Add Corporate Governance Agreement Signature Block with airSlate SignNow

Add Corporate Governance Agreement signature block

[Music] you welcome to the webinar session on corporate governance framework for companies versus there will be and its relevance in deciding the suitable entity for one's business in today's session we are going to give you a quick overview of the key differences between a private limited company and and it will be followed by the minimum copy governance standards that they must are there to and what are the practical challenges that may arise in the process we will then discuss some of the important clauses that must find a place in there will be agreement safeguard the interest of its partners against any potential contingencies lastly we will touch upon a few other criterias under the Indian law that may help businesses decide the suitability for their business before we move on with the presentations let me just say that during the presentation please feel free to send in your questions that you may have in the chat built in available and we will try to address them as part of our presentation to the extent possible then there itself otherwise we will take those up separately at the end of our presentation and one quick clarification I also wanted to give is in today's session our focus would mainly be on the corporate governance aspects of companies and ll piece and we would not be touching upon the tax aspects of those or acts we will be conducting separate stations and sub sessions during the course of next week please feel free to join those now moving on to the topic in hand process of doing business in India can be divided into two buckets broadly one is where a business is owned by the domestic entrepreneurs or second where a foreign investor is trying to start a business in India in both cases it is important that the businesses incorporate a legal entity that could not only be the front for the business but also protect the shareholders or partners in case of LLP against the risk of unlimited liability that may arise due to any loss or failure in the business and comes the concept of limited liability or doing those businesses one way to describe limited liability is your risk is limited to your investment in other liability is a way to make sure that a person who is engaging in business does not risk his or her personal possessions in case the business fails India the most popular forms of business entities that offer limited liability protection to the shareholder company or a limited liability partnership each of these entities has its own advantages and drawbacks but both of both of these models its owner's the limited liability protection to understand further on how these entities differ from each other let me ask my colleague on Keith to take us through the differences between these two forms of legal education on Keith over to you thanks my son along good evening to everyone the company form of structure is traditional and has been there since many years but the LLP is a modern form business structure for the first time in India the year 2008 objective to provide flexibility to enterpreneurs to operate as a traditional partnership at the same time also providing are the benefits of a corporate form this type of structure has been successfully implemented in various countries so now moving forward let's go through some of the differences between a private limited company and an LLB start off with the meaning what do you mean by a private limited company mean company is an entity in which the shares are closely held by group of a group of people or by group entities well company requires minimum of two shareholders and two directors one of whom should be a resident director it also restricts or prohibits three key key aspects in the articles of association and they are restriction on a number of members is limited to 200 which excludes your current employees and employees who purse this year it also restraints a transfer of shares and it also restricts offering securities to the public moving on what do you mean by an LLP LLP is defined as partnership form and registered under the LLP Act it is an alternative corporate structure that gives the benefit of limited liability of a company and the flexibility of a partnership LLP can continue its existence even if there is change in the partners you can enter into contracts it can also hold property in its name since it enjoys the benefit of a separate legal entity moving on or we will discuss on what are the governing laws for both private limited company and lt private limited company is governed by Companies Act 2013 and the rules made there are no FEMA income tax act and any other statute depending on the business in which the Private Limited companies engaged in it on the other hand LLP is primarily governed by the LLP at two thousand eight and the rules frame there are no FEMA the Income Tax Act and any of the statute we're in the LLP where in the bill in the LLP is basically conducting his business into the third point is with relation to the liability of the entities so for a private company if there is any liability which is arising out of the operations of the private limited company then it has to be purely borne by the private company itself the liability of the shareholders is is only to the extent of the unpaid share capital unless the liability occurs due to some wrongful act or omission of the shareholder now moving on with the liabilities of directors there are several provisions in Companies Act wherein the directors are the first person to be in line to be held responsible for any defaults the directors may also occur you various liabilities under various statutes that the business that the company's Hey entered into as the directors hold feeding a fiduciary position as director hold to fiduciary positions they also become rigorously liable for the acts of the private limited company or other directors also now in case of an LLP if there is any liability arising out of the operations that is to be borne by the LLP out of the assets the partners are liable to partners are liable to the extent of the capital contribution and as for the terms mentioned in the LLP agreement in case in case