1. Accounting requirements :
1.1 An LLP is required to maintain prescribed books of account relating to its affairs. The accounts can be maintained on cash or accrual basis and must be according to the double entry system of accounting. The books must be sufficient to show and explain the LLP’s transaction and must be able to disclose with reasonable accuracy its financial position at any time. They must also enable the partners to ensure that the Statement of Account and Solvency prepared by them complies with all the requirements of the Act.
1.2 The books must specifically deal with the following :
(a) Details of all receipts and payments.
(b) Record of all assets and liabilities of the LLP.
(c) Statement of cost of goods purchased, stock, work-in-progress, finished goods and cost of goods sold.
(d) Such other particulars as may be decided by the partners. Thus, the partners can incorporate additional requirements.
As required under the Companies Act, the books are to be preserved for a period of 8 years.
1.3 Within a period of 6 months from the end of the financial year, the LLP shall prepare a Statement of Account and Solvency in Form 8 for the financial year ended. This Statement must be filed with the Registrar of Companies within 7 months from the end of the year to which it relates. The filing fees in relation to the same range from Rs.50 to Rs.200 depending upon the amount of contribution of the LLP. This Statement must be signed by the designated partners. This Statement contains a Statement of Assets & Liabilities (Balance Sheet) and a Statement of Income and Expenditure (P&L Account) of the LLP. The Appendix to this Statement contains various other details, such as :
(a) Details of charges created
(b) Particulars of property on which the charge is created
(c) Instruments creating charge.
2. Auditing requirements :
2.1 The accounts of the LLP are required to be audited in case :
(a) its turnover exceeds Rs.40 lakhs, or
(b) its contribution exceeds Rs.25 lakhs.
The turnover limit of Rs.40 lakhs is the same as that laid down for tax audit for a business. However, there is no distinction between an LLP which carries on a business and one which carries on a profession. The auditor must be appointed every financial year by the LLP.
2.2 The designated partners may appoint an auditor at any time for the first FY or at least 30 days prior to the end of any other FY or to fill a casual vacancy.
2.3 If the LLP Agreement so provides, the partners may remove an auditor at any point of time by following the procedure laid down therein. If the Agreement is silent on this point, then the consent of all the partners is required.
2.4 An auditor may resign or specify his unwillingness to be reappointed by giving a notice to the LLP.
3. Annual Return :
3.1 Every LLP must file an Annual Return with the RoC within 60 days of the end of its FY. The Return must be filed in Form 11 and must be signed by a designated partner.
3.2 If the LLP’s turnover is up to Rs.5 crores or it has a contribution of up to Rs.50 lakhs, then the Return must be accompanied by a certificate from a designated partner other than the one signing the Return. The certificate must state that the Return contains true and correct information.
3.3 If the LLP’s turnover exceeds Rs.5 crores or it has a contribution of more than Rs.50 lakhs, then the Return must be accompanied by a certificate from a practising Company Secretary. The certificate must state that the CS has verified the particulars from the books and records and found them to be true and correct. The filing fees in relation to the same range from Rs.50 to Rs.200 depending upon the amount of contribution of the LLP.
3.4 The Return contains the following information :
(a) Contact details of the LLP
(b) Details about the designated and other partners
(c) Particulars of penalties imposed, compounding of offences.
4. Conversion into LLP :
4.1 One of the best features of the Act is that it provides for the automatic conversion of certain entities into an LLP. Chapter X of the Act provides for the following :
(a) Conversion of a firm into an LLP
(b) Conversion of a private limited company into an LLP
(c) Conversion of an unlisted public limited company into an LLP.
This Chapter is similar to the Chapter IX of the Companies Act, 1956, under which a firm can be converted into a company.
4.2 For the purposes of effecting a conversion of any of the above entities into an LLP, certain Statements must be filed with the RoC. On receiving the documents, the RoC will register the documents and issue a certificate of registration. It may be noted that other than registering the prescribed documents with the RoC, nothing further needs to be done. One of the essential conditions for conversion into an LLP is that all the partners in the case of a firm / all the shareholders in the case of a company must become partners of the LLP.
There is no transfer and no conveyance of the assets from the firm/company to the LLP. There is no liquidation of the company by way of a court-appointed liquidation or a voluntary liquidation. Once the LLP is registered, the company is deemed to have been dissolved and removed from the records of the RoC. There is an automatic change of status of the entity from a firm/company to an LLP.
4.3 If the RoC is not satisfied about certain information, then he may refuse to register the entity as an LLP. An appeal lies against this refusal to the National Company Law Tribunal. Till such time as the Tribunal is notified, the Company Law Board would prevail in the interim.
4.4 All pending proceedings by or against the entity would continue by or against the LLP. In any agreements, deeds, contracts, bonds, instruments, etc., executed by such entity, the LLP would be sub-stituted for such entity /The LLP steps into the shoes of the firm/company. All employees of the firm/ company would continue with continuation of employment under the LLP. Thus, the employees are not worse off by reason of change in status.
4.5 Once the LLP is registered on conversion, the firm/company shall be deemed to be dissolved/ removed from the records of the RoF or RoC, as the case may be.
