Holding-Subsidiary

FoxMandal Little


India: Holding And Subsidiary Company Regulations - A Complicated Matrix




Article by D. K. Prahlada Rao 
 


1. Introduction


Section 4 of the Companies Act, 1956 (the Act) prescribes dual test and conceptually defines the Holding-Subsidiary company relationship. This is a special provision extending the provisions of the Act to intra-company relationships. Two significant factors which determine the relationships are control and ownership. The business conduct of such companies are regulated in certain respects and the effect of such regulations will result in treating another company as a Subsidiary of the Holding company. With the result, the provisions of the Act applicable to a public company will also apply to the subsidiary private company. However, the character of private remains unchanged..




2. Board Control


The most common form of control in the case of bodies corporate is controlling the composition of the Board without being a member of the company. This may happen by direct control of the Board or through one or more Subsidiaries. Be that as it may, the Board occupies a pre-eminent position in the corporate hierarchy from the point of the view of enormous power it exercises and control it secures over the management of another company. It is not merely an economic unit but a power house. Considering these and other factors, the Act rightly recognizes the structure of the Board as a manifestation of its inherent strength and standing in the corporate structure.




3. Section 4 of the Act

The composition of Board of a company is deemed to have been controlled, by another company if, but only if, that other company, without the consent or concurrence of any other person, can appoint or remove the holders of all or majority of the directors by virtue of exercise of some power exercisable by it, at its discretion. Further, the other company shall be deemed to have such a power of appointment
if the person thereto cannot be appointed without the exercise of the said power in his favor by the other company
that a person's appointment thereto follow necessarily from his appointment as director or manager or to any other office or employment in that other company or
that the director-ship is held by an individual nominated by that other company or a Subsidiary thereof.

This is the sum and substance of sub-section (2) of section 4 of the Act. If the conditions specified in the said sub-section are satisfied, then the first mentioned company is deemed to be Subsidiary of the other company by virtue of Board control.




4. Holding & Subsidiary Company Relationship





The manner of securing Board control is not envisaged as it is a matter relating to business practice. However, this is possible if the Articles of Subsidiary company specifically provide for a power to the other company to nominate all or majority of directors on the board of first mentioned company. The moot question is, can the Articles provide for such a provision if the other company does not hold all or majority of shares.

However, there can be an arrangement between the lender and borrower companies as part of financing under which the lender may nominate all or majority of directors with or without a specific provision in the Articles for the purpose of ensuring proper utilization of funds. This is possibly one of the reasons why section 4 provides for Board control as a means of creating Holding & Subsidiary company relationship. The immediate effect of such an arrangement is that lending company becomes a Holding company by virtue of section 4 of the Act.




5. Examination of Section 4 in relation to Section 255



Another dimension relates to the validity of section 4 vis-a-vis section 255 of the Act which deals with appointment and retirement of directors by rotation. At least two-thirds of the total number of directors of a Public Company or a Subsidiary Private Company should be persons whose period of office is liable to retire by rotation. However, Section 255(1)(b) saves the arrangement in section 4 of the Act. With the result, prima facie, there is no conflict between section 4 and section 255 of the Act.


Does this mean that the directors appointed by virtue of section 4 are not liable to retire by rotation, more so in the case a public company or Private Subsidiary Company?

While sub-section 255(1) (b) saves the arrangement envisaged in section 4 by using the words "save as otherwise expressly provided in this Act", section 255(1)(a) provides that not less that two-thirds of total number of directors shall be persons whose period of office are liable to retire by rotation. This is a mandatory provision.




