Limited Liability Partnership Compliances

Limited Liability Partnership is a form of business entity under which there is the limited liability of the members. The liability of each partner is limited to the extent of their contribution. In case of illegal or unauthorized action taken by any partner, it provides protection to its members.
Limited Liability Partnership is a hybrid of a company and a partnership firm which consist the positive features of company and partnership firm. It is considered as the separate legal entity having less restrictions and compliances.
Here are the following steps that need to be taken for incorporating LLP.

REGISTRATION PROCESS

• Obtain DIN (Designated Identification Number)

Every individual intends to be appointed as designated partner of a Limited Liability Partnership has to make an application to obtain Director Identification number.

• Register Digital Signature of Designated partner

Every partner that need to sign the electronic form has to acquire Digital Signature Certificate from the Certifying authority.

• Name Availability

An applicant is required to file Form-1 for the name reservation of LLP with defining the significance of the keyword in the proposed name of the company.

• Incorporation Form

For the purpose of incorporating Limited Liability Partnership Form, 2 is required to be filed with the registrar with the prescribed fees. In subscriber’s sheet, attachment details are required to be given in respect of Name of partners/ Nominees/ Witnesses. Proof of registered office is required to be attached. To become the partner in LLP, an individual is required to give consent in the prescribed format.

• LLP Agreement

LLP agreement is drafted according to the provisions of LLP Act and it is mandatory to file at the time of registration and it can also be filed within 30 days. Designated partners shall be responsible for complying with the provisions of LLP Act. This agreement shall contain information on various matters such as Name, object, registered office, net profits or losses and details of designated partners etc. For the LLP agreement, Form 3 is required to be filed.
Registration will be completed after all the formalities done and it gets approved.

Annual Compliances

After incorporation of a Limited Liability Partnership (LLP), there are certain compliances that need to be completed to ensure the smooth functioning of the LLP.
Since LLP is a separate legal entity, a proper care must be taken to ensure LLP compliances are being completed on time to avoid penalty provisions. The overall compliance requirement for an LLP is less cumbersome in comparison to the company incorporated under Companies act 2013.

Here are the following Limited Liability Partnership compliances that need to be complied with:

• LLP Agreement

After incorporation of an LLP, an agreement is required to be filed with the Ministry of Corporate Affairs within 30 days. The LLP Agreement governs the rights and duties of partners. It is mandatory for all LLPs and even in the absence of a specific LLP Agreement, an LLP Agreement must be executed, specifically excluding applicability of any or all paragraphs of Schedule I (default LLP agreement).
In case of failure of filing LLP Agreement within 30 days of incorporation, it will attract penalty of Rs.100 per day of default with no ceiling on the maximum fine. Therefore proper care must be taken to ensure that the LLP agreement is properly executed and filed within the due date.

• LLP Seal

LLP seal would be required for the opening bank account of the company and for applying for PAN.  Therefore it is required to purchase two rubber seals – round type with LLP name on incorporation of an LLP

• Letterhead

LLP stationary like letterhead, invoice and other official documents can be prepared with the LLP name and registered office of the LLP.

• PAN Application

After incorporation of a Limited Liability Partnership Procedure, PAN application (Form 49A) is required to be filed online. After submission of an application, PAN acknowledgment must be signed and sealed by a Designated Partner of the LLP and then signed application must be couriered to the NSDL office for issue of PAN card. PAN card of the LLP will be sent to the registered office address of the LLP in 10 to 20 working days.

• Open a Bank Account

As it is considered to be a corporate entity, bank account for a Limited Liability Partnership can be easily opened.
Here are the following documents of the Limited Liability Partnership must be submitted for the opening of LLP bank account:

1. Copy of the Limited Liability Partnership agreement.
2. Copy of the Incorporation document and DPIN (Designated Partner Identification Number) of the designated partners.
3. Copy of the LLP Registration Certificate issued by the ROC.
4. Copy of LLP-IN issued by the ROC.
5. Copy of the Resolution to open a bank account.
6. List of authorized person/s with the specimen signatures to operate the account duly attested by Designated Partners.
7. Copy of PAN allotment letter.

All these documents must be signed by a Designated Partner and must have the seal of the Limited Liability Partnership.

• Auditor Appointment

There is no requirement for the audit of the book of accounts of a Limited Liability Partnership unless turnover exceeds Rs.40 lakhs or capital contribution exceeds Rs.25 lakhs. Therefore there is no concept of appointment of auditor in an LLP.

• Annual Return

Each LLP is required to file the Annual Return with the Registrar of Limited Liability Partnership in Form 11 within 60 days of closure of its financial year. Its financial year close by 31st March, therefore, Annual Return is required to be filed on or before 30th May every year.