the in case there is in case there is any in case in case of absence of the partnership agreement we can refer to schedule one of the LLP Act now moving forward we refer to the criteria to set up a private limited company will be a limited company requires minimum of two shareholders or two directors shareholders the shareholders can be a natural person or a body corporate but the directors are required to be an individuals one of whom should be a resident director similarly in case of an LLP LLP there are requirement of two partners and two designated partners partners can be again a natural person or a body corporate but the designated partner should be an individual and and who should be a resident now we will move on to the compliance related differences first one is the frequency of the meeting and other related compliance as you are aware private in the Companies Act there are specific sections which directs the company to hold at least four board meetings in a year and also conduct the AGM within a specified time lines it also it also prescribes certain certain provisions with or certain compliances with respect to circulation of notices draft minutes signed minutes to all the directors etc when you consider in case of an LLP it is purely governed by the LLP and there is no specific provisions in the LLP Act moving on with respect to filings with Roc as you may be aware in case of a private limited company most of the corporate actions are required to be filed with the ROC in case of an LLP there is no such requirement there are minimal filings to be done in case of an LLP point will be on the statutory auditors in case of a private company there is a mandatory requirement that the auditors are appointed for a specified time period and there are also provisions which tells you if there is any casual we can see how to deal with a situation but in case of an LLP strategy auditors are to be appointed only in case the LLP crosses certain thresholds first one being if the LLP Stern all crosses 40 lakhs and the second one would be when the cap partners contribution exits minify lakhs then only the audit of financial statements become applicable by Versova statutory auditors have to be appointed now the fourth point is difference between difference in ownership and management there is a clear distinction in case of a private limited company between who are the owners and who will be responsible to management the shareholders are the basic owners of the company whereas directors are responsible for day-to-day operations and the management of the company in case of an LLP the partners have to pay a dual road and there is no clear distinction and who will be the owner and will be handling the management is regarding additional disclosures additional disclosures in in case of a private company means the CSR spending disclosure whether SPO is applicable or not amiss to be payments operator not all such provisions are who we additionally disclose his use of a private company that is in case of LLP no such requirement is there now moving on is the dividend distribution tax point now this has gone and listen this has got amended recently as per the Finance Act 2020 earlier where the company who should declare dividend as per income tax add they had to pay division dividend distribution tax to the tune of twenty point four twenty twenty twenty odd percent and thereafter and thereafter it wouldn't be taxable in the hands of the shareholders he is often a lil but this has been done away with as per the finance a 2020 and the company is not liable to pay dividend distribution tax tax has to be borne by the recipient of the dividend on or after first happened 2020 now so so to conclude if you have to select a particular organisation structure it is it has its own advantages and disadvantages it also depends on the intent of the enterpreneur what is his objective and what is the risk-taking capacity the cost involved in it all these factors have to be considered and then then he can be set on which our structure is suitable for the business thank you and I request rush on duty for I think before we move on there are a couple of questions that have come in which may relate to some of the topics that you covered maybe would you like to answer those before we move on I think there are a series of questions that have come from the beyond and these are like one second would there be a LLP where there is only one partner that holds hundred percent shares in the profit or loss maybe if you can just answer that I mean my understanding is that you at least have to have a minimum of two partners to set up a LLP but maybe you can second that yes question your understanding is correct the LLP at TL you mentioned that there should be at least two partners and there cannot be one partner holding hundred percent off the capital there's another question from the byung itself it says that can there be a reduction of contribution of partners of the LLP if so what is the compliance for this I think my understanding here is when you say reduction of capital you mean I mean amending the LLP agreement well you are agreeing for the contribution amount to be reduced I think by by way of amending the LLP agreement that is a possibility and all the compliances in that case would have to be similar to similar to the compliance that you follow in in case where you have to amend your LLB agreement for any other reason which would require you to do that filing with the ROC along with I mean along with the information that is recommended provided is that there hi Ashish and basically when you say reduction of contribution of partners it could also be mean it will also mean that you are taking out the money that they are basically and then there are some other questions with respect to can there be ro for preemption rights with respect to transfer of capital contribution I think this is something we will cover when we will discuss some of the important clauses under the LLP agreement and then maybe some tools can take this up later will now move on now in the context of limiting ones liability it is important to understand that in order to offer limited liability or protection or to offer full protection against any any liability arising