6. Case law on the subject;


There is an interesting case on the above subject. In the case of Oriental Industrial Investment Corporation of India vs Union of India (1981)51 Com Cases 487(Del), the effect of section 4 in relation to sections 255,256 and 257 came up for consideration. The facts of the case is that by an agreement dated August 19, 1975 between Oriental Limited and Poonam Hotels, Oriental was given full and absolute power to appoint five directors on the board of directors of Poonam Hotels. This gave power to Oriental to appoint majority of directors on the board of Poonam Hotels with power to remove such directors and to appoint another in his place. Poonam also amended its Articles suitably and Oriental appointed five of its directors on the board of Poonam Hotels. This brought about holding and subsidiary relationship in terms of section 4 of the Act. Thereafter Oriental acquired 88% percent shares of Poonam Hotels in two tranches. Oriental made an application to the DCA for extending the financial year of its Subsidiary to bring it in line with its accounting year for complying with section 212 of the Act. The Department rejected the application on the ground that Article included by Poonam conferring authority on Oriental to appoint majority of directors is violative of sections 255,256 and 257of the Act and treated it as void as per section 9 of the Act and consequently Poonam cannot be treated as Subsidiary company. Request of Oriental for reconsideration did not evoke positive response and the Department reiterated its stand whereupon Oriental filed a writ in the High Court of Delhi.




7. Decision of Delhi High Court


The High Court observed, inter alia, that the contention of the counsel for the Union of India that "the control of Oriental over the composition of the Board of Poonam Hotels which they exercise by virtue of their agreement dated August, 1975 is in contravention of the provisions of Sections 255,256 and 257 of the Act overlooks the important fact that section 255 excludes from its purview cases which have been otherwise expressly provided in the Act. The words "save as otherwise expressly provided in this Act" used in section 255(1)(b) are of commanding significance. Section 4(2) is an express provision for the appointment of the directors on the Board of Subsidiary. This provision is not hit by Section 255 because it is expressly excluded."

The High Court also observed that "there is no denying the fact that the right of the members of a public company to appoint directors of their choice at a general meeting is greatly abridged when there comes into being a relationship of a Holding and Subsidiary Company. But this restriction inheres in the definition of the Holding Company. It is firmly embedded in section 4 of the Act. The ability to control the conduct of the Subsidiary is the hall-mark of the Holding Company. The Holding Company is the controlling company. The controlled company is called a Subsidiary."




8. Revised clarification by DCA


Following the Judgment of the Delhi High Court, the Department of Company Affairs (DCA) issued a clarification modifying their earlier views on the above matter which is reproduced below;-

"Department views";- The Department has issued a circular 14\74 dated 28-8-1974 to the effect that the Articles of a company which confer upon another company the right to make provisions for appointment of director upon another company with a view to make the company a subsidiary is invalid under section 9 of the Companies Act. On a combined reading of the provisions of sections 255, 256 and 257 and because section 257 is a mandatory provision, this view does not seem to be well founded. The appointments made pursuant to an arrangement whether by the Articles or by an agreement is not invalid merely because any shareholder may seek election at an annual general meeting. Section 257 only deals with the right of a person other than a retiring director to stand for election at the annual general meeting. The agreement or Article of a company, in so far as it or they invest a company with the status of holding company in relation to the company of which the board is controlled cannot be said to be inconsistent with section 257 which comes into operation only when elections are to be held at the annual general meeting.

It follows from the above that a public company is not required to comply with the requirements of sections 255 to 257, if it is a Holding Company having the right to appoint majority of directors on the Board of the Subsidiary company pursuant to section 4 of the Act.




9. Shareholding Control- Direct ;


This is the second method by which Holding & Subsidiary company relationship can be established. This is possible if one company holds more than half in nominal value of equity capital of another company as per section 4(1)(b)(ii) of the Act. This is a case of direct investment and indicates the financial interest and stake of the Holding Company in its Subsidiary. This is however subject to sub-section 4 (3) of the Act which seeks to exclude certain shareholdings for the purpose of reckoning half the nominal value of equity shares aforesaid.

They are;-
any shares held or power exercisable by that other company in fiduciary capacity is considered as having not been held or exercisable by it. What is referred to is the equity shares carrying voting rights. Fiduciary capacity creates a relationship under which one owes to another the duties of good faith, trust and confidence. It is a company to company relationship;
any shares held by a nominee of that company, except as a fiduciary is considered as having been held by that company;
any shares held by a nominee for a Subsidiary of that company, not being a Subsidiary connected as a fiduciary is considered as having been held by that company;
any shares held or power exercisable by any person as security for the debentures of the first mentioned company or of a trust deed for securing any issue of debentures is to be disregarded;
any shares held or power exercisable by or by a nominee for that other or its Subsidiary shall be treated as not being held or exercisable by that other ,if such holding or power is by way of security only for the transaction of lending in the ordinary course of business.




