A hybrid corporate entity-Limited Lability Partnership

Limited Liability Partnership (LLP) is a new corporate structure introduced in India in April 2009, through the LLP Act of 2008. Aimed at small and medium sized businesses; a LLP is hybrid form
which integrates many of the benefits of limited corporations and the traditional partnership firms. In other words, it is an alternative corporate business vehicle that provides the benefits of limited liability of a company, and also allows its members the flexibility of organizing their internal management on the basis of a mutually arrived agreement, as a partnership firm. Low registration fee and easy maintenance make LLP a preferred category of entity for many of the small and medium businesses in India.

Features
Most enticing features of a LLP are:

• Simplicity and ease of formation and registration
• No prescribed minimum capital requirement for each partner
• Liability of each partner is limited to the contribution mention in agreement
• Cost of formation is limited
• Least regulatory compliances
• Separate legal entity

The minimum number of partners required to incorporate an LLP is two. There is no constraint on the maximum number of partners in LLP in India. Among the partners, there should be minimum two designated partners with proper Designated Partner Identification Numbers (DPINs), and at least one of them should be resident in India. The rights and duties of designated partners are governed by the LLP agreement.

Documents Required
To register a LLP in India, the following documents are required:

• PAN of the partners
• Address proof of the partners
• Utility bill of the proposed registered office of the LLP
• No-Objection certificate from the landlord
• A copy of rent agreement between the LLP and the landlord

PAN of the partners and their address proof are required to start the LLP formation procedure. The documents pertaining to the registered office of the LLP can be submitted after obtaining name approval for the LLP from the Registrar of Companies (ROC).

Following is step wise registration process for incorporation of Limited Liability Partnership (LLP):

Director Identification Number (DIN): Every individual intending to be appointed as designated partner of proposed limited liability partnership has to apply for allotment of DIN. Earlier partners had to apply for DPIN. Ministry of Corporate Affairs (MCA) has vide its notification amended the limited liability partnership rules, 2009. Now instead of DPIN, every partner who will be appointed as a designated partner has to apply for DIN. The application for allotment of DIN has to be made in Form DIR- 3. You have to attach the scanned copy of documents (usually Aadhaar and PAN) to the form. The form must be signed by a Chartered Accountant, Company Secretary, Cost Accountant or Advocate.

Digital Signature Certificate (DSC): Designated partner of proposed LLP, whose signatures are to be affixed on the e-forms has to obtain Digital Signature Certificate (DSC) from any authorized certifying agency. Also, they should obtain either class 2 or class 3 category of DSC. This is because all the documents for LLP are filed online and are required to be digitally signed.

You can click here & let our expert help you procure DIN.

Reservation of Name: Once two DINs are available, fill Form 1 for the reservation of name of proposed LLP. But before quoting the name in the form, it is recommended that you use the free name search facility available on MCA portal. The system will provide the list of closely resembling names of existing companies/LLPs based on the search criteria filled up. This will help you in choosing names not similar to already existing names. You need to provide six names in the order of preference in Form 1.

Once, the application for reservation of name is submitted to the MCA, it will be processed by the ROC in the State of Incorporation. The registrar will approve the name only if the name is not undesirable in the opinion of the Central Government and does not resemble any existing partnership firm or an LLP or a body corporate or a trademark.

Incorporation of LLP: Once the name approval application is accepted by the MCA and name approval letter is issued to the proposed Partners you have to apply for incorporation of the LLP through Form-2. All the details in the form must be filled correctly like – total number of partners and designated partners, amount of partner’s contribution, etc. You have to pay the prescribed registration fee based on the contribution of partners in the proposed LLP.

The form must be digitally signed by a person named in the incorporation document as a designated partner having DIN. Also, it has to be digitally signed by an advocate / Company Secretary / Chartered Accountant / Cost Accountant in practice. On the submission of the form, if the registrar is satisfied, they will register the proposed LLP. It takes 15-20 days for the registration of LLP subject to government processing time and submission of necessary documents.

File Limited Liability Partnership Agreement: LLP agreement governs the mutual rights and duties amongst the partners and also between the LLP and its partners. It has to be carefully drafted as per the rules and provisions given in the Indian LLP Act of 2008. LLP agreement must be filed in form 3 online on MCA Portal. Agreement may be conveniently submitted online to the MCA, within thirty days from the date of registration of the proposed LLP. The LLP Agreement has to be printed on stamp paper. The value of stamp paper is different for every state.

To get your business registered as a Limited Liability Partnership, please get in touch with us. Also, for assistance in setting up business in India, company formation in India, income tax return filling, bookkeeping, accounting, GST and auditing. Click here.

STPI Registration

There is a 100% tax exemption U/S 10A of the Income tax Act, 1961 with respect to the profits earned by the 100% Export Oriented Units up to 31-03-2009, registered with the software technology parks of India (STPI).

The Documents for the application to the Software Technology Parks of India (STPI) to set up a 100% Export Oriented Unit (EOU), include:
1. Application Form in the prescribed form.
2. Memorandum and Article of Association.
3. Board Resolution for setting up STP Unit and persons authorized to sign and submit the application form.
4. Resume of person heading the operation/CEO.
5. Detailed project report/ Business plan consist of:

• Company profile.
• Promoters background.
• Units Area of expertise/Services offered.
• Marketing Strategy / marketing Arrangements.
• Manpower plan.
• Future plans.
• Brief write up on the parent Company and the activities proposed to be carried out by the Indian entity. (In case foreign equity participation)
• List of Capital goods proposed to be procured from abroad and within India.
• Details of foreign collaborator (whether financial or technical)
• Copy of floor plan of the Unit certified by an architect.
• Copy of the rent agreement if any.
• Copy of invoice of the Internet service provider.