• Annual Accounts

LLP has to maintain books of accounts according to double entry system and prepare a Statement of Accounts and Solvency for every year ending 31st March. Limited Liability Partnership has to file such Accounts to the Registrar of LLP in Form 8 within 30 days from the end of 6 months of such financial year. Hence the accounts are required to be filed on or before 30th October every year.
In case annual turnover exceeds Rs.40 lakhs or whose contribution exceeds Rs.25 lakhs, shall be required to get its accounts audited by a qualified Chartered Accountant.

• Income Tax

Under Income Tax Act, LLP has to close its financial year as on 31st March every year and they have to file the returns with Income Tax Department.
In case its annual turnover is more than Rs.60 Lakhs, then the accounts are required to be audited.

LLP whose accounts are not required to be audited	31st July of every year
LLP whose accounts are subject to Audit	30th September of every year or such other date as may be notified by the Income Tax authorities.

Limited Liability Partnership Registration in India has to file the annual return within 60 days from the end of close of financial year. Statement of Account & Solvency by 30th October of the end of following fiscal year. The audit of Books & Accounts is applicable in case it crosses the annual turnover limit of Rs.40 Lac in a year.

Annual return consists following:

1. Audited Balance Sheet of the Company.
2. Audited Profit & Loss Account.
3. Confirmation of the situation of Registered Office Address.
4. Current and details of a change in the contribution of partners.
5. Detail about the changes in partners.

Original Source: https://swaritadvisors.com/learning/limited-liability-partnership-compliances/

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How Retail Lending Considered As the Best Business Model for NBFC?

What is retail lending?

Retail lending is the practice of lending money to individuals rather than organizations. Retail lending is done by banks, credit unions, and savings and loan associations. These institutions make loans for automobile purchases, home purchases, medical care, home repair, vacations, and other consumer uses.

A lender is an individual, a community group, a private group or a financial institute that makes reserves existing to another with the expectation that the funds will be repaid, in addition to any interest and/or fees, either in increments (as in a monthly mortgage payment) or as a lump sum.
Lenders may provide funds for a variety of motives, such as a mortgage, vehicle loan or small business loan. The terms of the loan specify how the loan is to be satisfied, over what period and the consequences of default.

Retail lending is the practice of lending money to persons rather than institutions Like NBFC Registration. Retail lending is done by banks, credit unions, and savings and loan associations. These institutions make loans for automobile purchases, home purchases, medical care, home repair, vacations, and other customer uses. It has taken the important role in the lending activities of banks, as the accessibility of recognition and the number of products offered for retail lending have grown. The amounts advanced through retail advancing are usually smaller than those loaned to productions. Retail lending may take the form of installment loans, which must be paid off minute by little over the course of years, or non-installment loans, which are paid off in one lump sum.

DEFINITION of ‘Retail Lender’

A lender who lends money to individuals rather than institutions. Banks, credit unions, savings and loans institutions, and mortgage bankers are all examples of retail lenders.

BREAKING DOWN ‘Retail Lender’

Some think that retail investors should have a fiduciary responsibility to the individuals that they lend to. Others believe that borrowers should be financially cultivated sufficient to make wise borrowing decisions.

It is easy to understand why Fintechs are scoring over the banks. Without the burden of regulations, the limitations created by inflexible legacy IT systems or the huge costs of bank branches, many online lenders are able to operate business models that are much more efficient and cost-effective than the traditional bank model. For example, according to this article from The Economist, a typical online lenders’ ongoing business expenses as a share of an outstanding loan balance is about 2%, compared to 5-7% for traditional lenders.

With an increase in the bad loans burdening the books of the banking sector, commercial banks once again seem to be focusing on the retail lending business.

The post-liberalization changes in banking practices included an increased emphasis on retail lending, which transited from being a risky and cumbersome business to one considered easy to implement, profitable and relatively safe. In some instances, such as housing, the income earned (rent received) or expenditure saved (stoppage of rent payment) from the investment is seen as providing a part of the wherewithal needed to service the loan.

In other areas, confidence that future incomes to be earned by the borrower would be adequate to meet interest and amortization payments provides the basis for enhanced retail lending.
In the process of financial intermediation, retail banks channel savings into loans to individuals and SMEs that finance investments in the real economy. By implication, the expected growth rate of gross domestic product (GDP) and similar measures of economic activity provide a macro constraint on the anticipated loan growth rate of the retail banking sector. At the level of a retail bank, profitable growth begins with growth in total revenue. In addition, as shown in the footnote below*, growth in interest-sensitive assets is a key determinant of a bank’s profitability. In particular, it is shown that the growth rate of net interest margins is positive if the growth rate of interest-sensitive assets is higher than the growth rate of interest-bearing liabilities. But these growth rates must be aligned to meet external and internal constraints on asset growth. For example, the growth rate of loans (for example) is constrained not only by macroeconomic activity but also by the Basel III leverage ratio and the bank board’s risk appetite statement. For example, the risk appetite statement may place limits on the loan to deposit ratio or loan concentration ratio. The latter may lead to a limit in the loan to deposit ratio or loan concentration ratio.