10. Indirect Control


This is envisaged in section 4(1)(c) of the Act as third type of relationship applicable mainly in the case of group companies. A Subsidiary of a Subsidiary becomes a Subsidiary o f the ultimate Holding Company. This may be second or third generation Subsidiary by virtue of management or shareholding control and the linkage is endless.

Another distinctive feature can be seen in sub-section (5) of the Act. For the purpose of section 4, the expression "company" is defined to include any body corporate, whereas for other provisions of the Act, "body corporate or corporation" includes a company incorporated outside India as defined in section 2(7) of the Act.




11. Extension of the Principle of Control.


Sub-section (6) seeks to extend the principle of control in the case of a body corporate incorporated in a country outside India, a Subsidiary or Holding Company of such a company shall be deemed as Subsidiary or Holding Company of the body corporate within the meaning and for the purposes of Indian law, whether the requirements of section 4 are fulfilled or not. In this case, the same status is accorded under the Indian law to a body corporate as in the country of its incorporation in relation to its Holding or Subsidiary relationship. Here the shareholding control or management control discussed above are not relevant.




12. An Indian Private Company as Subsidiary of foreign body corporate


Sub-section (7) of section 4 provides for a deeming provision. The intention is to place a Private Company registered in India which is a Subsidiary of a foreign company on par with a Private Company which is a Subsidiary of Public Company registered in India. To achieve this purpose, sub-section (7) provides that a Private Company which is a Subsidiary of the company incorporated outside India, which if incorporated in India would be a Public Company within the meaning of the Act shall be deemed as Subsidiary of a Public company, provided that the entire share capital in that Private Company is not held by the body corporate, whether alone or together with one or more bodies corporate incorporated outside India. This provision is based on the recommendation o f the Joint Company Law Committee as it considered unnecessary to treat an Indian Private Company, the entire share capital of which is held by one or more bodies corporate incorporated outside India as a Private Company which is a Subsidiary of a Public Company for the purposes of the Act.

A close look at the provision indicates that the exemption is based on a similar position as in the case of private company whose entire share capital is held by one or more companies and none of them hold 51% or more of share capital o f the private company. Even if all these companies are public companies, the private company continues to be a private company, particularly in the context of deletion section 43A of the Act from the statute book.

Needless to say that a private company whose entire capital is held by one or more bodies corporate, whether incorporated in India or outside stands on a different footing, as such holding amounts to indirect public holding. Such companies have to have greater degree of accountability and transparency in their operations for the benefit of their shareholders. It is therefore necessary that legal framework to address this requirement should be in place.




13. Conclusion


A look at the path we have traversed indicates that what started as direct or indirect control, be it shareholding or otherwise has inevitably resulted in having to rope in Subsidiary Companies being increasingly set up by foreign companies. That these companies should, no doubt, be brought within the regulatory provisions as applicable to Indian companies but the matrix of Holding-Subsidiary Company relationship has become more complex and complicated. This appears to be inevitable in the context of globalisation of Indian economy and increasing flow of foreign exchange into our country through Foreign Direct Investment (FDI) in joint ventures or Subsidiary companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

NGO Formation

This is reproduction of the mail i received from very famous corporate guru and motivational expert Mr.Shiv Kedia

NGO Formation

A Non Governmental Organization is perceived to be an association of persons or a body of individuals. An association of persons with non-profit motive may be registered under any of the following Indian Acts:

As a Charitable Trust

As a Society registered under the Societies Registration Act

As a Company licensed under section 25 of the Companies Act

Procedures of Formation:

Trust: "Trust" is defined as an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him for the benefit of another, or of another and the owner.

A Trust may be created by any language sufficient to know the intention and no technical words are necessary. A trust deed, generally, incorporates the following:

i. The name(s) of the author(s)/settlor(s) of the trust;

ii. The name(s) of the trustee(s);

iii. The name(s) if any, of the beneficiary/ies or whether it shall be the public at large;

iv. The name by which the trust shall be known;

v. The name where its principal and/or other offices shall be situate;

vi. The property that shall devolve upon the trustee(s) under the trust for the benefit of the beneficiary/ies;

vii. An intention to divest the trust property upon the trustee(s);

viii. The objects of the trust;

ix. The procedure for appointment, removal or replacement of a trustee. Their rights, duties and powers etc;

x. The rights and duties of the beneficiary/ies;

xi. The mode and method of determination of the trust.