4.6 The LLP may have to make consequential changes in respect of documents/records standing in the name of the erstwhile firm/company. For instance, for any property registered in the name of the erstwhile company, the Record of Rights/Property Card/Index Il, etc., standing with the Sub-Registrar of Assurances would have to be amended and the LLP’s name would have to be added instead of the company’s name. It should be noted that this change is not taking place by virtue of any transfer. Hence, there should not be any liability to registration fees and/or stamp duty. It would be desirable if the Government enacts amendments to clarify this matter beyond any doubt, since often there is a gap between what is legally correct and what is practically happening.
5. Amalgamations and arrangements:
5.1 The Act contains provisions for the amalgamation, arrangement and reconstruction of LLPs. S. 60 to S. 62 deal with the same. These provisions are similar to S. 391-S. 394 of the Companies Act, but not as wide in its ambit as S. 391-S. 394. S. 60 to S. 62.
5.2 The following schemes are possible:
a) A compromise or an arrangement between an LLP and its creditors.
b) A compromise or an arrangement between an LLP and its partners.
c) A reconstruction of an LLP.
d) An amalgamation of two or more LLPs.
5.3 In order that any such scheme can be approved, a majority of 3/4th in value of the creditors/partners must at a meeting called for this purpose sanction the compromise/ arrangement/ amal-gamation. An application for the same must be made to the Company Law Tribunal. However, till such time as the CLT is notified, the High Courts would have such powers.
5.4 Every order sanctioning the scheme will be made only if the Court is satisfied that the LLP has disclosed all material facts, its latest financial position and details of any pending investigations. While passing the order, the Court would have power to supervise the carrying out of any compromise or arrangement and can also make such modifications in the scheme as it considers necessary. The order must be filed with the RoC in Form 22 within 30 days of making of the order.
5.5 The Act also provides for the merger of two or more LLPs. While passing such an order, the Court may make a provision for the following matters:
a) Transfer of the undertaking of the transferor LLP.
b) Continuation by or against the transferee LLP of any pending legal proceedings by or against the transferor LLP.
c) Dissolution without winding up of the transferor LLP. However, no order for the dissolution will be made until the Official Liquidator first submits his report that the LLP’s affairs have not been conducted in a manner prejudicial to the partners or public’s interest.
d) Provision for any person who dissents to the amalgamation.
e) Such incidental, consequential and supplemental matters as are necessary to fully carry out the amalgamation.
The above provisions also apply to any reconstruction or compromise or arrangement of an LLP.
5.6 Rule 35 of the LLP Rules, 2009 lays down the procedure to be followed in respect of any compromise, arrangement or reconstruction of LLPs. Some of the key provisions are as follows:
(a) An application calling a meeting of the creditors/members must be supported by an affidavit.
(b) The Court may call a meeting or dispense with it. At the meeting voting by proxy is permitted.
(c) The notice calling the meeting will be advertised in newspapers, if so directed.
(d) A chairman will be appointed for the meeting. He must prepare a report of the proceedings of the meeting.
(e) The report of the meeting’s Chairman and the petition must be presented to the Court.
5.7 The Rules also lay down the procedure for an arrangement for the revival and rehabilitation of an LLP. Some of the key provisions in this respect are as follows:
(a) An arrangement for revival and rehabilitation of any LLP may be proposed in the following circumstances:
(i) If the LLP has outstanding debt which it has failed to pay withn 30 days of the service of the notice of demand or has failed to secure or compound it to the reasonable satisfaction of the creditors and if its creditors representing 50% or more of such debt make a demand; or
(ii) If a petition for winding up of an LLP is pending before the Court and such directions are given by the Court.
(iii) Where the Official Liquidator has filed his report before the Court, in terms of directions given by the Court on the report of the Liquidator.
(iv) Alternatively, the LLP or any creditor or partner, or the Official Liquidator, may make an application for the sanction of the arrangement for revival and rehabilitation before the Tribunal.
(b) An application under sub-rule (12) shall be accompanied by :
(i) A statement of account and solvency of LLP for the immediately preceding financial year, in case the application is made by the LLP;
(ii) Particulars and documents relevant to the scheme including commitments expected from various parties or, proposed restructuring or rescheduling of the debts, undertaking or in case from bank or financial institution through a letter or in any other case through an affidavit of concerned party or parties;
iii) proposed scheme of revival and rehabilitation of the LLP induding a proposal for appointment of an LLP Administrator. The LLP administrator shall be appointed from a panel maintained by the Central Government for winding up and dissolution of LLPs.
c) The Court may hear all the parties concerned and admit or dismiss the application.
d) The LLP Administrator proposed in the scheme shall submit his preliminary report.
(e) On consideration of the report of the LLP Administrator, if the Court is satisfied that the creditors representing 3/4th in value have resolved that it is not possible to revive and rehabilitate the LLP, it may, within 60 days of the receipt of such report, order that winding-up be initiated or sanction the arrangement for revival and rehabilitation of LLP, induding making orders for continuation of the LLP Administrator.
f) The order of sanction of the arrangement by the Tribunal may make provisions, for all or any of the following matters:-
i) powers and functions of the LLP Administrator;
ii) the time period within which various actions proposed in the arrangement to be completed;
iii) any such direction to the LLP or its officers or to the creditors, or to the LLP Administrator or to any other person, as may be considered necessary, for the purpose of implementation of the arrangement of revival and rehabilitation; and
(iv) any other order or orders as may be considered necessary.
(g) The LLP Administrator shall complete all his actions and submit his final report before the Court within 180 days of the Court’s order.