Original Source: https://swaritadvisors.com/learning/retail-lending-best-business-model-nbfc/

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Merger & Acquisitions

Merger and Amalgamation is a restructuring tool aiming to expand and diversify businesses for the various reasons such as to gain competitive advantage, reduce costs or availing of tax benefits.

Merger is a combination of two or more entities into one, it is not just the accumulation of assets and liabilities of the distinct entities, but an organization of entity into one business. In carrying out the whole merger or amalgamation due diligence is the essential step, to begin the process.

Provisions in relation to different types of restructuring processes as follows:

• Compromise or arrangements under section 230 & 231of the Companies Act 2013;
• Amalgamation including demergers falls within section 232 of the Companies Act, 2013;
• Amalgamation of small companies within section 233 of the Companies Act, 2013;
• Amalgamation of foreign companies under section 234 of the Companies Act, 2013.

To verify the availability of companies’ power to amalgamate clause, memorandum of association of both the companies should be examined.

In case of listed company, stock exchange of both the companies should be informed about the merger proposal.

BASIC TERMS OF MERGER & AMALGAMATION

• Merger

In this, assets and Liabilities of one company are transferred to another and the first company loses its existence.

• Amalgamation

In this, two or more companies merge into a third new company and the existing company loses their existence.

• Horizontal Merger

It is a merger occurring between companies producing similar products, goods and offering similar services.

• Vertical Merger

When two or more companies which are complementary to each other, join together.

• Conglomerate Merger

The merger between unrelated business.

• Reverse Merger

It is the opportunity for the unlisted companies to become the private limited company without opting for the initial public offer. In this process, the private company acquires the majority shares of the public company, with its own name.

• De-Merger

In this, a single business is broken into components, either to operate on their own, to be sold or to be dissolved.

• Reconstruction

Under this, there is re-organization of share capital, varying the rights of shareholders.

• Arrangement

It includes all modes of reorganizing share capital.

REASON FOR MERGER & AMALGAMATION

• Expansion and Diversification
• Optimum Economic Benefit
• Risk Strategy
• Scaling up operations for competitive advantages
• Increase the Market capitalization
• Reducing overheads for cost reduction
• Increasing the efficiencies of operations
• Tax Benefits
• Access Foreign Markets

An application is required to be the file with Tribunal (NCLT). An application shall be made by both the transfer-or and the transferee company in the form of the petition to NCLT for the purpose of sanctioning the scheme of amalgamation. In the case where more than one company is involved then an application may be filed as a joint-application at the discretion of such companies.

In a case when a registered office of the Companies is in different states then there will be two tribunals having jurisdiction hence separate petition is required to be filed.

PROCESS

For amalgamation, companies should have the power in the object clause of their Memorandum of Association. Amalgamation scheme shall be drafted for the purpose of getting it approved at the Board meeting of the company.

• Format of Application

An Application is required to be filed with the tribunal for Merger & Amalgamation and this application will be submitted in form NCLT-1 along with following documents:

1. Notice of admission in Form NCLT-2.
2. Affidavit in form NCLT-6.
3. Copy of Scheme of Compromise & Arrangement / Merger & Amalgamation.
4. Following Disclosure in form of affidavit:

• Material facts relating to the company, such as

– Latest Information related to a financial position of the company.

– Latest auditor’s report of the company

– Information related to investigation or proceedings against the company

• Reduction of the share capital of the company.

5.Consent of the secured creditors have been obtained by not less than 75% in relation to scheme of Corporate  Debt Restructuring

• Creditor’s Responsibility statement in form CAA-1.
• For the protection of secured and unsecured creditors, Safeguards.
• Auditor’s Report that the fund requirements of the company after the corporate debt restructuring is approved.
• The statement in relation to company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India.
• Valuation report by registered valuer in respect of the shares, property, and assets, whether tangible and intangible/ movable and immovable/ of the company.

6.It is required for an applicant to disclose to the tribunal, the basis on which each class of members or creditors has been identified for the purposes of approval of the scheme in the application.

• Calling for Meeting by Tribunal

On the application, Tribunal shall unless it thinks necessary to dismiss the application, will provide such directions in respect of the meeting of the creditors or class of creditors, or of the members or class of members to be called or held and conducted in such manner as prescribed.