A charitable trust is not required to obtain registration under the Indian Registration Act.

Society: A society may be defined as a company or an association of persons united together by mutual consent to deliberate, determine and act jointly for same common purpose. Minimum seven persons, eligible to enter into a contract, can form society. When an NGO is constituted as a society, it is required to be registered under the Societies Registration Act, 1860.

The chief advantage of forming a society are that it gives a corporate appearance to the organization, and provides greater flexibility as it is easier to amend the memorandum and bye laws of the society than in case of trust, terms of which are strictly manifested in the trust deed. However, formation of a society requires more procedural formalities than in case of a trust.

A Society for its inception requires:-

I. Memorandum of Association, and

II. Rules and Regulations

For the purpose of registration, following documents are required to be filed with the registrar of Societies:

a) Covering letter requesting for registration stating in the body of the letter various documents annexed to it. The letter is to be signed by all the subscribers to the memorandum or by a person duly authorised by all of them to sign on their behalf.

b) Memorandum of Association, in duplicate neatly typed and pages serially numbered.

c) Rules and Regulations/Bye-Laws, in duplicate, certified by at least three members of the governing body.

d) An affidavit of the president/Secretary of the society, on a non-judicial stamp paper of prescribed value, stating the relationship between the subscribers, duly attested by an oath commissioner, notary public or 1st class magistrate.

e) Documentary proof such as house tax receipt, rent receipt in respect of premises shown as registered office of the society or no objection certificate from the landlord of the premises.

f) An authority duly signed by all members of the managing committee.

g) A declaration by the members of the managing committee that the funds of the society shall be used only for the purpose of furthering the aims and objects of the society.

Company: Under Section 25 of the company's act, an association formed or to be formed:

a) For the purposes of promoting commerce, art, science, religion, charity to any other useful object

b) With intention to apply its profits or other income for promoting its objects, and 

c) Which prohibits payment of any dividend to its members,

Is permitted to be incorporated without addition of the word "Limited" or "Private Limited". Procedure for applying is same as applicable in the case of all companies.

If the registrar is satisfied that all formalities have been complied with, he will issue a certificate of incorporation from which date the company comes into existence.

Note: An association already registered as a company, may also apply for a licence u/s 25.

INCOME TAX EXEMPTION FOR NGO

TRUSTS:

Under section 11(1)(a) to (c), income derived from property held under trust is exempt if the following conditions are satisfied:

a) The property should be held under trust wholly for charitable or religious purposes.

b) Income from such property should be applied to charitable or religious purposes. (Exemption is available to the extent of such application)

c) Income should be applied in India

d) At least 85% of the income derived from property held under trust, should be applied to charitable or religious purposes in the relevant previous year in order to claim full tax exemption.

Note :

The assessee is to apply for registration in Form No. 10A in duplicate before the expiry of 1 year from the creation of trust.

Under Section 11(4) property held under trust includes a business undertaking held under trust.

Any voluntary contribution received by a trust or institution is exempt if (a) the trust is created wholly for charitable purposes and (b) contribution is not made with a specific direction that it shall form part of the corpus of the trust.

SOCIETY:

Societies are taxable in the status of AOP and different rates of tax are applicable to the income of an AOP in different circumstances:

A. Individual shares of members in AOP are not determinate:

i. Where the total income of any member of the AOP is taxable at a rate higher than the maximum marginal rate-Rate of tax is such higher rate. 

ii. Otherwise-30% 

B. Individual shares of members in AOP are determinate:

i. If total income of any member is not higher than Rs 50000/- (excluding share from AOP) and no member is taxable higher than 30%- Rate of tax on total income of AOP is the rate applicable to individuals. 

ii. If total income of any member is higher than Rs 50000/- (excluding share from AOP) and no member is taxable higher than 30%- Rate of tax is 30% 

iii. If any member is taxed higher than 30%, then (a) Tax on the portion of total income of AOP that is relatable to the share of such member is levied at such rate higher than the 30%, (b) tax on the balance total income will be 30%. 