due to the actions of the company or the LLP businesses must properly conduct their affairs as well it cannot be that they have registered their entity as a private limited company or an LLP and virtue of that they are now eligible for limited liability but they keep conducting their business in a manner as if it is it is attributable to the person who is conducting this business and it could be related to that in those cases it is possible that if a claim arises and the courts may pass an adverse order and the liability could still be established in those cases and this could be done by way of lifting the corporate wheel and there is still room so that is where it becomes very important that and that of the company should be well intact and for doing that the corporate governance standards of the entity should be very robust on that note let me put a question to my colleague mall in mall once we have these entities in place be it a company or an LLP and when it commences its business how important is for a legal entity to adopt the right set of copy government standards and what are the minimum copy government standards that they must are there - under their respective laws thank you for Shawn over the eons India has seen some of the biggest ever corporate frauds and government failures such as system computers Harshad Mehta fraud Kingfisher Airlines Ranbaxy waters pnd scan with this the concerns about good corporate governance have increased remarkably even internationally there has been a great deal of debate going on for quite some time the famous Cadbury committee defined corporate governance in its report in the year 1992 as the systems where which companies are directed and controlled to understand that the spotlight is on both the large as with a small corporates as to how prudent they are in following corporate governance standards many believe that only companies with independent directors having top-level management and with large group of sheridan's needs to be concerned about or can benefit from by implementing governance practices and that all entities big or small private or public requires good governance this belief that corporate governance applies only to companies and not to any of the form of entity such as energy to my mind is incorrect the full going ahead with our discussion on the need for corporate governance we need to understand the concept of corporate governance broadly the term corporate governance describe the processes practices and structures through which an entity manages its business affairs and at the same time work towards meeting its financial operational and strategic objectives and achieving long-term sustainability the concept of corporate governance described as a set of principles rules regulations systems processes laws governing a corporation it is important operation is fair in stealing and transparent to its stakeholders at large d up governance as arising because of increasing concerns regarding the non-compliance non-disclosures standards of financial reporting and accountability followed by board of directors and their managers with personals inflicting heavy losses on the investors therefore you know let's go through a few points which showcases the importance and need for corporate governance foremost first and the foremost point is that it which ensures corporate success and economic growth it helps in forming a good brand regarding the company it lowers the capital cost there is a positive impact on the share price you know you try to run the business more ethically it minimizes corruption risk and mismanagement so Vic to the question on framework of corporate governance in companies now the Indian statutory framework has by and large been in consonance with the international best practices of corporate governance broadly speaking the corporate governance mechanism for companies in India is enumerated by certain enactments regulations guidelines listing agreement such as Companies Act and rules frame they don't you know amongst other things it contains provisions relating to composition of board including for independent directors frequency of meetings from position of various committees and their meetings accountability for disclosures evaluation and qualification process so on and so forth there are rules regulations and guidelines issued by seve which has two choice diction over listed companies to ensure protection for investors then we have listing agreement with stock exchanges then there are different accounting standards issued by the Institute of Chartered Accountants of India there are cycloidal standards issued by the Institute of Company Secretaries of India amongst all these things these regulations lays down several duties responsibilities and liabilities on directors they are required to act in the best interest of the company in the broadest sense the company also Companies Act also cost responsibility on the directors to device proper system to ensure compliance with the provisions of all applicable this doesn't restrict the compliance requirement only to the provisions of Companies Act it is also applicable to all other laws such as labor laws tax laws economic laws IT laws sector sector and business specific laws coming come into an in peas you know a question that peach and Ernie come across is whether the concept of corporate governance is only limited to companies yeah business is mainly operators either companies or LLP or sole proprietorship or partnership form each subject to different regulatory and tax regimes one of the most preferred and popular choice of entity for doing business nowadays is an LLP it's an alternative form of business organization it not only provides the benefits of a limited liability but also allows its member the flexibility of organizing that internal affairs as a partnership page one of mutually arrived agreement ease of doing business coupled with limited for partner and fewer compliances are three of the most important factors which people look at when choosing the LLP model for the business unlike a partner under the Indian Partnership Act partner and I LLP is not responsible for any independent and unauthorized act of other person an LLP individual partners are shielded from the