Contents Page No.

1. Introduction 2

2. Overview of the LLP Law in India 3

3. The various drawbacks of the LLP form are stated below 15

4. Current Scenario 16
4.1 NCLT allows merger of LLP, private companies

4.2 New LLP Rules in India: applying for DPIN

4.3 Master reporting, simplification

of foreign investments reporting in India 17

5. CONCLUSION 21

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 INTRODUCTION

• LLP is an alternative corporate business form that gives the benefits of limited
liability of a company and the flexibility of a partnership.

• The LLP can continue its existence irrespective of changes in partners. It is

capable of entering into contracts and holding property in its own name.

• The LLP is a separate legal entity, is liable to the full extent of its assets but
liability of the partners is limited to their agreed contribution in the LLP.

• Further, no partner is liable on account of the independent or un-authorized

actions of other partners, thus individual partners are shielded from joint
liability created by another partner’s wrongful business decisions or
misconduct.

• Mutual rights and duties of the partners within a LLP are governed by an
agreement between the partners or between the partners and the LLP as the case
may be. The LLP, however, is not relieved of the liability for its other
obligations as a separate entity.

Since LLP contains elements of both ‘a corporate structure’ as well as ‘a

partnership firm structure’ LLP is called a hybrid between a company and a
partnership.

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Overview of the LLP Law in India

Overview of the LLP Law in India The innovative business structure in the
form of LLP was introduced in India by the enactment of the LLP Act, 2008. It
is known that this Act received the President‟s assent on 7th January, 2009 and
was, thereafter, notified in the Official Gazette. The salient features of this
hybrid business entity in the form of LLP have been stated below. a) LLP is a
body corporate that is formed and incorporated under the LLP Act, 2008. This
business vehicle possesses separate legal entity distinct from its partners and
enjoys perpetual succession. At least two persons (natural or artificial),
intending to carry on a lawful business, can form an LLP in accordance with the
requirements of this Act. b) LLP in India is governed and regulated by a
different statute and, therefore the Indian Partnership Act, 1932, is not
applicable to it. The agreement between the partners in an LLP is the deciding
factor and the backbone of the concerned LLP. c) Though LLP in India is a
general-purpose business entity, it is primarily suited to meet the needs of the
professionals like the Chartered Accountants (CAs), Cost and Management
Accountants (CMAs), Company Secretaries (CSs), Advocates, etc. Moreover,
this unique organisational vehicle allows the formation of multi-disciplinary
LLP. d) Since LLP is a blend of partnership and company structure, it enjoys
the organisational flexibility of the partnership structure and the separate legal
personality of the corporate structure. e) An LLP in India should keep the words
“Limited Liability Partnership” or “LLP” at the end of its name. f) Though the
LLP agreement is the constitution document of the concerned LLP, it is not
compulsory for an LLP to draft it. In the absence of the LLP agreement, the
mutual rights, duties and obligations of the partners will be governed by
Schedule I to the LLP Act, 2008. g) As already stated, an LLP must have at
least two partners. Minimum of two individuals are required in an LLP to act as
designated partners out of which, 93 at least, one of them should be resident in

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India. There is no maximum limit to the number of partners or designated
partners. h) The partners of an LLP are agent of the LLP but they do not act as
agents of the other partners. i) A partnership firm, a private limited company
and an unlisted company can convert into an LLP in accordance with the
Sections 55, 56 and 57 of the LLP Act, 2008, along with the Schedules II, III
and IV. j) An LLP is not required to obtain prior approval of the Central
Government to increase the number of designated partners. k) The winding up
of an LLP can be done voluntarily or by following the order of the Tribunal as
per the Companies Act1.

According to the LLP Act, 2008, LLP is a partnership formed and registered
under this Act. Thus, in order to be treated as an LLP, there are two basic
requirements. These two stipulations are existence of partnership and the need
for its registration. So registration of an LLP is mandatory according to the Act
and the certificate of incorporation is the conclusive evidence of its formation
and registration. Sections 11 and 12 of the Act deal with the requirements of
incorporation of an LLP. It is already known that two or more persons intending
to carry on a lawful business may form an LLP. The registering authority in this
regard is the Registrar of Companies (ROC). The ROC will register an LLP and
issue the certificate of incorporation within fourteen days on compliance of all
stipulations under the Act. After an LLP is registered, it must ensure that its
name, address (of the registered office), registration number and a statement
that it is registered with limited liability are present in all its documents and
official correspondences. For incorporation, it is necessary to file the
Incorporation Form 2 (incorporation document and subscriber‟s statement) with
the ROC2.

