The Karnataka State Chartered Accountants Association (R), hereafter referred to as ‘KSCAA,’ represents the interests of Chartered Accountants in India. In a letter dated 5th September 2023, addressed to Smt. Nirmala Sitharaman, the Minister of Finance and Corporate Affairs of the Government of India, KSCAA seeks clarification on the admission of Indian Trusts as partners in Limited Liability Partnership (LLP) firms.
Rationale for Clarification Request:
KSCAA acknowledges the significant role played by trusts in various sectors of the Indian economy. However, there exists ambiguity in the Limited Liability Partnership Act, 2008 (‘LLP Act’) regarding whether Indian trusts, established under the Indian Trusts Act, 1882, can be admitted as partners in LLPs. While companies under the Companies Act can have trusts as shareholders, the LLP Act lacks explicit clarity on this matter.
This ambiguity has led to discussions within the Chartered Accountants community, prompting KSCAA to seek clarification from the Ministry of Corporate Affairs (MCA). Such clarification would not only benefit Chartered Accountants but also various stakeholders involved.
Trust Structure and Ownership:
KSCAA emphasizes that trusts operate under the guidance of trustees, who manage trust affairs as outlined in the trust deed. Although trustees hold legal ownership of trust assets, they do so in a fiduciary capacity for the ultimate benefit of the trust’s beneficiaries.
Clarification Request Summary:
The primary question raised by KSCAA relates to whether a trust, not registered under SEBI regulations, can be admitted as a partner in an LLP through its trustee, who may be an individual or a body corporate. To provide context, here is a summary of the current provisions of the LLP Act:
- As per Section 2(1)(q) in conjunction with Section 5 of the LLP Act, a valid partner in an LLP must be either an ‘individual’ or a ‘body corporate.’
- A previous circular from the Ministry of Corporate Affairs dated October 14, 2014, clarified that a trustee representing a trust registered with SEBI could be admitted as an LLP partner in the trustee’s name, provided that the trustee is a body corporate.
Representation Summary:
In conclusion, KSCAA, on behalf of the Chartered Accountants community and the trade and industry in the state of Karnataka, respectfully requests that a similar clarification be issued for trusts not registered under SEBI regulations. This would allow trusts to become partners in LLPs through their trustees, whether individuals or body corporates.
Conclusion: The uncertainty surrounding the admission of Indian trusts in LLPs necessitates clear guidelines from the Ministry of Corporate Affairs. KSCAA’s request seeks to provide legal clarity, promote trust participation in business ventures, and enhance the economic landscape of the country.
*****
KARNATAKA STATE CHARTERED ACCOUNTANTS ASSOCIATION (R)
To,
Smt Nirmala Sitharaman,
Minister of Finance and Corporate Affairs,
Government of India,
B Wing, 2rd Floor, Paryavaran Bhavran,
CGO Complex, Lodhi Road,
New Delhi — 110003.
Date: 5th September 2023 Respected Madam.
Subject: Clarification on Admission of Indian Trusts as Partners in Limited Liability Partnership Firms (“LLP”)
The Karnataka State Chartered Accountants Association (R) (in short ‘KSCAA’) is an association of Chartered Accountants. registered under the Karnataka Societies Registration Act, in the yoar 1957. KSCAA is primarily formed for the welfare of Chartered Accountants and represents before various regulatory authorities to resolve the professional problems faced by Chartered Accountants and the business community.
In the past, we have written to your good selves many times populating various issues, challenges and hardships being faced by taxpayers and Chartered Accountants and suggesting possible solutions on the same. Herein, we are presenting before your good selves. to seek a clarification on Admission of Indian Trusts in Limited liability Partnership Firms (“LLP”).
Rationale for Clarification Request
We are writing to seek clarification regarding the eligibility of Indian trusts, established under the Indian Trusts Act, 1882 (‘Trusts Act”), to be admitted as partners in a Limited Liability Partnership (“LLP”) incorporated under the provisions of the Limited Liability Partnership Act, 2008 (“LLP Act”). It is important to note that while a company incorporated under the Companies Act can have a trust as its shareholder, the LIP Act lacks clarity on whether a trust can be admitted as a partner in an LLP. This uncertainty has been a subject of discussion Within our association, and we believe that obtaining clarification from the Ministry of Corporate Affairs (“MCA”) would be highly beneficial to all stakeholders involved.
Trust Structure and Ownership
In the case of a trust, it is the trustee(s) who hold and manage the trusts affairs in accordance with the provisions outlined in the trust deed. The trustees are the legal owners of the trusts assets, albeit holding them in a fiduciary capacity solely for the benefit of the trust’s beneficiaries, who are the ultimate beneficial owners of these assets.
Clarification Request Summary
The clarification we seek pertains to whether a trust, which is not registered under SEBI regulations, can be admitted as a partner in an LLP through its trustee, who may be an individual or a body corporate. To provide context, we summarize the current provisions of the LLP Act as follows:
As per Section 2(1)(q) in conjunction with Section 5 of the LLP Act, a valid partner in an LLP must be either an ‘individual’ or a ‘body corporate.’
The Ministry of Corporate Affairs, Government of India, has previously issued Circular No. 37/2014 dated October 14, 2014, clarifying that a trustee representing a trust registered with the Securities and Exchange Board of India (SEBI), whether as a Real Estate Investment Trust or an Infrastructure Investment Trust, or in any other capacity, may be admitted as a partner in an LLP in the trustees’ name without the addition of the statement that it is a trustee, provided that the trustee is a body corporate.
Representation Summary:
Given the aforementioned context, we the members of Karnataka State Chartered Accountants Association, on behalf of the entire Chartered Accountants community and also on behalf of the trade and industry in the state of Karnataka appeal to your good selves to kindly consider our above request. We respectfully request that a similar clarification be issued for the admission of trusts not registered under SEBI regulations. This would enable trusts to become partners in an LLP through their trustees, whether such trustees are individuals or body corporates.
We appreciate your attention to this matter and look forward to your response.
Yours sincerely,
For Karnataka State Chartered Accountants Association (R)
| CA. Sujatha G President | CA. Sunil Bhandary Secretary | CA Babitha G Chairperson, Representation Committee |
CA. Naveen S Hegde
Chairperson, Corporate and Allied Laws Committee
👀’INDIAN TRUSTS’-Though not specified/intent made clear, the term is wide enough to cover ‘charitable trusts’- Clarity is wanting ?!
Pending clarity, if the objective is to have also such trusts admitted as partners in LLP , then , if accepted, could conceivably lead to a different but fresh type of , mainly tax related controversies !! Suggest to consider / explore in-depth, before pursuing further !?