joint liability created by another partners wrongful act and misconduct however if we see none of the regulations including the LLP act have a robust framework of corporate governance I'd like in the case of companies where there are detailed rules regulations covered under the Companies Act of sectoral standards and various regulations and circulars issued by saving of a certain district entities there is no specific standard rules or recommendations given under the end it we act or by any regulatory body when it specifically details the governance structures followed to be followed by an editing that's for better governance in elytis firstly it is advisable that even the designated partners are proven it's required for certain businesses which can be agreed in the agreement as we all know why is the compliance responsibility falls on the shoulders of a design partner decision-making power are in the hands of a partner that doesn't need to have a proper balance of power and responsibility ensure effective corporate governance secondly extra powers all rights should be given to the partners you know who have substantial contribution in the LLP for certain corporate actions we generally term it as reserved matters for example specific authority of partners holding maturity state may be required for borrowing making investments or giving guarantees or at the time of entering into any transaction with related parties you know above certain limits just like in case of companies it is important that even Ellen peaced conducting meetings periodically and maintain the recordings of such meetings and form of minutes rationale for such compliance is to spread good governance discipline and sure even LLP adopt uniform practice in convening meetings having agenda items which would be placed before the partners etc this would also help me to create records of the Machine stated and also provide addict disclosures just all in all the stake would news also certain concepts such as beneficial owner registered owner ultimate significant with beneficial owner social responsibility having certain policies and registers in place etc which are already there in the Companies Act and be extended to LPS well now understand that even MCA is looking to Amenti LLP act along the lines of Companies Act as the regulations governing LLP are less stringent in comparison to those governing companies provide scope for people to carry out certain illicit activities under the enemy's currently ll fees are not bound to comply with Accounting Standards and the ROC also does not have any power to inspect their operations thus we expect the amendments to be soon in place and prepare ourselves to welcome the corporate governance framework in our LPS one last thing that I would like to say is that the concept of corporate governance is not an end it's just a beginning towards growth of the company for long term prosperity and thank you for the detailed information on various safeguards that are there in the form of governance now with that I would now like to move on to Chandra Shekar to get his thoughts on some of the practical challenges that may arise while adhering to these corporate governance standards and what are the possible ways how those can be tackled I mean considering there are some fundamental differences between the governance framework for a company and LLP how would you say that the common core problem say pertaining to oppression mismanagement or partners dispute can be addressed in case of an LLP where there are no expressed jurisprudence available unlike in case of companies I think we have lost sunder shaker maybe by the time he comes back on we can move on to Santosh Santosh we can sort of understand from you I mean we know that in case of LLP a lot depends on how comprehensively and well drafted the LLP agreement is in that case what according to you are some of the important items that must be covered in an LLP agreement deal with future contingencies if it may come to that special everyone listen we now we know that it'll be safe form of business model which is organized in largely operates on the basis of an agreement and provides flexibility without imposing detailed in the legal procedure requirements and the Lord would depend on how comprehensively in a well-crafted LLP agreement is the business after there will be agreement is more prone to pave many more ways and inst to mismanagement oppression you cetera when the business operations so those exponentially well in the comprehending of the business and also to avoid any no like a bumpy ride all the way now I would like to come of the important clauses the must-have closing the LEP agreements from the perspective you could corporate governments so so I'm not touching upon all the standard touching upon only few clauses which are very important perspective offered governance equally unkeyed mansion distinction between an LLP and all that in a company there is a separation of ownership and management but in an LLB that is not there so here the partners of the owners and then they are the managers so Suso LLP Act does not have any specific provision which the separation of management ownership but it is very important from a good corporate governance perspective to provide for us to provide for such a separation of management and ownership it'll be a pen does and does not specifics for it so unlike in a company form of business model when the board of directors leave the role of management and shareholders and the owners will partners play the dual role of management and honest and em know sometimes it can turn out to be a vulnerable situation at time and in any point it can go beyond even though no partners so basically what is separation know what is separation of management and ownership solution is basically placing the management of the LLP under the responsibility for professionals who are not it's illness and allowing the professionals with diverse skill sets to run the business and it also enables the professionals to valuate the business book you know performance and point out years of improvement and also it ensures system you know which checks in well it's in place and you know it thunders the business it's also having separation separation of