Limited Liability Partnership Act, SEBI (Issue of Capital and Disclosure Requirement) Regulations

1. “Change is the only constant” NEW REGULATIONS IN COMPANY SECRETARIES PROFESSION: LLP , ICDR and the forthcoming Neha Singhi Practicing Company Secretary Add: c/o Kreeti Technologies #330 SDF Building, Block GP, Sector V, Salt Lake City Kolkata-700091 Ph- 9133 40083385 Email: neha@nehasinghi.com

2. Copyright This Presentation is the property of Neha Singhi and no part of it can be copied, reproduced or distributed in any manner, without prior permission of the Proprietor.

3. Index Need for New Regulations Limited Liability Partnership Act, 2008 ICDR Guidelines Forthcoming Regulations

5. To keep pace with the global changing scenarios

6. Constantly changing Business environment

7. Innovation and Development of Technology

8. Forego Redundant provisions

9. Some new regulations introduced are-Limited Liability Partnership Act, 2008 SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

10. LIMITED LIABILITY PARTNERSIP ACT, 2008 Apple pie for maturing service industry in India

11. Introduction A new business entity, which will combine limited liability, corporate personality and the advantages of partnership taxation Rule that an LLP partner's personal assets will generally NOT be at risk in the event of a financial disaster resulting from business losses Simple partnership structure, so easier to form Rights and Obligations of partners are mutually decided Useful for small enterprises, venture capitalists, professional firms like lawyers, accountants, architects etc.

12. Global Scenario of LLPs LLPs are very popular form business in U.K., USA, Australia, China, Japan, Singapore, etc LLP emerged in United States in 1990s, different statutes for individual states LLP Act in UK came in force on 1st April 2001 In UK, LLP is a ‘fiscal transparency’, i.e. not subject to taxation and only the members are liable to tax.

13. Entry of LLP in India LLP Bill, 2006 introduced in RajyaSabha on 15th December 2006 Examined by Parliamentary Standing Committee On 24th October 2008, revised LLP Bill 2008 passed by RajyaSabha LokSabha passed the bill on 12th December 2008 LLP Act, 2008 came into with President’s assent on 7th January 2009

14. ….contd LLP website launched on 1st Apr 2009 (llp.gov.in) LLP Rules 2009, were issued on 1st Apr 2009 covering registration and operational aspects 1st LLP was registered on 2nd Apr 2009 Rules relating to conversion of a partnership firm, a private company, an unlisted public company into LLP came into effect 31st May 2009 As per data available on llp.gov.in, 880 LLP’s have been registered till 05.3.2010

15. LLP Partner Individual Body Corporate, wider scope Designated Partner vis a vis Director Section 7 Minimum two Designated Partners: individuals Atleast one Designated partner resident in India Mutual Rights and duties of partners governed by First Sch, in absence of LLP Agreement on such matters

16. Main Provisions of the LLP Act Any 2 or more persons can form a LLP (Section 6) Section 3 Body corporate with separate legal entity Perpetual succession Any change in partners does not affect LLP Liability of partners limited to their contribution. Indian Partnership Act,1932 not applicable. No limit for maximum partners. File within 6 months of end of financial year Statement of accounts and solvency with the Registrar File Annual Return within 60 days of closure of financial year with the Registrar

17. Incorporating a LLP Obtain DPIN for Designated Partners by filing Form 7, and sending the physical copies of the application and documents File for Name Availability in Form 1 Form 2 for Incorporation File LLP Agreement in Form 3 Consent of partners in Form 4

18. Taxation Issues

19. Taxation Issues on LLP LLPs will be treated as Partnership firms for the purpose of Income tax Profit will be taxed in the hands of LLP and not in the hands of partners No surcharge will be levied on income tax Minimum Alternate Tax and Dividend Distribution Tax not applicable for LLP Section 167C inserted in I.T. Act Every partner of a LLP jointly and severally liable for the taxes, for the period during which he is a partner unless gross neglect, misfeasance etc. Remuneration to partners to be taxed as “Income from Business and Profession”

20. Budget 2010-11 CGT & Carry forward of losses Under existing provisions of IT Act, transfer of assets on conversion of a company to LLP under Section 56 or 57, attracts levy of capital gains tax. Similarly, carry forward of losses and of unabsorbed depreciation is not available to the successor LLP. In the Union Budget 2010, it is proposed that the transfer of assets in such case shall not be regarded as a transfer for the purposes of capital gains tax under section 45, subject to certain conditions. These conditions are as follows: 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; 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; and no amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a period of 3 years from the date of conversion.

21. Budget 2010-11… contd If the above conditions are fulfilled carry forward and set-off of business loss and unabsorbed depreciation to the successor LLP If the above conditions are not complied with the benefit availed by the company shall be deemed to be the profits and gains of the successor LLP chargeable to tax for the previous year in which the requirements are not complied with. The aggregate depreciation allowable to the predecessor company and successor LLP shall not exceed, in any previous year, the depreciation calculated at the prescribed rates as if the conversion had not taken place. It is further proposed that the actual cost of the block of assets in the case of the successor LLP shall be the written down value of the block of assets as in the case of the predecessor company on the date of conversion.

22. Budget 2010-11… contd It is also provided that the cost of acquisition of the capital asset for the successor LLP shall be deemed to be the cost for which the predecessor company acquired it. Credit in respect of tax paid by a company under section 115JB is allowed only to such company under section 115JAA. It is proposed to clarify that the tax credit under section 115JAA shall not be allowed to the successor LLP. These amendments are proposed to take effect from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.

23. Winding up of LLP LLPs can be wounded up voluntary or by tribunal. LLPs can be wound up by tribunal LLP decides so No. of partners less than two for a period more than 6 months LLP is unable to pay its debts LLP has acted against sovereignty and integrity of India, the security of State or public order Defaulted in filing with Registrar Statement of Accounts and Solvency, Annual return In the opinion of tribunal it is just and equitable

24. Advantages of an LLP Provides more professional opportunities to professional firms of Company Secretaries, Chartered Accountants, Advocates etc. An attractive mode of business as the tax cost is concerned LLP & its partners are distinct from each other, advantage over Partnership firms Easy to form, comparatively low cost of formation than limited companies. No requirement of any minimum capital contribution No restrictions as to maximum number of partners Less legal Compliance compared to limited companies No exposure to personal assets of the partners except in case of fraud Audit requirement only in case of contributions exceeding Rs. 25 lakh or turnover exceeding Rs. 40 lakh

25. ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS, 2009 Old Wine in New Bottle

26. Introduction SEBI moto Protect the interest of investors in securities Promoting the development of the securities market Regulating the securities market Section 11A(1)(a) of the SEBI Act,1992 empowers SEBI to issue new by regulations for investor protection, issue of capital, disclosures etc. SEBI (Disclosure and Investor Protection) Guidelines, 2000 stands rescinded SEBI(Issue of Capital and Disclosure Requirements) Regulations, 2009 is notified on 26th August 2009 Some redundant provisions are removed, some are modified, while some are further clarified SEBI(ESOP & ESPS) Regulations, 1999 contained some provisions to be complied by an unlisted issue at the time of public offer- such provisions are now incorporated in ICDR Guidelines

30. Forthcoming Regulations Unlearn and Learn

32. CGST-Basic exemption of Rs.1.5 CroreExpected to be effective by the year 2010

33. Direct Tax Code Income Tax Act, 1961 to be replaced by Direct Tax Code Unified tax payer system Simplification of income tax laws PY and AY unified into FY STT abolished, gain out of sale of securities to be taxed as capital gain Tax rates liberalized Aims to foster voluntary compliance