The Cabinet Committee on Economic Affairs (CCEA) on the 11^th of May 2011 approved the proposal to amend the policy on allowing Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP) firms.

This approval however comes with some restriction and will be initiated in the “open sector” where no monitoring is required. However, here too certain conditions have been laid. The following is a brief on the restrictions and condition.

1.    Sector and Activities

i.    FDI in an LLP will be permitted only in those sectors/ activities where 100% FDI is permitted and there are no FDI-linked performance related conditions.

ii.   Agricultural/plantation activity, print media or real estate business are certain areas where LLPs with FDI cannot operate

iii.  Downstream investments cannot be made by LLPs with FDI.

2.    Funding in LLP’s

i. An Indian company, having FDI, will be permitted to make downstream investment in LLPs only if both the company, as well as the LLP are operating in sectors where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance related conditions.

ii.Foreign Capital participation in the capital structure of the LLPs will be allowed only by way of cash considerations, received by inward remittance, through normal banking channels, or by debit to NRE/FCNR account of the person concerned, maintained with an authorized dealer/authorized bank; and

iii.Foreign Institutional Investors (Flls) and Foreign Venture Capital Investors (FVCIs) will not be permitted to invest in LLPs. LLPs will also not be permitted to avail External Commercial Borrowings (ECBs.)

3.     Ownership and management of LLPs

i. The designated partners in respect of LLPs with FDI, has to be a "resident in India"  and such person should fulfill the requirement for this term as set out in Section 2(v) (i) (A) & (B) of the Foreign Exchange Management Act, 1999;

ii.Only a company registered under the Companies Act can be designated partner. LLPs, trusts or any other legal entities are not permitted.

iii. Designated partners will be responsible for all compliance pertaining to these aspects and all penalties imposed on the LLP for contravention.

4.    Prior approval of the FIPB/ government is required for a Company with FDI to convert into an LLP.

Presently, FDI is allowed in Indian companies, firm or a proprietary concern, subject to certain conditions. FDI in a trust is also allowed with prior Government approval, provided it is a Venture Capital Fund (VCF).

Note 7 of Form 1 under LLP Rules, 2009 amended vide notification dated 20-01-2010 that ” in principle approval" of RBI is required for NBFC activities. As per RBI Act, 1934 trading in shares/securities is a NBFC activity irrespective of public borrowing/deposits and for these activities only company as business format is permitted. In LLP you can do this business only when RBI grants in-principle approval that it will regulate the NBFC activities of LLP after incorporation.

Once the RBI clears its stand and provides due recognition to LLPs as a corporate structure coupled with this amendment to the FDI policy and the taxing structure prescribed, LLPs will become a comfortable corporate entity for Venture Capitals to invest in.

Blog posted on 15 June 2011

Ministry has introduced Fast Track Exit mode for defunct companies under Section 560 of the Companies Act, 1956 to strike off the name from the concerned Registrar of Companies. (Applicable from 3 July 2011)

“defunct company” is the Company which has

·         nil asset and liability and

·         not commenced any business activity since incorporation or

·         not carrying over any business activity for last one year

Any defunct company which has active status or identified as dormant by the Ministry of Corporate Affairs, may apply for getting its name strike off from the Register of Companies. The Procedure for filing under FTE is as follows:

1.     Application in the Form FTE, annexed electronically on the Ministry of Corporate Affairs portal namely www.mca.gov.in accompanied by filing fee of Rs. 5,000/-

2.     If application  is not digitally signed a physical copy of the signed Form duly filled in shall be attached with the application Form at the time of its filing electronically.

3.     FTE shall be certified by Chartered Accountant in whole time practice or Company Secretary in whole time practice or Cost Accountant in whole time practice( Form 32, DIN 3 need not be filed)

4.     If applicant name is not available with database of ministry a certificate of CA/CS/ICWA certifying that applicants are present directors of the Company.

5.     Pending litigations shall be disclosed.

6.      Affidavit as per Annexure A which should be sworn by each of the existing director(s) of the Company.

7.     Indemnity Bond annexed at Annexure B to be given by every director individually or collectively, to the effect that any losses, claim and liabilities on the company, will be met in full by every director individually or collectively, even after the name of the company is struck off the register of Companies.

8.     In case of foreign nationals and NRIs, Indemnity Bond and Affidavit may be notarized as per their respective country’s law.

9.     Statement of Account annexed at Annexure C, prepared as on date not prior to more than one month preceding the date of filing of application in Form FTE duly certified by Statutory Auditor.

10.  In the case of 100% Government companies, if no Board is in existence, an officer not below the rank of Deputy Secretary may be authorized to enter his name and other details in Form FTE and in Annexure A, B and C in place of name and other details of the directors and also to sign the said documents before filing.

http://www.mca.gov.in/Ministry/pdf/Circular_36-2011_07jun2011.pdf

Blog posted on 30 June 2011

The Central Board of Direct Taxes has notified the scheme exempting salaried taxpayers with total income up to Rs.5 lakh from filing income tax return for assessment year 2011-12 (financial year 2010-2011) which will be due on July 31, 2011.

There are 5 conditions applicable for this scheme:-

1)    Employee’s are worked under one employer in the year (i.e. 2010-11)

2)    Employee must have PAN No.

3)    Employer has deducted the TDS and paid to the Govt. on behalf of employee.

4)    Employee should not have any other income and income from bank deposits up to 10,000/-

5)    Employee should have the form 16 issued by his employer.

6)    Employee has to provide the PAN number and Bank interest details to the employer and pay the entire tax by way of tax deducted at Source and obtain form 16.

Posted on 24 June 2011

It has been found that majority of Companies skip annual reporting by not submitting statutory Annual reports and audit reports and file only event based updates on the e governance database. It has been decided by the MCA that such defaulting companies who  have not filed their statutory  annual reports   ( i.e. Balance sheets and Profit and loss accounts) with Registrar of Companies, will not be allowed to file their other forms except the following ones till the Company makes good the default. The Forms which will be allowed are Form 32, Form 20 B, Form 21 A, Form DIN 3, Form 21, Form 1AA, Form 23 AC, Form 23 ACA, Forms related to Deposit of Money into IEPF and Forms related to cost audit Branch.

The Ministry has also said the key officials of the Company i.e. its Directors, its Company Secretary and also the Auditors will not be allowed to sign any document for filing with MCA after default. This arrangement is a drive to bring more discipline into the process of Compliance. In this regard the ministry has invited comments from its Regional Directors, registrar of Companies and official liquidators. Non Compliance in filing has defeated the purpose of MCA to create electronic records of the companies which are easily accessible and also a quick way to check into the creditworthiness of the Company.

18 May 2011

The Government today approved a framework for allowing foreign direct investment in Limited Liability Partnership (LLP) firms. FDI in LLP will be implemented in a calibrated manner, beginning with “open sectors” where monitoring is not required. However the Foreign Investment Promotion Board's nod is necessary for bringing in FDI in LLPs. FDI will not be allowed in LLPs that operate in agricultural/plantation activity, print media or real estate businesses. Also, LLPs cannot use the FDI to make downstream investments. The Government has also barred foreign institutional investors and foreign venture capital investors from investing in LLPs. Besides, LLPs will also not be permitted to avail themselves of external commercial borrowings.

 Blog posted on 12 May 2011.

Annual Accounts and return filing is mandatory in case if the LLPs registered/incorporated on or before 30 September 2010. Any LLPs registered/ incorporated on or after 01 October 2010 have the optional to close the financial year ending as on 31 March 2011 or 31 March 2012 and file annual return and accounts with the Registrar accordingly.

Blog posted on 11 May 2011