TAX EXEMPTION FOR NOTIFIED CHARITABLE SOCIETIES U/s 10(23C) (iv) and (v)

Any income of any institution established for charitable purposes is exempt. For getting exemption under these clauses, following requirement must be completed:

i. Making an application in Form No. 56 

ii. Applying its income or accumulating it for application, wholly & exclusively to its objects;

iii. Notice of accumulation u/s 11(2) will have to be given to the assessing officer in Form No. 10

Operational Requirements For A Society

An annual list of members of the management committee shall be filed to Registrar of society within 30 days of the AGM. However if no AGM is held for any reason as per society Registration Act 1860, section whatsoever, than an annual list of members of the managing Committee as on 31st December each year shall be submitted to the office of the Registrar of societies. Non submission of the list attracts a financial liability of Rs.50/- for the list of each year

Once in every year a list of the office bearers and members of the Governing Body shall be filled with the Register of Societies, N.C.T of Delhi as required under Section 4 of The Societies Registration Act 1860 and applicable to the National Territory of Delhi.

Minutes

A : Governing Body Meetings

There shall be minimum four meetings of the Governing Body each calendar year, i.e. one meeting in every three calendar months.

B : Annual General Meetings

There shall be minimum one Annual General Meeting (AGM) of all the Members of the Society every year. 

The AGM can be held at any time between April 1 to December 31 after the end of the financial year each year.

1 - Adoption of Annual Accounts.

2 - Admission/Resignation/ other matters of the members of the society.

3 - Investment of funds of the society.

4 - IAppointment of the members of Governing Body on every expiry of its tenure

C : Extra Ordinary Annual General Meetings

For any urgent or emergent matter like Admission/Resignation/Death of the Member / Change of Name/change of address /change of objectives /change of Rules & Regulation or any other major issue of the society.

Notice & Quorum

A Governing Body Notice

Minimum 10 days clear notice or as per Rules & Regulation of the society and the quorum shall be 1/3rd members of the Governing Body or as per Rules & Regulation.

B :Annual General Meetings

Minimum 21 days clear notice or as per Rules & Regulation of the society and the quorum shall be 3/5th members of the General Body or as per Rules & Regulation.

C :Extra Ordinary Annual General Meetings

Minimum 10 days clear notice or as per Rules & Regulation of the society and the quorum shall be 3/5th members of the Governing Body or as per Rules & Regulation.

Register Of Members

The Society shall maintain at its registered office a register or its members and shall enter therein the following particulars:

1 - IThe names & addresses of the members.

2 - IThe date on which the member was admitted.

3 - IThe date on which a member ceased to be a member.

4 - IParticulars of Admission fees received.

5 - IParticulars of Annual Subscription received.

6 - IAny other information required from time to time.

Election

The General Body in its meeting shall elect all the office bearers after Five years or as per Rules & Regulation of the society by show or by secret ballot papers as required. The Quorum of the General Body shall be 2/3rd members of the Governing Body present or as per Rules & Regulation of the society.

Admission To Membership Of The Society:

A member shall fill the membership form to become a member of the society. The Membership shall be initially dealt with in 2 meetings of the Management Committee, One accepting it and the second confirming it, all the members of the society added/left during the year are to be discussed in the AGM also. A Register of member of the society has also to be maintained.

Calender Year:

The financial year of the Society shall start from the 1st day of April and end on the 31st day of March in the following year.

Financial Year

The accounts of the Society shall be audited at least once in a year by a qualified firm of Chartered Accountant appointed by the Governing Body.

Amendment

Any amendment in the Memorandum of Association and rules and regulation will be carried out in accordance with the section 12 & 12A of the Societies of Registration Act, 1860, as applicable to the National Capital Territory of Delhi.

Documents for amendments

Amended Copy of MOA & R.R of the Society in duplicate.

Copies of Special Resolution in duplicate (General Body).

Copies of Notice in duplicate.

Copies of Minute of Society Governing Body).

List of Governing Body. f. Copy of Comparative List of Amendment.

Copy of Election proceedings with Notice. h. Proof of Notice received.