1
(http://www.mca.gov.in/LLP/faq_disclosure.html;
http://www.mca.gov.in/LLP/pdf/LLP_Act_2008_15jan2009.pdf and Barve, 2013).
2
(ibid.)

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An individual or a body corporate is eligible to be a partner of an LLP. The term
“body corporate”, according to the Act, includes a company as defined in
Section 3 of the Companies Act, an LLP formed and registered under the Act,
an LLP incorporated outside India and a company incorporated outside India.
Individuals may 94 be resident or non-resident in India. If a body corporate is a
partner of an LLP, it should nominate a natural person as its nominee for the
purposes of the LLP3.

An LLP must have, at least, two individuals as its designated partners. Out of
such designated partners, at least, one of them should be resident in India. In a
situation, where all the partners of an LLP are bodies corporate or where there is
one individual partner and other partners are bodies corporate, such bodies
corporate shall appoint nominees to act as designated partners of the LLP. The
functions and the role of the designated partners would be to ensure that an LLP
complies with and fulfils all the requirements of the Act like filing of document,
return, etc. It is mandatory for all the designated partners of a proposed LLP to
obtain the Director Identification Number (DIN) by filing the e-form DIN 1.
Previously, it was necessary for the designated partners to obtain the Designated
Partner Identification Number (DPIN) from the Central Government. If a person
is allotted with both the DIN and the DPIN, then the DPIN will stand cancelled.
If a person already possesses DIN before agreeing to act as a designated partner
of an LLP, the same DIN can be used for the purpose of this Act. Before the
commencement of the incorporation formalities for an LLP, the prospective
designated partners should obtain the DIN. All the documents that are required
to be filed by an LLP should have the digital signatures of the persons

3
(ibid.)

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authorised to sign on behalf of the LLP. Thus, the designated partners should
acquire and register the Digital Signature Certificate (DSC)4.

According to the LLP Act, 2008, every partner is an agent of LLP but he/she
does not act as an agent of the other partners. Hence every partner has the
ability to bind the LLP on the basis of his/her acts subject to the rules set out in
the LLP Agreement. If a partner carries out any lawful act in the normal course
of business, then the LLP, the concerned partner and the other partners will be
held liable only to the extent of their shares in the LLP. If any unlawful or
wrongful act is carried out by any partner in the normal course of business or
within his authority, then the LLP would be held liable and the other partners
are held liable only to the extent of their share in the LLP. The faulty partner
will incur unlimited liability that may extend to his personal assets as well.
Lastly, if any act is carried out by any partner without authority, then only the
concerned partner will be personally liable to meet the same. The LLP and the
other partners cannot be called upon to meet any claim arising from the above
act).5

Each partner‟s contribution to an LLP may consist of tangible or intangible

property, movable or immovable property, any benefit to the LLP including
money, promissory notes or any contract for services performed or to be
performed. The quantum of contribution and the obligation to contribute by
each partner shall be in accordance with the LLP agreement. In the absence of
anything to the contrary in the LLP agreement, all the partners are entitled to
share profits equally and are obliged to contribute equally and share losses
equally6.

4
(ibid.)
5
(http://www.mca.gov.in/LLP/pdf/LLP_Act_2008_15jan2009.pdf)
6
(ibid.).

