India: Limited Liability Partnership

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India: Formation of a Limited Liability Partnership

Every partner must contribute towards an LLP in some manner; the value of non-monetary contributions must be certified by a practising accountant. The liability of an individual partner is limited to their contribution.

There must be an LLP agreement which specifies the contributions of all members. There must be at least one 'designated member' who has responsibility for managerial and procedural aspects of the partnership. Each designated partner must obtain a DPIN (Designated Partner Identificationl Number) from the government, but an existing DIN (Director Identification Number) will do instead.

Various forms needing to be filed, including those involved during incorporation, are electronic, and at least one of the Designated Partners must therefore have a DSC (Digital Signature Certificate).

The LLP Agreement needs to be filed with the Registrar of Companies, who must also verify availability of the name of the LLP, and will issue a Certificate of Incorporation.

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India: Ongoing Formalities for a Limited Liability Partnership

An LLP must maintain annual accounts reflecting a true and fair view of its affairs. A statement of accounts and solvency must be filed with the Registrar of Companies every year.

Audit of the accounts is required only if the value of capital contributions exceeds INR25 lakhs or annual turnover exceeds INR40 lakhs.

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India: Employing Staff for a Limited Liability Partnership

Limited Liability Partnerships can hire local and foreign staff.

The Ministry of Foreign Affairs is responsible for the issuance of work permits (employment visas) under the Foreigners Act. They are normally necessary for foreigners, although people with Indian ancestry may be exempted from the need for a visa. The family members of an individual holding a work permit are also permitted to work. Indian Consulates issue work permits and visas prior to arrival.

Normally a foreigner employed by an LLP will require an Employment Visa, although if only short visits are being made a Business Visa may be sufficient.

The local Foreigners Regional Registration Office (FRRO), an agency of the Home Ministry, is responsible for registering the visas of foreigners employed by LLPs in India and for supervision of the individuals during their stay.

Registration with the police is required witin 14 days of arrival in India (which may or may not be the same as registration with the FRRO in a given region). Documents required include a registration form in quadruplicate and a registration permit booklet, copies of passport and visa, a copy of the employment contract, copies of a letter of recommendation from the parent company, six passport photos. An HIV/AIDS test result must also be filed, within 30 days.

Visas can be extended, through another set of bureaucratic procedures.

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India: Taxation of a Limited Liability Partnership

LLPs, like Indian companies, are taxed on the previous year's income. Thus, income in the 2009/2010 financial year is assessed to tax in the 2010/2011 year, at a rate of 30% plus surcharge (10%) and education 'cess', for a total of 33.99%.

Income in the 2010/2011 financial year is assessed to tax in the 2011/2012 assessment year (beginning in April 2011) at 30% plus a 7.5% surcharge plus 3% education 'cess' for a total of 33.22%.

LLPs with taxable income below INR10m are exempt from the surcharge.

The Direct Taxes Code, which may come into force in April 2012, would put in place a flat 30% rate of corporate income tax for LLPs.

The salaries and expenses of members of the LLP are allowed as deductions from income before taxation, subject to certain limits, but are taxed in the hands of the members.

Profit remaining after tax is distributed to members in proportion to their contributions or according to the LLP Agreement and is not taxed further. In this respect, the LLP has a tax advantage over the regular limited company, whose dividends are subject to withholding tax.

Corporate taxation is dealt with more fully here, and individual taxation is dealt with more fully here. Incentive schemes are dealt with here.

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