management ownership will do LLP conducting its business and it gives enough clarity enough transparency and accountability on the owners as well as the management of the LLP so moving to the second important clause which every LLP agreement should have process so basically LLP agreement should provide for political meetings the management or owners see see once in a quarter or once in AHA or a half a year and then capture those minutes of the meetings and have it signed in the records of the company because these are very special from the know from the point of evokes because in the court of law whenever there's a dispute arises these can act as a very crucial evidences and then can save the disputes you know if a in the companies that provides a detailed mechanics and out of the tolerance should Berkeley so how many times it company should pour of their initial shareholder should an annual general thing how the minutes should be captured it was a critical standards provides a detailed know process and how the meeting should be conducted and all the management design and other should be see nurse corps members attendance register should be signed and every director should attend at least one actually a talented here in a period of 12 months and all so but in but in case of alien feed this absolutely nothing indeed legislation which provides for all of this hence it becomes very crucial to provide all of this in tellin ya Greek money so that know-it-alls provides a good you know opportunity for interaction between the management and the owners to assist themselves where they are heading you know how the business is performing and then things like that so so in case of an LLP you can even provide for little presence of the main instance of the partner Saturday partners in MVP they can even meet by our video conference and they can even out of the mechanism of circular resolution for the decisions whenever know is the presence of video comm and so is not possible so so so same em success some of the significant decisions like amendment to the etiquette when signing off financial statements in admission and remove partners designated partners auditors it perches a sale of assets so some so all the significant biz and should be taken at a meeting of the partners and actually get enough clarity on all the business is conducted in and in what decisions are being taken at a meeting and that is captured and it's to be a recording can be referred in the port of love whenever there is a dispute arises so it is very important to have them be a partner and a partner moving on to the next block party transaction contraction where conflict of interest is one significant thing so whenever they LLP deals with related party transactions a sale of prospective booths of questions of whose or services so if there is any related party transaction it is very important to keep the arm's length transaction with them so that you know so there's absolutely no conflict of interest within the partners or among the stakeholders so so companies are two companies that provides a detailed provisions on how to deal with the deleted party transactions and disclosure should be made and what kind of approvals should be obtained in case of such related party transactions you know but LLP agreement does not provide for such provisions in case of if LLP wants to undertake any related party transactions ends it is the best interest of the LLP in its partners provide a detailed mechanism how Elly should undertake the related party transaction so so details could could be like what kinds of transactions can LLP undertake the related parties and what the ability and that can be defined and how the interest is when we can even define what is interest me and we can put certain thresholds on certain kind of transactions so I say because if a transaction goes beyond certain thresholds then we can say that we certain kind of approvals and we can even put restrictions on participation of interested partners in such transactions we can provide further distributions of such transaction before they commit the transaction you know being good for of pooping so these mechanics will definitely tell we know in undertaking the related party transactions and we say that the transactions at arm's length and in ordinary course of business moving on to the next one so reserved matters separation of management and holler trip it is important to ensure that certain decisions are taken only with the consent of make you know owners majority partner LLP agreement so by having it agreed stuff reserved matters buttons will have a chance to veto certain transactions if they feel you're going to be a prejudicial to date what route they will be it so most items reserved are things which which management which is not an owner which management would otherwise I'm sure speak with with reference to the fullness and so we need to strike a balance between the list of these other items so that it should not you know you know should not hang we ate a hampered in the daily management LLB so if you look at articles of associations whenever there's an investment happens the investor will always follow result matters with that it must mint is protected adequately so they go further you know enough for really see the term matters generally say that if company wants to secure their assess hoping if the loan and all if they want to borrow know and so if they want if guaranteed security or if they want being additional dividends whatever disposed assets I mean pens to the doctor documents and all so those are though significant items air investors will put in on the put them in under the under the category of reserved matters and those reserved matters has certain kind of approvals by such a kind of people have such reserved matters also the articles of association separation and the whole house then begins strike a balance we can distribute the distributive business another important it does not provide for Touring's by the ll it does not have any specific provisions in connection or any monies or weddings already and then fix making it smells extension in the in the absence of these provisions in the legislation always better to have a Blue Cross is connected with a quick enables