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As already stated, every LLP must have the terms “Limited Liability
Partnership” or “LLP” at the end of its name. An LLP should not have a name
that, in the opinion of the Central Government, is undesirable or is similar to a
name of a partnership firm, another LLP, any other body corporate or a
registered trademark or a trademark that for which an application of registration
has been made by another person as per the Trademarks Act, 1999. A person is
required to apply to the ROC for reservation of a name for a proposed LLP by
filing Form 1 (Application for Reservation or Change of Name). The ROC will
reserve the name for three months if it is satisfied regarding the compliance of
different formalities subject to certain conditions. An LLP is also provided with
an option to change its name by following the procedure laid down in the LLP
Act, 2008, and the LLP Agreement7. The LLP agreement is the principal
document of an LLP that describes the rights and duties as given in the First
Schedule. It is a written statement that depicts the mutual rights and duties so
far as the partners are concerned and the rights and duties so far as the
relationship between an LLP and its partners is concerned. After the
incorporation of an LLP, an initial LLP agreement is to be filed within thirty
days of the incorporation in Form 3 (Information with regard to Limited
Liability Partnership Agreement and changes, if any, made therein)8. According
to Section 34 of the Act, an LLP has to maintain its books of accounts for every
financial year at its registered office. The required books of accounts may be
kept on cash basis or on accrual basis of accounting. An LLP has an obligation
to prepare a Statement of Accounts and Solvency every year. Such Statement of
Accounts and Solvency should be signed by the designated partners and should
be submitted to the ROC every year. It is also compulsory for an LLP to file the

7
(ibid.)
8
(ibid.)

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Annual Return in Form 11with the ROC within sixty days from the close of the
financial year.

The accounts of an LLP shall be audited according to Rule 24 of the LLP Rules,
2009. Such rules provide that, if the turnover of an LLP does not exceed forty
lakh rupees in any financial year or the amount of contribution does not exceed
twenty five lakh rupees, then such LLP may not audit its accounts. If the
partners of such LLP decide to audit its accounts at their own discretion, such
audit shall be carried out in accordance with the rules prescribed. But it is
important to note that the turnover limit needs to be raised to one crore rupees to
bring parity with the provision relating to tax audit given under the Section
44AB of the Income Tax Act, 1961. If the accounts of an LLP are not audited,
then the partners shall include, in the Statement of Accounts and Solvency, a
statement of acknowledgement stating that all the requirements of the Act and
the Rules regarding preparation of accounts have been complied with. A
certificate in Form 8 should also be filed by the partners of an LLP along with
the above mentioned statement9.

A partner is given an option to transfer his/her right to share profits and losses
of an LLP and his/her entitlement to get distributions wholly as well as partly.
However, this transfer of right would not lead to disassociation of such partner
from the LLP and would also not affect the existence of the LLP. Similarly, the
transferee would also not have any right to participate in the internal
management of the LLP and would not get any access to the LLP‟s transaction-
related information (ibid.). According to the LLP Act, 2008, a foreign LLP
(FLLP) is an LLP incorporated and registered outside India that establishes its
place of business in India. An FLLP has to file Form 27 [Registration of
Particulars by Foreign Limited Liability Partnership (FLLP)] for establishing its

9
(ibid.).

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place of business in India. The designated partners of an FLLP are not required
to obtain the DIN but the DSC should be obtained by the authorised
representative. Such e-form 27 should be digitally signed by the authorised
representative (ibid.). A firm may be converted into an LLP in accordance with
Chapter X and Second Schedule to the LLP Act, 2008. A firm needs to file
Form 17 (Application and Statement for the Conversion of Firm into LLP).
Form 17 has to be filed with Form 2 (Incorporation Document and Subscriber‟s
Statement). On registration of the LLP, all assets and liabilities of the firm will
be the assets and liabilities of the converted LLP. The firm will automatically
dissolve and, if the firm is registered under the Indian Partnership Act, 1932, its
name will be removed from the records. It is necessary for the converted LLP to
disclose the name of the firm, the registration number of the firm (if any) and
submit a statement stating the fact that it was converted from a firm on all its
official correspondences for a stipulated period of 12 months from the date of
conversion (ibid.). Though the Act provides for the conversion of a partnership
firm into an LLP, there are some constraints and obstacles in the way of
conversion that requires some consideration of the law-makers. Firstly, an LLP
has the same tax treatment like a partnership firm. So a partnership firm does
not have any tax-saving incentive for converting itself into an LLP. Secondly,
an LLP is subjected to more disclosure requirements and the LLP agreement
and some other documents are open to public inspection. Thirdly, an LLP has to
comply with more legal requirements than a partnership firm. Fourthly, stamp
duty is payable on conversion of a partnership firm into an LLP. Fifthly, more
procedures and formalities are there for dissolution and winding up of an LLP
as compared to a partnership firm. Thereafter, an LLP is subjected to more
governmental intervention and scrutiny than a partnership firm. Moreover, an
LLP does not have the benefit of raising money from the public. In the rural
areas, an LLP generally faces the difficulty of obtaining loan from the banks
since the banks in the rural areas do not recognise an LLP as a body corporate.

