Partnership firms, private companies and unlisted public limited
companies can look forward to convert themselves into the more flexible
form of limited liability partnerships (LLPs) without paying stamp duty
to state governments.
The government intends to allow these entities to vest the ownership of their assets with a newly-formed LLP without executing a deal to transfer these assets. As of now, transfer of assets can be done only through a conveyance or an instrument that attracts stamp duty from state governments. To remove this requirement, the government has introduced a special provision in the proposed new LLP Bill for vesting of assets on the LLP at the time of its registration.
In the absence of such a provision, state governments could exercise their constitutional right to levy stamp duty. They have the right to decide the duty rate on documents transferring or leasing real estate assets, while the central government has the right to levy stamp duty on instruments like promissory notes, letters of credit, insurance agreements and debentures, sources said. The government chose to give the easy option to firms as state-level reforms to rationalise stamp duty might take time.
The move is aimed at encouraging existing partnerships, private and unlisted public companies to adopt the more agile LLP form. Countries like UK too provide stamp duty relief on such conversions. The ministry of finance and the ministry of corporate affairs want LLP to be the most-preferred vehicle for India’s foray into the global financial services market. The expert committee on making Mumbai an international financial hub too had made a strong case for an attractive business vehicle for financial, legal and accounting services firms. Now a partner in a partnership firm –– the preferred choice of professionals –– has unlimited liability. Converting into an LLP would let them do more risky businesses without fear of losing their personal assets because of the fault or slip of another partner.
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