AUTHORS NOTE: AN INSIGHT INTO THE PAPER

A partner is not personally liable, directly or indirectly, by way of

contribution or otherwise, for such an obligation solely by reason
of being or so acting as a partner.
- Section 306(c) of the Revised Uniform Partnership Act (1997)

Limited Liability Partnership (LLP) is a new legal vehicle created to carry

on business transactions. LLP is a new corporate form that enables
professional expertise and entrepreneurial initiative to combine, organize
and operate in an innovative and efficient manner. It is a structure which
is half way between a traditional partnership firm and a limited liability
company.
Though legally this structure has been give a legislative form in the last
decade or so, but in practice, it has been a part of trade and commerce
from the times of the Romans. The head of the family, in the Roman law,
was liable for the torts committed by his child or slave but he had an
option of turning over the offending family member or slave which, in the
current scenario, operates as an effective ceiling on damages and at least
in theory, if not in practice, is functionally equivalent of limited liability.
Therefore, limiting of liability was possible centuries before the creation
of the corporations.
Limited Liability Partnership can be broadly defined as a body corporate
having a separated legal entity with a perpetual succession. The concept
of separate legal entity ensures that the partners are not personally
liable for the acts done by the firm. As can be seen by the definition, the
LLP combines the features of both the limited liability of a company by
way of having separate legal entity from that of the partners and
incorporates the flexibility of a partnership in a single organisation.
In the course of this paper, an attempt has been made to show that in
several ways, an LLP serves as convenient business machinery for
medium and small size organizations that are constrained by several
limitations like finances. Therefore, the primary incentives to form an
LLP are that, unlike a partnership, in the normal course of business there
is no personal liability of partners; and unlike a company, an LLP is taxed
only at one level as long as the partners are Indians. The present paper
shall provide an insight as to the need for LLP Act, its advantages and
disadvantages compared to the other forms of business. The paper will
critically analyze the existing tax provisions across various jurisdictions
with special focus on India, United States of America and United
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Kingdom. The researcher shall also highlight the taxation issues arising
out of conversion of limited liability partnership into and from other
forms of business. The paper will also bring forward the lacunae existing
in the current statutes and make recommendations to overcome the
same.
RESEARCH PROBLEM
Tax is the chief source of revenue for any government and the legal
framework as to taxation is vital for any organisation to plan the future.
The regime of Limited Liability Partnership is still at its nascent stage
and therefore still requires continuous monitoring and modifications. Tax
is also every changing in nature and has to adapt according to the
requirement of the economy and the new development in the methods of
transactions. Globalisation has also made a major impact on how the
government imposes tax. Especially from Indian perspective, due to the
recent implementation of the Act, there is still a need to discover this
arena.
Hence the research questions addressed in this paper are whether LLP
adversely affects the revenue generation of the country, and how taxes
are imposed on LLPs under different political system.

PRIMARY AIMS AND OBJECTIVES OF THE RESEARCH

The research objective of the present dissertation can be divided into the
following folds:
a) To understand and compare the tax regime relating to LLP across
various jurisdiction with special regards to India, United Kingdom
and United State of America.
b) To study the tax implications with regards to conversion from and
to LLP.
c) To analyze and compare various forms of business structure and
determine whether LLP really is required and holds advantage over
other forms of business.

HYPOTHESIS
Formulation of a hypothesis is not only the crux of a thesis but also has
great significance in the doctrinal method of research. Hence the final
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hypothesis is: Limited Liability Partnership with regards to taxation

is like an empty blackboard that the government across various
jurisdictions and especially India are attempting to fill according
to experience and issues being raised by the firms.

METHODOLOGY
A doctrinal study shall be made to prepare the dissertation. I have gone
through various articles to acquire an understanding of the subject and
identify the issues that need to be addressed. Further, thorough online
research has been conducted to understand the tax regimes across
various jurisdictions. A significant amount of research shall also be done
to identify the major challenges and future growth of LLP in countries
like USA and UK. All efforts shall be made to incorporate the latest policy
initiatives taken by the government in relation to LLP and the measures
that still need to be undertaken.

REVIEW OF LITERATURE
Primarily, for the sake of authenticity, literature available on official
websites of Government organisations is used. Author has also relied on
various books and journals available in the library as well as articles and
reports available on internet.