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Registration of partnership firm is not mandatory but registration of LLP is
compulsory under the law. An LLP is also required to file Annual Statement of
Accounts and Solvency with the Registrar every year. Moreover, an LLP has to
follow various guidelines given under the Act regarding name and has to keep
the terms “Limited Liability Partnership” or “LLP” at the end of its name. Cost
of formation of, or conversion to, an LLP is higher than a partnership firm.
Lastly, various e-forms and the LLP Agreement have to be filed with the
Registrar together with the required fees10. A private limited company and an
unlisted company can be converted to an LLP following the requirements laid
down in the Chapter X and Third Schedule and Fourth Schedule of the Act
respectively. Any private company and an unlisted company, willing to get
converted to an LLP, should apply by filing Form 18 (Application and
Statement for Conversion of a private company/unlisted company into an LLP).
As already stated, Form 18 should be filed along with Form 2 (Incorporation
Document and Subscriber‟s Statement). On registration, all assets and liabilities
of the company are transferred to the new LLP. Consequently, the company will
be dissolved and its name will be removed from the records of the ROC.
Moreover, the new LLP should mention in all its official correspondences the
fact of its conversion from a company and the name, registration number of the
company for a stipulated time of 12 months from the date of conversion. It is to
be noted that a public company does not have the option of conversion to an
LLP11. Again, there are some issues that may be unfavourable to a company
willing to get converted to an LLP. Stamp duty is payable on conversion of a
company to an LLP. An LLP will have lesser credit worthiness than a company.
Banks in the rural areas generally do not give recognition to an LLP though it is
a body corporate. An LLP does not have the benefit of raising money from the
public. In an LLP, transfer of ownership is more difficult than a company. The

10
(ibid)
11
(ibid)

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LLP agreement needs to be altered and it is to be filed with the ROC. The legal
community should consider these problems as their solutions will enhance the
attractiveness of the LLP structure12. An LLP can close its business by declaring
the LLP as defunct and by winding up of the LLP. In a situation where an LLP
intends to shut down its business or is not carrying out its operating activities
for one year or more, it may apply to the Registrar for closure of its activities
and removal of its name from the Register of LLPs. E-form 24 should be filed
by an LLP for striking off its name under the Rule 37(1)(b) of the LLP Rules.
The Registrar also has the power to strike off any defunct LLP after satisfying
himself/herself the need to strike off and has reasonable cause to take the same
action. In this case, the Registrar sends a notice depicting his/her intention to the
concerned LLP and gives the LLP one month time from the date of such notice
to make representation. The Registrar also publishes such notice or the content
of the application in the official website for public information within a time
frame of one month. If the Registrar does not receive any objection to the same,
then he/she strikes off the name of the LLP from the Register of LLPs (ibid.).
The winding up of an LLP would mean sale and disposal of the assets of the
LLP and meeting its liabilities and obligations from the proceeds. Sections 63,
64 and 65 of the LLP Act, 2008, deal with the winding up requirements of an
LLP. There are two ways of winding up, namely, voluntary winding up and
compulsory winding up. Under the voluntary winding up, the partners
themselves decide to wind up the activities of an LLP. The compulsory winding
up of an LLP is initiated by the Tribunal in the circumstances mentioned below.

1. If an LLP decides that it would be wound up by the Tribunal

2. If the number of partners of an LLP has fallen below two and this situation
has continued for more than six months
3. If an LLP is unable to meet its obligations and debts
12
(ibid)

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4. If an LLP has acted against the interest, sovereignty and integrity of the
nation, state and public order
5. If an LLP fails to file with the Registrar the Statement of Annual Accounts
and Solvency or Annual Returns for five consecutive years
6. If the Tribunal deems it fit that it is justified to wind up an LLP (ibid.)

After having a brief overview of the LLP legislation in India, it is necessary to

point out the advantages arising from this hybrid organisational structure. The
advantages are stated below.
1. Though the LLP form has been introduced in India only in 2008, it is
already a well known business structure accepted internationally and it
has gained popularity mostly in the services sector.