the partners and the security adding or even heat loans investments in the most of the banks and financial institutions whenever L so a general gist for it will give very men said cross I think that you know LM which enough power and authority but he partners to honey and so me as men's security or their such a no one to the next one one of statutory audits and connect super fancy LLP react you know provides and it reappointment of it audited certain tiny like a little piece it's what he likes helllp should appoint some and it in the zoo or it ready but the basic very important chicks of balance and should have it was fifty of will be should provide pounds irrespective of the threshold so LPS importance of audit cannot state right so and a good order and actually and root level itself will help in having a detailed performing and compliance status it performs the actual genitive the confidence of a focus and then this is customer speculate sex ed and it also gives you an awkward if the partners in output still and actually it's enough respect II of this size and venture of the note is always good about mandatory appointment of an audit her in the LP so that it and one of the odds resolution is the dream and Louis and Jeanette P she contractor having very comprehensive or husband Lachi like same agreement is registered with register of companies we find all the parties to such i3n should have a expression think that spins so that can be reduced without and then when I worked expenses of touch show it's obvious rates of any form or parties come together the tension on the props wait it's always a chance the dispute so dispute resolution because actually something first today there are agreements there in region when such a user enter all the family if you do not have I think profits absence having it transition fast don't they await the path come on King which is achieved is time-consuming costly affair and also in public because will Chile helps part is a link the dispute is the party under this like partner the choo-choo responsibly is enough addition to we can even have asking yes we can do this a little bit when such my covenant 50m from the talent of mine actually and then Martin Luther morality and with legislated if it can became with these I think I would like to contribute so now I will come back again which on the shaker on the point that I was raising to him so sunny shaken so a Mullen discussed about the corporate governance framework standards for both companies and LLP and he I'll act and he highlighted the fact that while there is established in work for companies which has been set out under the Companies Act as well there are not prescribed to standards of corporate governance for Ellie fees and and it is mostly agreement driven now in light of that where there are not enough jurisprudence available with respect to LLP how do you think the the common problems pertaining to these corporate vehicles such as oppression mismanagement or disputes arising between the shareholders or the partners may be addressed in case of an LLP even the even the lack of jurisprudence of the subject with respect to a little piece maybe we will come back to this topic subsequently now we will move on to the next agenda that we had in mind we'd be touching upon certain other laws that sort of also play a role in determining as to which vehicle would be suitable for one's business and one of the important laws in in that regard is foreign exchange Management Act and this specifically concerns those LPS which have received foreign investments or which propose to receive foreign investment under foreign exchange Management Act what becomes important is that while foreign investment is allowed in an LP of 200% it is important that those lp's must be engaged only in those activity we in those activities in which 100% FDI is otherwise allowed under automatic route and there are no FDA linked performance condition it is essentially the nature of the business that would determine whether it will be can take FDI or it cannot now what is the meaning of FDI link performance conditions that that is a major roadblock when it comes to determining whether an LP can't take investments or not because sometimes it may happen that the activities are such that hundred-person FDI is allowed in that because of their being availing performance conditions they're refrained from taking any foreign investments into them these FDA link performance conditions can be interpreted to mean those conditions which derive specifically out of the FDI policy all the non debt instrument rules and the reason why we say that because these performance conditions get triggered only when you receive foreign investments and so long as there are other conditions which say are also applicable on domestic place it cannot be treated as foreign it cannot be treated as a dealing performance condition to give you an example if somebody wishes to a limited liability partnership for undertaking financial services under other financial services 100% FDI is allowed subject to other ends to the conditions that may be that may have been prescribed by the sectoral regulators now the fact that conditions that the sectoral regulator may have prescribed also be applicable on domestic players cannot be treated every link performance conditions and therefore it is kept out of the purview of it while judging on which condition can be treated as FTL in performance condition I mean one have to be mindful that those conditions must be deriving out of FDI policy all the non dead instrument rules now the other aspect that that sort of bothers a lot of investors while contemplating setting up an LLP is a valuation aspect associated with it when you win but when one plans to set up a new LLP entity there is a front valuation that is required for one to be able to set up an LLP while there is a specific exemption in that regard when one wishes to set up a company when you wish to subscribe to the shares of a company as part of the initial allotment you are not required to use any valuation certificate whereas if a contributor wants to contribute towards LLP in that case the LLP would be required to obtain a valuation certificate person to which the contribution would happen