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Topic : Where VC's are venturing in India?
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Is it the right time to migrate to LLP structure??

Asked by : Veena Gupta, Analyst, Blackstone Group
Industry : Hedge Funds/VCs/Private Equity
Functional Area : Business Models
Keywords : entrepreneur vc startups llp union budget.limited liability
Activity: Question posted: 08 29 2009 07:10:50 +0000, 5 answers, 228 views, last activity 07 06 2010 20:18:08 +0000
 
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The Union Budget 2009 presented by the Hon’ble Finance Minister, Mr. Pranab Mukherjee in July provided the much awaited tax treatment for the new corporate business vehicle via which Limited Liability Partnerships the LLP. With this proposal, the unclear picture surrounding the tax aspects of LLPs seems to have been cleared and it was a much needed one.


http://www.klmanagement.com.my/wp-content/uploads/2009/04/limited-liability-partnership-llc-ssm-malaysia.png


This is a clear demarcation from the general global practice, where LLPs are exempt from tax and the partners are directly taxed, Under the proposed regime in India the LLPs would be taxed at entity level and the share of profits to be received by the partners would be exempt from tax. Nonetheless, owning to the structural and operational flexibility coupled with clarity on tax aspects.

Is it the right time to migrate to LLP structure?

 
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Followings are the advantages of LLP :

  • Renowned and accepted form of business worldwide in comparison to Company.

  • Low cost of Formation.
     
  • Easy to establish.
     
  • Easy to manage & run.
     
  • No requirement of any minimum capital contribution.
     
  • No restrictions as to maximum number of partners.

  • LLP & its partners are distinct from each other.
     
  • Partners are not liable for Act of partners.

  • Less Compliance level.
     
  • No exposure to personal assets of the partners except in case of fraud.
     
  • Less requirement as to maintenance of statutory records.
     
  • Less Government Intervention.
     
  • Easy to dissolve or wind-up.

  • Professionals can form Multi-disciplinary Professional LLP, which was not allowed earlier.
     
  • No requirement as to Minimum Alternate Tax.
     
  • Audit requirement only in case of contributions exceeding Rs. 25 lakh or turnover exceeding Rs. 40 lakh.

     

     

     

    For further info regarding online LLP formation anywhere in India visit >> www.promptmanfin.com

                   >> www.llp-formation.com

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    5 Answers for "Is it the right time to migrate to LLP structure??"
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      Answered by     Aarti Gupta, Legal Consultant  | 08 31 2009 13:31:56 +0000
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    LLP focuses on portfolio, liability, tax advantage of structure, limited life etc of a company. So, I think by implementing this, organizations will gain a lot. Mainly, Enterprenours and all the other partnership firms registered under Indian Partnership Act will get benefited if they migrate to LLP.

      Answered by     Samar Inam Khan, Advocate (Independant Practice)  | 08 31 2009 11:10:59 +0000
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    It is a very wise step taken by the Govt. not only Entrepeneur, the existing Partnership firms registered under Indian Partnership Act will get benefitted if they migrate to LLP.

    My answer is yes it is the right time to migrate.... Thumbs Up

      Answer modified by     Padmanabhan R, Articled / Audit assistant, Finance student  | 08 29 2009 13:51:12 +0000
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    Don't know much about this                                                                                              In other countries LLP dominate PE and VC and treating and taxing VC/PE in India as trust is considered as one of the disadvantages. The important advantages of  LLP are they can focus totally on the portfolio of companies , liability of investors is limited, tax advantage of structure, limited life etc. I think PE and VC will welcome this. Can anyone share more info regarding, how it will be structured?

      Answer modified by     Surendra Sinha, Senior Consultant, Tata Administration Services (TAS)  | 08 29 2009 09:37:58 +0000
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    According to me LLPs could be a suitable vehicle for investment by venture capitalists and private equity players, which presently operate through a domestic trust which could be registered or unregistered. Since LLP would be treated as a non-transparent entity for tax purposes, the foreign investors may not able to enjoy the tax treaty benefits (if any) of investing in India through such LLPs. Thus the unified model which arguably may have worked for a trust would not be available for LLPs. But for domestic investors its a good option to go for?

     
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