2. The formation and incorporation of an LLP is simpler than formation of a

company and burdened with less procedural and other requirements.

3. An LLP is a body corporate like a company and possesses separate legal

entity distinct from its partners. An LLP and its partners are distinct in the
eyes of law. An LLP is known by its own name and is not identified with
the names of its partners.
4. A registered LLP enjoys perpetual succession. Partners may come and go
but an LLP‟s existence is not disturbed until it is wound up following the
provisions of the Act.
5. Since an LLP enjoys distinct legal personality, any debt incurred by an
LLP is borne by the LLP only. Any business venture with the potential of
incurring huge debts and becoming liable and inviting lawsuits should
consider formation of an LLP. This is because the LLP gives a layer of
protection to the owners forming it.
12 | P a g e
 6. The internal management of the affairs of an LLP is based on the LLP
agreement. So the partners have the freedom and flexibility to manage
and organise their internal affairs. The LLP Act, 2008, does not impose
any mode of management on an LLP.
7. The minimum amount of contribution for an LLP is one rupee, whereas,
in case of private companies, the minimum amount of paid-up capital is
one lakh rupees.
8. Since an LLP is a body corporate, it is an artificial person in the eyes of
law. It is capable of owning its own property(ies) and funds in its name.
The partners cannot claim such property(ies) and funds in case of dispute
among themselves.
9. LLP has a separate legal entity and this artificial personality gives it the
right to sue others. Similarly, it can be sued by others as well. The
partners do not have any obligation, if an LLP is sued for dues by the
third parties.
10.In an LLP, a partner is an agent of the LLP but they are not the agents of
the other partners. This means that an individual partner can bind an LLP
by his acts in the ordinary course of business but cannot bind the other
partners. Thus, the individual partners are not liable for the acts of the
other partners and this goes a long way in protecting their interest.
11. An LLP is taxed in the same manner like that of a partnership firm. It is
not subjected to Dividend Distribution Tax (DDT) and Minimum
Alternate Tax (MAT). But provisions relating to Alternate Minimum Tax
(AMT) are applicable to an LLP from the assessment year 2012-13 only
if an LLP has claimed deduction under the Chapter VI-A (C) or under the
section 10AA of the Income Tax Act, 1961 available to a SEZ unit. An
LLP has no obligation to comply with the provisions relating to deemed
dividend under section the 2(22)(e) of the Income Tax Act, 1961.

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 Similarly, the presumptive taxation scheme under the Section 44AD of
the Income Tax Act, 1961, is not applicable to an LLP.
12.Requirements for compliance are lesser in case of an LLP than a limited
company.
13. Moreover, an LLP does not have any maximum limit to the number of
partners.

14. There are very few requirements regarding maintenance of statutory records.

15. The partners‟ personal assets are not claimed except in case of fraud. 16. A
multi-disciplinary LLP can be formed which is a boon to the professionals.

17. An LLP is exposed to less governmental interference.

18. For an LLP, a Company Secretary need not be in whole-time practice.

19. The designated partners are not under any obligation to retire by rotation.
20. There is no mandatory requirement to conduct meetings at stipulated
intervals.

21. There is no existence of specific requirements regarding related party

disclosure.

22. An auditor of an LLP is not required to retire at specific interval (ibid.).

Though this unique organisational form tries to pick and mix the best features of
the partnership form and the company form, it is not free from limitations and
drawbacks.

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The various drawbacks of the LLP form are stated below:

1. Any partner can bind the LLP through his actions in the ordinary course
of business without the association of the other partners.

2. An LLP does not have the benefit of raising money from the general
public.

3. The procedure for dissolution and winding up of an LLP is more

complicated than in case of a partnership firm.

4. For every change in the constitution of an LLP (like change in partners,

change in the profit-sharing ratio, change in the address), the initial LLP
agreement has to be modified every time.

5. An LLP does not enjoy adequate privacy because the financial statements
are required to be disclosed under the Section 34 of the LLP Act, 2008.

6. Since LLP is rather a novel idea in India, there are some grey areas and
uncertainties that require consideration of the lawmakers13. This
innovative organisational structure, with all its advantages and
disadvantages, is strikingly different from the partnership form and the
company form.

