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The framework of laws & rules dealing with the Limited Liability Partnership (LLP) are contained in the Limited Liability Partnership Act, 2008 (the LLP Act) and the Limited Liability Rules, 2009 (the LLP rules). The Income Tax Act, 1961 was amended by the Finance Act, 2008 and the Finance Act, 2010 to provide for the framework of Taxation of LLP’s.
The Salient Features of a Limited Liability Partnership (LLP) are :-
| PARTICULARS | PARTNERSHIP FIRM | LIMITED LIABILITY PARTNERSHIP | PRIVATE LIMITED COMPANY | ||
| Statute | The Indian Partnership Act, 1932 | The Limited Liability Partnership Act, 2008 | The Companies Act, 1956 | ||
| Regulated by | Registrar of Firms under the State Government | Registrar of Companies under the Central Government | Registrar of Companies under the Central Government | ||
| Registration Formalities | Not Compulsory. | Compulsory. | Compulsory. | ||
| Incorporation Document | Partnership Deed | Limited Liability Partnership Agreement | Memorandum of Association (MoA) & Articles of Association (AoA) | ||
| Change of Registered Office from one State to another | Allowed | Allowed – Minimum formalities | Allowed – Lot of formalities to be followed. | ||
| No. of Participants –Minimum Maximum | Two (2)Twenty (20) | Two (2)Not specified | Two (2)Fifty (50) excluding past & present employees | ||
| Maintenance of Accounts & Audit | As per the Partnership Deed. | Accounts are required to be maintained.Audit if turnover exceeds Rs. 40 lakhs. | Compulsory maintenance of accounts and audit. | ||
| Filing of Annual Return – Account, etc. | Not required | Yes. | Yes. | ||
| Liability of Participants | Unlimited, in all cases | Limited to Capital Contribution, except in case of deliberate fraud | Limited to Capital of the Company. | ||
| Admission of Minor as participant. | Minor can be admitted to the benefits of the partnership. | Minor cannot be a partner in a LLP. | Legal Guardian can hold the shares of the company on behalf of the Minor. | ||
| Separate Legal Entity | No. | Yes.Formed as Body Corporate | Yes.Formed as Body Corporate | ||
| Common Seal | No common seal | Optional | Compulsory | ||
| Perpetual Existence | No. | Yes. Subject to Dissolution & Winding up | Yes. Subject to Dissolution & Winding up | ||
| Suits against & by | A Registered Firm can sue & be sued in its own name. | A LLP shall always sue & be sued in its own name. | A Pvt Ltd Company shall always sue & be sued in its own name | ||
| Management | By Partners.Working Partners Minimum 1 | Designated Partners Minimum 2 | Board of Directors Minimum 2 | ||
| Taxation | |||||
| a. of Income of the Entity | Assessed as a separate & distinct entity under the Income Tax Act, 1961. | Assessed as a separate & distinct entity under the Income Tax Act, 1961. | Assessed as a separate & distinct entity under the Income Tax Act, 1961. | ||
| b. Interest on Capital contribution by participants |
Allowable as deduction in the hands of Registered Firm subject to limits. | Allowable as deduction in the hands of LLP subject to limits. | Not Allowed as a deduction. | ||
| c. Management Remuneration |
Allowable as deduction in the hands of Registered Firm subject to limits. | Allowable as deduction in the hands of LLP subject to limits. | Allowable as deduction in the hands of Private Company. No limits. | ||
| d. Distribution of Profits |
No tax to be paid by the Partnership on distribution.Exempt in the hands of the partners. | No tax to be paid by the LLP on distribution.Exempt in the hands of the partners. | Private Company to pay Dividend Distribution Tax on dividends.Exempt in the hands of the shareholders. | ||
| e. Loans & Advances by the Entity to participants |
Not Taxable | Not Taxable.Except in case of Private Company converted into LLP – for the first three years after conversion | Taxable as deemed dividend u/s 2(22)(e), if certain conditions are met. | ||
(## – External Links Below::)
Download – Limited Liability Partnership Act, 2008 – Limited Liability Partnership Rules, 2009
Visit – e-Governance Website for Filing of LLP Forms
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