and taken out freely.

No Dividend Distribution tax on distribution of profits by LLP. In fact capital gets generated in the
hands of partners.

Taxation: The income received by the partners from the LLP will not be taxable in the hands of
the partners, in case the same has attracted taxation in the hands of LLP. The income taxable in the
hands of partners will be limited to salary and interest, allowed as a deduction in the hands of the
LLP.

Dispute :

Any dispute among partners regarding constitution of the Firm and reconstitution, etc. will be 
completely set at rest as the LLP agreement shall be binding and shall prevail on all the partners. The
LLP agreement can authorize one or more partners to admit new partners, retire, remove existing
partners and also vary the profit sharing ratio and other rights among the partners, if so authorized
by the LLP agreement. Even the LLP agreement can be modified based on such delegation to
specified/ designated partners in terms of LLP 

Permission to undertake all activities as a Chartered Accountants Firm:

The LLP so formed, duly registered with ICAI and the LLP Registrar shall be entitled to undertake all activities which a Chartered Accountants Firm can undertake including accounting, audit, taxation, corporate laws and management consultancy services. 

Liability for default of other partners :

The LLP Act has specifically provided that the firms or the partners are not liable for action undertaken by a particular partner outside authorization to the concerned partners or fraudulent or other unauthorized transaction.
 We sincerely look forward for your comments and queries on the above. vinodjain@inmacs.com, aicas.cfo@gmail.com

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