Current Scenario

13
(ibid.)

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NCLT allows merger of LLP, private companies

In what could kick off a new wave of mergers and acquisitions and open a new
frontier in the resolution space, Chennai National Company Law Tribunal has
given the green signal to merger of a Limited Liability Partnership with a
private company.

The move, experts say, sets a distinct precedent as the Companies Act, 2013 and
the LLP Act, 2008 do not contain any express provisions providing for such
cross-entity amalgamation.

The NCLT held that the intent of these legislations is to facilitate ‘ease of doing
business’ and to ‘create a desirable business atmosphere,’ and hence it would be
wrong to presume that a merger of an Indian LLP with an Indian company

“Legislative intent behind enacting both LLP 2008 and Companies Act 2013 is
to facilitate the ease of doing business and create a desirable business
atmosphere for companies and LLP,“ the bench observed, adding that for this
purpose, both the acts have provided provisions for merger or amalgamation of
two or more LLPs and companies.

The decision came in the case of amalgamation petition of Real Image LLP
with Qube Cinema Technologies Pvt. Ltd. The tribunal has given a forward
looking order and it remains to be seen what would be the tax treatment of such
an amalgamation.

16 | P a g e
“While this ruling is a welcome development, it would be good for the
government to clarify the position under the Companies Act, the LLP Act and
the I-T Act to provide certainty and clarity to the businesses,” in the absence of
any express provision granting tax neutral status under tax laws, the tax
implications of such merger need to be evaluated. “Tax payers need to exercise
caution and prepare their defence in case of any dispute and resulting litigation,
until a clear tax position emerges in case of such mergers.

“The LLP law has no enabling provision as to amalgamation with a company

and it had created an impediment for such restructuring. If this judgement holds,
it will give a new lease of planning tool to M&A professionals. However, in the
absence of clear legal provisions there could be hurdles in implementation and
the transaction could be tax inefficient”.

New LLP Rules in India: applying for DPIN14

On June 12, India’s Ministry of Corporate Affairs (MCA) notified the Limited
Liability Partnership (Amendment) Rules, 2018.

The Amendment Rules make changes to the application process to obtain a

Designated Partner Identification Number (DPIN) as well as the process to
notify changes by a designated partner.

Applying for a DPIN

14
https://www.india-briefing.com/news/limited-liability-partnership-india-dpin-17568.html/

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The Amendment Rules state that every individual applying to be a designated
partner of an existing limited liability partnership firm and obtain a DPIN must
file e-Form DIR-3 under the Companies (Appointment and Qualifications of
Directors) Rules, 2014.

Previously, the application to get a DPIN was made through Form 7. During the
application process, the system will generate a provisional DPIN which will be
valid for a period of 60 days from the date it was generated.

In case a designated partner (having already been allotted a DPIN) has to make
changes to their particulars – as submitted in the application to get the DPIN –
they must inform the federal government through Form DIR-6 within 30 days.

Limited liability partnerships in India

A limited liability partnership firm (LLP) is a cross between partnership

firms and a limited company.

An LLP is a separate legal entity than its members, which means that the
liability of members is limited to their agreed contributions.

Only in sectors where the RBI permits 100 percent foreign direct
investment (FDI) can a foreign company establish an LLP.

Under the present Indian government has eased FDI restrictions and the list of
sectors under 100 percent FDI is growing.

LLPs can buy and own property, produce revenue, and remit earnings outside of
India.

LLPs are taxed at 30 percent, and an additional surcharge of 10 percent is

applied to LLPs if total income exceeds one crore – approximately US$155,000.

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In comparison to a limited company, an LLP requires less paperwork and
minimal record keeping. An LLP also has a reputational advantage over a
partnership firm because of the additional registration involved.

Master reporting, simplification of foreign investments reporting in India

The current scenario requires Indian investee Companies, Limited Liability

Partnerships (‘LLP’) and Investment Vehicles such as AIFs/REITs/InvITs to
file an array of different forms to report foreign investments

The Reserve Bank of India (RBI) in its Monetary Policy Review held in April
2018 discussed their intention to unify the reporting structure for foreign
investments in India. There was indeed a need to integrate the various reporting
forms, a few of which were still filed in the offline mode with the Authorised
Dealer Banks e.g. forms to be filed in relation to FDI in LLP. Needless to say, a
reporting structure which would enable online reporting in a single, simple and
comprehensive form was very much desired.