Copies of application form for new membership.

Copies of resignation letter. k. Annual List of Governing Body (Sec.4).

N.O.C. from owner of the new registered office of the Society.

Ownership proof of new registered office of the Society. n. 'No Dispute' affidavit from President.

Basics of LLP

LLP formation

Formation

Pre-requisites for registering a LLP

Minimum 2 Partners (Individual or body corporate) Minimum 2 Designated Partners who are individuals and at least one of them should be resident in India. Digital Signature Certificate LLP Name LLP Agreement Registered Office

Pre-requisites for registering a LLP
An LLP should have minimum 2 partners. In case any Body Corporate is a partner, then it will be required to nominate any person (natural) as its nominee for the purpose of the LLP.

Partner of LLP can be consisted of

Companies incorporated in and outside India LLP incorporated in and outside India Individuals Resident in and outside India

Partners of LLP
Every LLP should have minimum 2 designated partners who are individuals and at least one of them should be resident in India.

A person or nominee of a body corporate, intending to be appointed as who is appointed as designated partner of LLP should hold a Designated Partner Identification Number (DPIN) allotted by the Ministry of Corporate Affairs.

DPIN can be obtained by submitting application along with address proof and identity proof of the individuals.

Digital Signature Certificate 
All forms for registration of LLP shall be filed online after signing digitally and for this purpose, one of the designated partners shall take digital signature certificate.

LLP Name
Selection of business name is crucial for the image of your venture. You select a name which reflects the business you plan. Ensure selected name satisfy LLP Name Guidelines of Ministry of Corporate Affairs.

LLP Agreement
Like partnership, partners of LLP can frame agreement for defining their terms, profit sharing ratio etc. The basic contents of Agreement are, Name of LLP, Name of Partners and Designated Partners, and Form of contribution, Profit Sharing ratio and Rights and Duties of Partners.

In case no agreement is entered into, the rights & duties as prescribed under Schedule I to the LLP Act shall be applicable. It is possible to amend the LLP Agreement but every change made in the said agreement must be intimated to the Registrar of Companies.

Registered Office
The Registered office of the LLP is the place where all correspondence related with the LLP would take place, though the LLP can also prescribe any other for the same. A registered office is required for following purposes. At the time of incorporation, it is necessary to submit proof of ownership or right to use the office as its registered office with the Registrar of Companies.

LIMITED LIABILITY PARTNERSHIP FORMATION STAGES

Stage I - Partners
To form a LLP, there Minimum two partners and at least two shall be designated partners having DIPN. In case of body corporate as partners, their nominee can be act as designated partners. Out of two designated partners, one must be resident in India. (Who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding financial year)

Stage II - Obtaining DPIN & Digital Signature
DPIN can be obtained by making an application online with�www.llp.gov.in�After submitting the online application, signed physical copy of Form 7 has to be submitted to Ministry of Corporate Affairs along with certified copies of address proof and Identity proof of the applicant.

Digital Signature can be obtained from any of the Certifying Authorities in India.

Stage III - Name filing
After finalization of name, an application of name availability has to be filed in form 1 with�www.llp.gov.in�for approval. Please note that selection of name is subject to Guidelines issued by MCA.

Stage IV - Agreement
LLP agreement has to be drafted line with LLP Act. It is not mandatory to file LLP agreement at the time of registration and same can be file with in 30 days. If no agreement is framed, provisions of Schedule I of the LLP Act shall be applicable.

Stage V - Filing of Incorporation Documents
The following documents along with required attachments has to be filed withwww.llp.gov.in

Form 2 :	Details of partners, registered office etc Subscription Sheet: All partners are required to subscribe their names along with signatures to the subscription sheet, which shall be witnessed by any chartered Accountant/Company Secretary/Advocate in practice.
Form 4 :	Consent of Partners - Consent of each partner to become a partner of Liability Partnership
Form 3 :	LLP agreement - this can be filed with in 30 days from the date of registration

Above said documents are required to be filed after signing digitally. After verification, registrar will register all documents and issue Certificate of Incorporation.

Limited Liability Partnership Formation Services

CompaniesInn, the first LLP online registration portal offers following LLP Services.