and the same would also have to be produced at the time of reporting pertaining to those contributions other aspect about LPS is borrowings that it can take now there are very limited scope of borings that LLP can take which if you compare with the company is pretty much nothing in the sense that the option of external commercial borrowing is not available to 2ll piece now on this I mean there are divided views and historically it has always been that external commercial borrowing was never allowed for LLP however in a recent amendment that would happen - I mean recent overhaul I would say that happened to ECP framework all entities that were eligible to receive FDI recognises eligible borrowers by that logic even that ll P's are also allowed to seek foreign investment they should have also be treated as Isabel born for little borrower for the purpose of ECB however it was a basically a question in the FAQ that the RBI had issued where they highlighted that aryl peas are not eligible to take ECB even though that was subsequently updated and an it was removed but the ad banks are still of the view that even today RBI is of the view that peas are not eligible to take ECB and therefore that position it continues to be so in terms of other borrowing that a company can make if you compare the same with ll peas the only option they have is to either take loan from their existing partners or to take loans from a banking company or financial institution they don't have the kind of options company have in the form of debentures or or bonds and that is another limitation that is there with respect to Eloise and comes the aspect of the restructuring challenges that are there with respect to or LLP as we know with company you have an option of merger amalgamation or d merger whereas with respect to LLP when when we talk about merger or amalgamation that is only possible with another LLP the LLP Act provides for such bodger to happen what happens when you intend to merge the LLP with another private limited company now there some time back the NC LT the the henry bench of NC LT had in its ruling sort of said that that sort of merger may also be possible however subsequently that order was overturned by n clad and it was said that the only possible way where LLP can merge with a company is when the LLP opts for registering itself as a company which is by way of conversion so if the LLP converts itself into a private limited company that's the only way for it to be merging with another private limb merging it with another private limited company otherwise in its LLP structure it may not be able to merge there was only one instance yeah there was only one instance where NC LT Chennai scheme with manumission between an LLP and a company right so it was very surprising called by the Chennai NCL team and it was appreciated by most of the industry people and all somehow NC allottee food that it is not the right of the text of the law or something at present and they said they did actually write a report on the decision of the NCL and that's only that's only it's done so today now the next point we have in terms of the legal differentiation between LPS and companies is with respect to raising capital now as I said the only form of capital that's available to to an LLP other than the contribution is when it receives loan from its partners or from a bank of financial institutions when it comes to raising capital from public at large they're also nlp-1 it is it cannot go public because of the limitations of allowing only 20 partners who could make contributions to it and therefore if again it has to raise capital from a larger section of investors then it will again have to convert itself and then for a public a public company a public limited company structure and then accordingly either follow the IPO route of raising capital or any other form of raising capital which is available to a company that in a nutshell even though LLP is a nascent structure and and it has has been evolving pretty well but if you compare it with a company structure there are so many other options that you have that the company which sort of is lacking with with LLP the question that arises is when is LLP a suitable structure for you or when is company a suitable structure free a lot of it depends on what your business objectives are if you are if you are in a small-scale business and you don't have clarity on in terms of how where you going to be in the next five years it is always an option that you would start with an LLP structure where you have limited compliance you have limited options as well given that you don't have the clarity in terms of how you would want to go ahead with your business and so that should be acceptable in those scenarios and then depending upon how you evolve over the course of next few years you always have an option to convert it into a private limited company and then continue it thereafter but then if you are what are the reasons in a business where it may not be feasible for you to have our LLP structure in that case it is always best that you start with a very limited coupley structure with that I think some the shaker are you one okay so we'll come back to the question that we were trying to ask you is that and I think we have very limited time so you will probably have to like wrap it up II this question basically pertained to how there is lack of jurisprudence in terms of what could be the corporate governance standards for LLP s and in light of that how do you suggest that some of the proper challenges pertaining to operation mismanagement or or dispute between the partners may be addressed in case of an LLP yeah so quickly to discuss about couple of practical challenges which there will be exposed to in the absence of any strong corporate governance framework unless the partner LLP choose to have a robust or competence will be agreement to put in place all the standard simple to manage every aspects of deserves the standard LLP the scarrans iai could be applicable which is not a comprehensive document and therefore it fails to provide practical guidance on any eventualities and it could sometimes also mislead the partners then point number two unlike a company the olympians not on legally require a