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LLP EMERGING AS THE IDEAL STRUCTURE FOR SME SECTOR

LLP EMERGING AS THE IDEAL STRUCTURE FOR SME SECTOR

 

The businesses are organized as Proprietorships, Partnership Firms, Private Limited Companies, Public Companies, NGOs, Societies /Trusts etc. With the changing times, new forms of structures are evolving such as Limited Liability Partnership under LLP Act, 2008, One Person Companies and  Small Companies under the Private Limited category, Section 8 Companies,  under the new Companies Act, 2013.

The business structure must match with the nature and type of business. It should also provide for limited liability and lend credibility for obtaining funds from banking channels.

 

IMPORTANT FEATURES OF LLP

 

  • Globally accepted format.
  • Partnership Act 1932 will not be applicable to LLP.
  • No minimum subscription. Capital Contribution by Partners can be in the form of tangible, intangible, movable or immovable.
  • Minimum two designated partners are required in LLP. No restriction on maximum number of partners.
  • Professionals i.e. CA, CS are also eligible to form LLP. Any LLP can become member of Stock Exchange.
  • Limited liability of Partners. Partners are not liable for the acts of other partners. Partners are not agents of other partners. Obligations of LLP shall be solely obligations of LLP & not the partners. Unlimited liability of LLP & its partners in case of fraud only.
  • Flexibility to manage- Partners may decide their role as per LLP agreement. There is no ceiling on the remuneration of managerial personnel for day to day administration as per law. It is governed by the provisions of LLP agreement. Partner may lend money & transact other business with LLP.
  • There is no provision for holding any meeting under the LLP Act, 2008. Minutes of meetings of LLP are optional- It would depend upon the provisions of LLP agreement. Maintenance of minutes of meetings enable better clarity of working of the LLP.
  • Perpetual succession-Ownership is easily transferrable. Transferability of shares without prior consent of other partners.
  • Audit only when Capital Contribution exceeds Rs 25.00 lacs or turnover exceeds Rs. 40.00 lacs. Profit distribution by partners not subject to dividend distribution tax.
  • Credit worthiness of LLPs at par with companies. Can attract finance from Private Equity Investors & financial institutions. Government of India allows FDI in LLPs. The FDI route i.e. automatic or approval would depend upon the industry segment, the said LLP is operating in.
  • An LLP may have Common Seal depending upon LLP agreement. It is optional. There is no concept of Share Certificate in case of LLPs. Ownership of each partner is determined as contained in the LLP agreement.
  • Easy to wind up. Application to be made to NCLT for making Arrangements/Compromises/Restructuring or reconstruction/Merger/Amalgamation of LLP. Petition for winding up of LLP also lies before NCLT.
  • Low cost of promotion. Less Compliance level.

 

Maitreyi Gupta

Author

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