Firms bullish on LLP regime

Written by Neha Pal | New Delhi | Updated: Sep 22 2009, 09:25am hrs
The ambiguous tax regime involving conversion of companies into limited liabilty partnership (LLP) has not deterred big firms from applying for it. According to the Registrar of LLP, firms like Ernst & Young, S R Batliboi, Khaitan & Co, Prilegal & Co have so far filled Form 1, which is the name reservation form for LLP. However, the registrar is of the view that these companies are facing hurdles and have not been able to proceed further as the other two forms which include Form 2incorporation document and Form 18conversion document are not very clear.

The registrar of LLP told FE that companies have applied for conversion to LLP but they have not filled further forms for registration and conversion because the finance ministry is silent on the conversion aspect of a company into limited liabilty partnership .

With no clear-cut guidelines specified for the conversion of companies into limited liability partnership firms, the industry chambers as well as the LLP users have urged the finance ministry to provide more clarity on the taxation issue to encourage formation and conversion of LLPs.

LLP, which is a hybrid of partnership firms and companies is a separate legal entity and the partners have the advantage of being liable to the extent of their shareholding in the entity. The industry chamber, Assocham has also written to the finance ministry to give clear-cut guidelines on the conversion aspect of companies to LLP. Since limited liabilty partnership will become a very popular vehicle for carrying out various business activities in the country, all aspects of taxation measures dealing with either incorporation or conversion of existing entities into LLPs needs to be addressed fully by the finance ministry," Assocham has said.

The ministry of corporate affairs which was expecting thousands of LLPs to be registered in a year's time is now apprehensive about the response towards it. As on date, there are only 194 LLPs registered with the Registrar of LLP.

Karan Jasuja Associates which is an LLP firm is of the view that the conversion from a company to limited liabilty partnership would attract capital gain tax since the Budget does not provide for any exemption for conversion of company into LLP.