The current scenario requires Indian investee Companies, Limited Liability

Partnerships (‘LLP’) and Investment Vehicles such as AIFs/REITs/InvITs to
file an array of different forms to report foreign investments. They have all now
been integrated in a ‘Single Master Form’ (‘SMF’). Even transfer of
shares/interest in Indian entities between non-residents and residents have been
clubbed in SMF.

Apart from above, what is more, interesting is RBI’s move necessitating all
entities having any foreign investment to report the same on an online portal
which shall be facilitated by RBI on its official website (‘Entity Master
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Reporting’). The window provided by the RBI for this filing has been kept short
– a period of 15 days only (from 28th June 2018 to 12th July 2018). However, the
RBI has given time to Indian entities to start preparing for this filing, by
informing about the data that is required for this ‘Entity Master Reporting.

The RBI is serious about the deadline of 12th July since entities not complying
with this requirement, shall not be allowed to receive any direct or indirect
foreign investments. Furthermore, missing the deadline will result in the entity
being non-compliant with FEMA requirements, thereby subject to penalties and
compounding requirements.

Perhaps the RBI wants the various entities who have not yet reported their
foreign investments to come clean. It is a good time for those investee
companies who got their foreign investments earlier (some 10-15 years ago),
from our NRI junta, to finally come clean this time around. This was a time
when the AD banks did not have their regulatory teams ready to educate their
constituents about the reporting requirements under FEMA.

This begs another question – would the Entity Master reporting absolve an
entity, of the years of delay in reporting the foreign investment? The answer
seems to be negative. The Indian investee entities will still have to report their
unreported foreign investments (now through the SMF) and yes, there will still
be a need to compound the delay in reporting and pay the penalties that the RBI
would direct. The RBI has nowhere suggested that this Entity Master reporting
is an amnesty scheme for defaulters.

One may wonder about how the RBI is going to use this combined digital data
and intelligence. Maybe it will help it in framing the FDI Policy – the sectors
that require impetus. But above all, this exercise will make all the foreign
investment data available in a digital format, which otherwise for the RBI to

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compile could have been a painstaking process e.g. if an Indian company had
got FDI in initial years of opening of Indian economy, the same would have to
be reported now in Entity Master Reporting once again but this time reporting
would be in digital form. The idea of creating a digital database of the foreign
investment in a country as large and varied as India, by simply creating an
online portal is a novel idea.

It remains to be seen how the entire process will pan out. Historically, most
government online portals in India have had their own teething issues initially,
which with time have been streamlined by the regulators, but with RBI giving a
window of only 15 days for the Entity Master, there does not seem to be much
room for error available with the RBI.

As India tries to digitise its reporting requirements, for the regulators to

understand trends and take decisions based on real data and information, the
introduction of both the SMF and the Entity Master, seems to be aimed at
gathering accurate foreign investment data and facilitate consistent and simple
reporting requirements.

CONCLUSION
A limited liability partnership (LLP) is a partnership in which some or all
partners (depending on the jurisdiction) have limited liabilities. It therefore can
exhibit elements of partnerships and corporations. In an LLP, each partner is
not responsible or liable for another partner's misconduct or negligence. This is
an important difference from the traditional partnership under the
UK Partnership Act 1890, in which each partner has joint and several liability.
In an LLP, some or all partners have a form of limited liability similar to that of
the shareholders of a corporation. Unlike corporate shareholders, the partners
have the right to manage the business directly. In contrast, corporate
shareholders must elect a board of directors under the laws of various state
charters. The board organizes itself (also under the laws of the various state

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charters) and hires corporate officers who then have as "corporate" individuals
the legal responsibility to manage the corporation in the corporation's best
interest. A LLP also contains a different level of tax liability from that of a
corporation. Limited liability partnerships are distinct from limited
partnerships in some countries, which may allow all LLP partners to have
limited liability, while a limited partnership may require at least one unlimited
partner and allow others to assume the role of a passive and limited liability
investor. As a result, in these countries, the LLP is more suited for businesses in
which all investors wish to take an active role in management.

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