6. Financials statement like. A. Cost of project & Means of finance.

• Projected P&L A?C.
• Projected Balance Sheet.
• Projected Cash flow/fund flow statement.
• Export workings- (As per Transfer Pricing guidelines where ever applicable)
• Financials for a 5 year period projecting income from operations, Capital expenditure & cash Flows.
• Detail for aggregate foreign exchange comings & outgo for first 5 years.
• Detail for estimated numbers of employees and wage bill for first 5 years.

7. Other documents like
A. Copy of service agreement signed with parent company / clients/ PO with clients/ Master service Agreement.
B. Initial application processing fee of INR 2,500

8. Advances services charges of INR 50,000 at the time of executing the legal agreement. Service to be paid annually as per the following slabs.

Annual charges for 3 years are payable in advance. At the time of signing the Legal undertaking, the unit is needed to pay additional fees as per the turnover achieved, if the achieved turnover is more than the projected turnover. Note: Once the legal agreement has been executed then a request letter has to be sent to ht STPI for the issue of the Green Card.

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Foreign citizen – a resident Indian

In the Constitution of India, as per Income Tax Act 1961, Central Government has the power to levy tax on any income other than agricultural income. The government imposes a tax on taxable income of all persons who are individuals, Hindu Undivided Families (HUF’s), companies, firms, LLP, association of persons, body of individuals, local authority and any other artificial juridical person. Levy of tax on a person depends upon his residential status.

For tax purposes under Indian income tax law, an Individual can be: Resident or Non-Resident. Further the Resident category is classified into two parts i.e. Ordinary Resident and Not Ordinary Resident.

nri

Does taxability changes on the basis of Residential status?
Yes, Indian income tax law has different tax treatment for incomes earned by each of this category. For instance, if you fall under resident status, there will be tax on overseas salary. But, if you are a non-resident, same will be non-taxable.

With our blog, we intend to help you understand who an RNOR is and why endowed with special status.

Instance to explain RNOR

Kartik resided in India till October 08, 2010 and thereafter migrated overseas. He is doing well in the business that he set up there. He transfers money to his Non Resident External (NRE) account and Non Resident Ordinary (NRO) account regularly. He visits India on an average 70 days every year. In the FY 2017-18, he resided in India for 190 days. He had income from salary, earned from overseas and India, both; and other income which consisted of interest from bank.

Now, you might have a list of questions in mind. Let’s consider them gradually.

1. What is the residential status of Kartik?

To be a Resident for a financial year, he needs to satisfy either of the following condition:

    He is in India for 182 days or more during the financial year

OR

    He is in India for at least 365 days during the 4 years preceding that year and at least 60 days in that year

In case anyone is an Indian Citizen and leave India for employment outside of India or as a member of the crew on an Indian ship, in other words if you take up a job outside India, the 60 days minimum period will be increased to 182 days.

Being in India for 190 days in FY 2017-18, Kartik concludes to be a resident.

2. Is he an Ordinary Resident or Non-Ordinary?

To be a RNOR, you have to fulfill any of the conditions understated:

    If you have been an NRI in 9 out of 10 financial years preceding the year

OR

    You have during the 7 financial years preceding the year been in India for a period of 729 days or less

With an average of 70 days, Kartik fulfill second condition and results to be a Resident but Non Ordinary Resident.

3. Does he have to pay any tax in India?

The RNOR is endowed with special status in order to provide some benefits to returning NRIs. For Indian income tax purposes, an RNOR is treated at par with NRIs. That means an RNOR needs to pay tax only on income received or accrued in India. Any other income will not be taxed. And you can continue this status for a period of 2 years after returning back to India. However, once you have attained the status of a Resident, all of your income within and outside India will be taxable.

Here, Kartik has income from two sources: income from salary and income from other sources. Salary income earned in India is fully taxable whereas salary from oversea is non-taxable. Interestingly, income from interest on bank accounts needs to be bifurcated whether it is accrued from NRE or NRO. NRE account is a bank account for his foreign earnings and exempted from tax. Neither the balance, nor the interest earned on these accounts is taxable. NRO account is to manage the income earned in India. These incomes include rent, dividend, pension, interest, etc. Therefore, income from NRE account’s interest will not be taxable and interest from NRO account will be a part of taxable income.

4. Is he required to file an income tax return?

If an individual’s income exceeds the basic exemption limit, before deductions in the financial year then they are required to file Income Tax Return. The same rule applies on NRI as well. Therefore, Yes, Kartik needs to file an Income Tax Return if his Gross Total Income exceeds the basic exemption limit. Even if the tax payable calculated be “NIL”, then also he has to file the return.

There is a saying in Income Tax, “An Indian Citizen may not be resident Indian, but a Foreign Citizen may be resident Indian.” With this blog, we made sure that you conclude the same. Our team can assist you for kinds of tax planning, tax compliance, filling of returns, assessments and tax representations.

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