• Fix the time and place of the meeting.
• Appoint a Chairperson and scrutinizer for the meeting and fix the term for the appointment and remuneration;
• Fix the quorum and procedure to be followed at the meeting including voting in person or by proxy or by postal ballot or by voting through electronic means.
• Determine the values of the creditors or the members, whose meeting is required to be held.
• Notice to be given of the meeting with the advertisement of such notice.
• Notice to be given to authorities required under sub-section (5) of section 230.
• The time period within which the chairperson of the meeting is required to report the result of the meeting to the Tribunal.

Such other matters as the Tribunal may deem necessary.

• Notice of Meeting

Notice of the meeting after the order of tribunal is required to be given in Form No. CAA-2. It is required to be sent to each Creditor/Member and debenture-holders at the registered address of the company.

Person authorized to send the notice

• Chairman of the Company.
• In case tribunal directs then either by the Company or its liquidator or by any other person.

Modes of Sending of notice

• Registered post, or by Speed post/ courier
• E-mail or by hand delivery
• By any other mode as directed by the tribunal

Following documents required to be sent along with notice

It is required to send a notice of meeting along with the Copy of Scheme of compromise & arrangement.

Following details of compromise & arrangement is required to be mentioned:

1. All the required details of the Tribunal’s order regarding the calling, convening and conducting of the meeting:-

• Date of the Order;
• Date, time and place of the meeting

2.Following Details of the company:

• Corporate Identification Number (CIN) / Global Location Number (GLN)
• Permanent Account Number (PAN);
• Name of the company;
• Date of incorporation;
• Type of the company (public or private or one person company);
• Registered office address of the company and e-mail address;
• Main object as per the memorandum of association.
• Details regarding the name change of the company registered office details and objects of the company during the last five years;
• Details of the stock exchange where securities of the company are listed;
• Details of the capital structure of the company such as authorized capital, issued capital, subscribed capital and paid up share capital;
• Names of the promoters and directors along with their addresses.

3.Combined Application can be made where the scheme of compromise or arrangement is related to more than one company then the details of the relationship between these companies which are parties to such scheme including holding, subsidiary or associate companies.

4. Disclosure of the effect of Merger on the interests of directors, Key Managerial Personnel (KMP) and debenture trustees.
5. Details of Board Meeting:

• Date on which the scheme was approved by the board meeting of the board of directors.
• Name of the directors voted in favor of the resolution.
• Name of the directors who voted against the resolution.
• Name of the directors who did not vote or participate in such resolution.

6.Explanatory Statement disclosing following details:

• Parties in the scheme of compromise or arrangement;
• Appointed date, effective date, share exchange ratio (if applicable);
• Summary of valuation report with the opinion of the registered valuer and the declaration that the valuation report is available for inspection at the registered office of the company;
• Capital details or details of debt restructuring;
• Rationale for the compromise or arrangement;
• Benefits of the compromise or arrangement as perceived by the Board of directors to the company, members, creditors, and others (as applicable);
• Amount due to unsecured creditors.

7.Disclosure regarding the effect of the Merger & Amalgamation on the following:

• Key Managerial Personnel;
• Directors;
• Promoters;
• Non-Promoter Members;
• Depositors;
• Creditors;
• Debenture holders;
• Deposit trustee and debenture trustee;
• Employees;
• Shareholders.

8.A report on explaining the effect of compromise on each class of shareholders, key managerial personnel, promoters and non-promoter shareholders adopted by the directors of the merging companies.

Following details required to be mentioned:

• Investigation or any proceedings pending against the company.
• Details of approvals, sanctions, and no-objection from regulatory authorities which is received or pending for the proposed scheme of compromise or arrangement.
• A statement in relation to the persons to whom the notice is sent may vote in the meeting either in person or by proxies or by voting through electronic means.
• A copy of the valuation report, if any.

9. Details of availability of documents:

Details of the following documents for inspection by the members and creditors, namely

• Latest audited financial statements of the company (including consolidated financial statements).
• Copy of the order of Tribunal in relation to which the meeting is to be convened or has been dispensed with.
• Copy of scheme of Merger & Amalgamation;
• Contracts or agreements material to the Merger & Amalgamation;
• Certificate issued by Auditor of the company in relation to accounting treatment.
• Proposed scheme of Merger & Amalgamation must be in conformity with the Accounting Standards prescribed under Section 133 of the Companies Act, 2013.
• Such other necessary information or document relevant for making the decision in favor or against the scheme.

10.Other Documents

The order made by the Tribunal for merging companies in respect of which a division is proposed, shall also be required to circulate the following:

• Drafting of the proposed terms of the scheme adopted by the directors of the merging company;
• Confirmation that a copy of the draft scheme has been filed with the Registrar of Companies;
• Valuation Report (if any).

Original Source:- https://swaritadvisors.com/learning/merger-acquisitions-in-india/

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