Highlights of the Bill
- The Limited Liability Partnership Bill, 2006, permits the creation of a new type of corporate entity, the limited liability partnership (LLP).
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An LLP shall have a minimum of two partners. At least two will be designated partners, one of whom is resident in India.
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Unlike in partnerships, the liability of partners of an LLP is limited to their share in the LLP. In the case of deliberate fraud, the limited liability shield may be removed.
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The concept of whistleblower has been introduced. The penalties against a partner or employee may be reduced or waived if he provides information that is useful during investigation, or leads to conviction.
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Partnerships, private limited companies and unlisted public limited companies may convert into LLPs. The Bill also permits foreign LLPs to function in India.
Key Issues and Analysis
- Limited companies are taxed on their incomes, and the income they distribute to their shareholders is also taxed. In partnerships and proprietorships only the income attributed to the partners is taxed. It is not specified how LLPs will be taxed.
- The maximum number of partners in a partnership is limited to 20 by the Companies Act, 1956. It is unclear if this limit will also apply to LLPs.
- The Bill does not specify whether capital gains tax or stamp duty will be payable when a partnership or a company converts into an LLP.
- For companies, partnerships and proposed LLPs, the minimum number of members or partners is two. Even after this Bill there is no legislation under which a single-member entity can function with limited liability in India.
- If a person ceases to be a designated partner, the LLP has to appoint another person, resident in India, as a designated partner. This seems to apply even if the LLP has the minimum required two designated partners, one of whom is resident in India.
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