Panel proposes key changes in limited liability partnership bill
The parliamentary panel feels entrepreneurs should have the option to choose the tax system germane to the type and size of the business.
By TNN |
NEW DELHI: The parliamentary standing committee on finance has proposed some key changes in the proposed Limited Liability Partnership (LLP) Bill, which seeks to introduce a new business structure in the country different from a joint stock company or partnership firm, but having the pluses of both.
The committee, headed by Ananth Kumar, opined that the proposed LLP Act should have a provision for vesting of property on conversion of an entity — a private company for instance — into an LLP. Such vesting of property during conversion would enable the stakeholders to avoid stamp duty.
Industry chamber FICCI has pitched for a regime in which conversion of an existing entity — a firm, a private limited company or an unlisted public company — into an LLP would not amount to “transfer of the assets” of that entity. Such asset transfers, according to state laws, could attract stamp duty. Ficci pointed out that the corresponding law in the UK allows stamp duty relief on any property transferred within the first year of conversion.
Even in India’s Companies Act, when a firm registers itself as a company, there is no conveyance or transfer of the properties. What is allowed is a statutory vesting of the properties of the firm in the company, not amounting to transfer of assets which is taxable. Calling the absence of a similar provision in the LLP Bill a “serious lacuna”, the standing committee said it could discourage conversion of existing entities into LLP.
As a hybrid form of business structure distinct from a company or partnership, LLP would not be governed by a statute, but by the contractual agreement among the partners, each partner would be liable for his own actions only, and not that of his partner. It is expected that this structure would suit professionals and small enterprises.
The committee also said other Acts of parliament such as the Advocates Act should take “statutory notice” of the legitimacy of LLP and being compatible with the LLP Act. Currently, the Advocates Act does not allow lawyers to form multi-disciplinary partnerships with other professionals, whereas the LLP structure envisages such confluence of professions.
While the laws governing other professions such as CAs, company secretaries and cost accountants have recently been amended to permit multi-disciplinary partnerships, the Advocates Act continues to bar lawyers from entering into such partnerships.
Agreeing with PHDCCI, the parliamentary committee said that there should not be any restriction on the number of LLP in which a person can become partner. However, the committee said, there should be restriction on the number of LLP in which a person can become a “designated partner” (usually companies).
Another important proposal of the parliamentary standing committee is with regard to the taxation of LLP. The committee felt that entrepreneurs should have the option to choose the tax system germane to the type and size of the business.
The question is whether income of LLP should be taxed as corporates or in the hands of the partners. The corporate affairs ministry and ICAI had earlier taken a similar stance. The Naresh Chandra Committee had favoured a tax regime for LLP wherein the partners are taxed as individuals rather than taxing the LLP itself. It remains to be seen what view the finance ministry would take.
The committee, headed by Ananth Kumar, opined that the proposed LLP Act should have a provision for vesting of property on conversion of an entity — a private company for instance — into an LLP. Such vesting of property during conversion would enable the stakeholders to avoid stamp duty.
Industry chamber FICCI has pitched for a regime in which conversion of an existing entity — a firm, a private limited company or an unlisted public company — into an LLP would not amount to “transfer of the assets” of that entity. Such asset transfers, according to state laws, could attract stamp duty. Ficci pointed out that the corresponding law in the UK allows stamp duty relief on any property transferred within the first year of conversion.
Even in India’s Companies Act, when a firm registers itself as a company, there is no conveyance or transfer of the properties. What is allowed is a statutory vesting of the properties of the firm in the company, not amounting to transfer of assets which is taxable. Calling the absence of a similar provision in the LLP Bill a “serious lacuna”, the standing committee said it could discourage conversion of existing entities into LLP.
As a hybrid form of business structure distinct from a company or partnership, LLP would not be governed by a statute, but by the contractual agreement among the partners, each partner would be liable for his own actions only, and not that of his partner. It is expected that this structure would suit professionals and small enterprises.
The committee also said other Acts of parliament such as the Advocates Act should take “statutory notice” of the legitimacy of LLP and being compatible with the LLP Act. Currently, the Advocates Act does not allow lawyers to form multi-disciplinary partnerships with other professionals, whereas the LLP structure envisages such confluence of professions.
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While the laws governing other professions such as CAs, company secretaries and cost accountants have recently been amended to permit multi-disciplinary partnerships, the Advocates Act continues to bar lawyers from entering into such partnerships.
Agreeing with PHDCCI, the parliamentary committee said that there should not be any restriction on the number of LLP in which a person can become partner. However, the committee said, there should be restriction on the number of LLP in which a person can become a “designated partner” (usually companies).
Another important proposal of the parliamentary standing committee is with regard to the taxation of LLP. The committee felt that entrepreneurs should have the option to choose the tax system germane to the type and size of the business.
The question is whether income of LLP should be taxed as corporates or in the hands of the partners. The corporate affairs ministry and ICAI had earlier taken a similar stance. The Naresh Chandra Committee had favoured a tax regime for LLP wherein the partners are taxed as individuals rather than taxing the LLP itself. It remains to be seen what view the finance ministry would take.
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