PROPOSED CHAPTERIZATION
1. Introduction.
Limited Liability Partnership can be broadly defined as a body
corporate having a separated legal entity with a perpetual
succession. The concept of separate legal entity ensures that the
partners are not personally liable for the acts done by the firm. As
can be seen by the definition, the LLP combines the features of
both the limited liability of a company by way of having separate
legal entity from that of the partners and incorporates the
flexibility of a partnership in a single organisation.
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In this chapter mainly the legal frameworks created for the

functioning and growth of LLPs are discussed.
2. Taxation of LLP in United Kingdom.
In the United Kingdom, the taxation of the Limited Liability
Partnership is in accordance with the Limited Liability Partnership
Act, 2000 (LLP Act). For UK tax purposes, a LLP is fiscally
transparent where each partner will be assessed to tax on their
share of the LLP's income or gains as if they were partners of a
'normal' partnership.
For the purposes of the Tax Acts, a trade, profession or business
carried on by a limited liability partnership with a view to profit
shall be treated as carried on in partnership by its members (and
not by the limited liability partnership as such); and, accordingly,
the property of the limited liability partnership shall be treated for
those purposes as partnership property.1 This situation is applicable
only when no business, trade or profession is carried out with or
within the United Kingdom and the partners are located
outside of the UK then UK LLPs have no liability for UK
taxation.
3. Taxation of LLP in Singapore.
The Indian Limited Liability Partnership Act, 2008 has its
foundation in the Singapore Limited Liability Partnership Act, 2005
(LLP Act, 2005). A bare reading of the provisions would indicate
that most of the provisions in its application have the same effect in
India as in Singapore. Therefore, it becomes important to
understand the tax structure of LLP in Singapore.
4. Taxation of LLP in India.
The Finance (No. 2) Act, 2009, provides for taxation of LLP. In the
definition of the term Firm and Partnership in section 2 (23) of
the Income tax Act, it is stated that the term Firm or
Partnership will include any LLP w.e.f. 1.4.2009. Further, the
definition of a Partner will include a partner of LLP. Therefore, all
the provisions for taxation of Firm will apply to LLP. The tax will
be payable by the LLP at 30 per cent plus Education Cess. Chapter
1 Section 118ZA, Income and Corporation Taxes Act 1988.
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X of the Limited Liability Partnership Act, 2008 deals with the

taxation aspect of LLP in India. It provides that the partners of an
LLP which is carrying on a business with a view to profit are
treated for the purposes of income tax and capital gains tax as if
they were partners carrying on a business in partnership, despite
the fact that an LLP is a body corporate. It also provides that the
property of the LLP shall be treated for those purposes as property
of its partners. This ensures that partners will be individually liable
to tax on their share of the profits of the trade, profession or
business carried on by the LLP. Further, the assets of the LLP shall
be treated as assets held by the partners for the purpose of taxing
capital gains. This ensures that the partners of the LLP, rather than
the LLP itself, will be liable to tax for capital gains on the disposal
of LLP assets. The chapter brings LLPs in line with the approach
adopted for partnerships, which similarly treats assets as held by
the partners rather than by the partnership.
5. Global comparision.
In this chapter the functioning of LLPs in various political systems
is compared.
6. Conclusion.
In this final chapter the author has concluded his final arguments.
WORKING BIBLIOGRAPHY
ARTICLES

Alex Newman, Junior Partners gear up to make capital

contributions as new LLP rules kicks in, 27 February, 2014.
CA P.N. Shah, Limited Liability Partnership Act and Some Tax
Issues, The Chartered Accountant, Page 314, August 2010.
CA Chandrashekhar V. Chitale, Conversion of Partnership Firms
and Private Limited Companies to LLPs- Tax Issues.

COMMITTEE REPORTS

The Abid Husain Expert Committee Report on Small Scale

Industries 1997.
Naresh Chandra Committee Report on Regulation of Private
Companies and Partnerships, 2003.

Peter Gerangelos, The Separation of Powers and Legislative

Interference in Judicial Process, Constitutional Principles and
Limitation, (2009), Hart Publishing.

STATUTES

Limited Liability Partnership Act, 2008 (India).

Limited Liability Partnership Act, 2000 (United Kingdom).
Uniform Partnership Act/Revised Uniform Partnership Act (United
States of America).
Limited Liability Partnership Act, 2005 (Singapore).

JOURNALS

All India Reporter (AIR)

Supreme Court Cases (SCC)
Supreme Court Reporter. (SCR)