will be strictly is not legally required to comply its compact in specific acquirements with respect to conducting periodic meetings of partner disclosure pole requirements for signing in either a part transactions there are no strict process to follow in terms of granting loans guarantee a securities so in the absence of these standards then standards may be adopted by the partners of a element only they wish to follow them on a voluntary basis but it's not something strictly required as far as it is concerned so while this approach of LP act gives more flexibility practically in many cases the partners not preferred to or of those standards and end up signing a week or a standard LP agreement due to which the governance will be costly compromised so having said that in order to keep the roots of transparency in governance intact these times could should ideally be incorporated into a agreement so my some time ago my colleague Santosh has explained couple of mechanisms to be put in the agreement so as to avoid any sort of conflict of interest and ensure that there are proper checks and balances in terms of competence of LLP now if you talk about our tree comments also gender LP is not required to undergo any internal secretory cost audits even in case of started it only few of the LPS are covered they're not all the LPS but well in case of company almost all the companies are covered under start audit and internal cost Hertz cost audits and secretary also optical for most of the companies whenever they exceed any thresholds so in the absence of any independent check on financial dealings of LLP it will be fails to get a better access to funding from banks and financial institutions when it comes to as compared to a company also and comes to charges right creation of chargers and the LP ID it's not a manual requirement to create the chapel's so which is again a it's not it's not disabled as far as you know when you're raising a secured loan for banks of Konishi institutions now if you talk about other remedies which are available generally in case of a company like operation mismanagement you know there is a drill mechanism for operation in this management whereas in case of a company there are no elaborate framework in the absence of any such mechanisms in the LP it could be higher cases of mismanagement of affairs or operation of minority interest and in such case there is no legal remedy available for minority partners except putting the form itself now if we talk about other challenges in the absence of a strong framework of you know governance in LP the partners are generally prone to mismanagement of affairs irresponsibility lack or this approach conflict of interest issues and also internal disputes lastly in case of 50 5050 it will be structure right wherein both the part of our partners fold equals taken drives and in such cases and this there is a comprehensive and carefully drafted will be agreement in place such lp's are more prone to deadlock situations on account or difference of views among the partners or any aspects having no clarity on roles and responsibilities of each partners and things like that so common issues which would broadly arise when the corporate donors get compromised no firm or conflict of interest issues in terms of oversight accountability transparency and violation of ethics one last point to find I'll wind up so one is comparatively also LLP structure got a legal recognition in India only 2009 it's relatively a newer concept and even after a decade of its existence I would say it's it's still at an essence in India there are hardly any patent cases or judgments in India which can give a guy - on various aspects of ilk restructure especially in cases of disputes among partners operation mismanagement production of interest of partners so like whereas on the other hand he has a company's business model has been in existence since many decades this is a well established jurisprudence processes and procedures procedures established in India which use a lot of confidence and guidance for entrepreneurs to run a business model in form of companies now question would arise whether LP can be structured in a way to increase the corporate governance like in case of a company well the resists although it will be lacks governance related regressions nailed the act it is possible to increase the governance by providing the detail mechanism in DES it will pay agreement itself so my colleague all cetaceans already touched upon those areas and he has explained briefly what are the key mechanisms to be provided in the LLP agreement so with this water your passion thank you thank you to the shaker anyway out of time and I really want to apologize for not being able to answer to a lot of questions that have actually come in in the chat box while we have been trying our best to respond to most of them in in the chat box itself the ones that we have not been able to address we will try and n respond to you by by by responding to those on your respective email ids before we end our session there's one last question that I wanted to take this is a question from rimmel and we will ask us that there were some confusion with respect to sectors / objects example manufacturing for which the LLP can be incorporated or not so now with respect to this part yes there was a circular that was issued by MCA that LNP structures should not be acceptable for manufacturing purposes but then soon thereafter after a lot of parties made representation to MCA with respect to that they had I mean recall that office memorandum that they had issued so now the position on that is clear that the LPS can also be set up for manufacturing purposes and the second part of your question is trust all sectors where FDI is allowed in company it is also allowed in our LLP or there are a specific consideration with respect to FDA so with respect to that as I said I mean so long as hundred-person MPI is allowed in in those sectors or activities of 200 percent and there are no other ltalian performance condition then LLP is good to make I mean a LLP is good to carry on those activities and then also receive foreign investments or the purpose of that business I think with that we will now conclude our session [Music]