Name Reservation Service
LLP Act 2008 provides special provisions for the Intellectual Property for Foreign Companies/LLP. Foreign Companies/LLP interested in establishing LLP in India can reserve its existing name by which it is registered in the country of its regulation or incorporation for forming an LLP in future on payment of fees of�INR 10,000. No LLP will be formed with the reserved name during the course of reservation. The reservation is for a period of three years and can be renewed on fresh application with fees of�INR.5,000.

LLP Agreement Drafting Service
LLP is governed by LLP Act, 2008 and the LLP agreement. Our experienced team of legal professionals can help you to draft LLp Agreement taking into account of requirements and applicable law. A well drafted agreement will help smooth running of your LLP.

Annual Filing Services
Under LLP act, it is mandatory to file accounts and annual return with Registrar of LLP. CompaniesInn can help you in filing returns in time and thus avoid penalty.

Induction of New Partners and changes thereof
In terms of LLP law, induction of partners and changes there of has to be intimated to Registrar by filing specified returns. Our LLP law experts can assist you in inducting new partners and effect the changes in partners.

Other LLP Services
Companies offers following LLP Services as well.

Conversion of Firms / Companies to LLP Conversion of LLP to Company (under Part IX of the Companies Act,1956 Compromise, Arrangement or Reconstruction of Limited Liability Partnerships

Evolution of ‘beneficial ownership'

Despite the historical existence of ‘beneficial ownership', very little jurisprudence is available on the meaning of the term.

Aseem Chawla
Surabhi Singhi
The concept of ownership is of both legal and social interest.
The meaning of the term is seen as an instrument of judicial policy that has assumed political significance. Historically, Salmond noted that “ownership in its most comprehensive signification denotes the relation between a person and any right that is vested in him. That which a man owns in this sense is in all cases a right.” Therefore, analytically ownership is said to consist of bundle of claims, liberties powers and immunities.
Modern developments in the context of severance of control from ownership signify that now it is the person's position and role that determines the relation with things and not vice versa as it used be.
Tax systems, in the light of severance of the concept of control and ownership, have pronounced a new order by qualifying the term “ownership”, and requiring it to be “beneficial” in nature.
The reference to the concept of beneficial ownership was incorporated in various significant articles in the Organization for Economic Co-operation and Development (OECD) Model Tax Convention on Income and Capital in 1977 without providing an unequivocal meaning thereof.
Reference to beneficial ownership is found in the Commentary on Articles 10, 11 and 12 of the OECD Model. Further, it is provided in Articles 10 to 12 of the OECD Model that the limitation of tax in the State of source on dividends, interest and royalties would be denied if the conduit company is not its “beneficial owner”, which can be said to be the defining moment giving universality to the term “beneficial ownership” in international tax.
However, this was not really the first appearance of the term “beneficial ownership” in the arena of international tax. The term draws background from various treaties on inheritance tax; to exemplify; Article III of the 1945 UK/US treaty on the estates of deceased persons refers to “shares or stock held by a nominee where the beneficial ownership is evidenced by scrip certificates or otherwise”. However, no further guidance has been provided to the term.
Prior to 1977, the use of the term was also found when in the supplementary protocol in 1966 in the US/UK treaty when the term “subject to tax” requirement in dividends, interest and royalty articles was substituted.
Amongst myriad illustrations, other examples of the use of beneficial ownership in pre-1977 treaties include the 1968 UK/Netherlands, the 1969 Australia/Japan, the 1975 UK/Spain and the 1968 Ireland/France treaties, and the 1968 protocol amending the 1947 UK/Antigua treaty.
Despite its historical existence and the important role of beneficial ownership, being incorporated in the significant articles of the OECD Model as stated above, very little jurisprudence is available on the meaning of the term “beneficial ownership”.
International practices
Though there is little legislative or administrative guidance on the concept, there has been significant development on the interpretation of the term by the judicial forums and authorities worldwide.

The concept of “beneficial ownership” is not new for the domestic tax laws in many overseas jurisdictions.
The French General Tax Code has included the term in two provisions involving anti-abuse directions. Moreover, various EC directives have included beneficial ownership condition in relation to interest, royalties and dividends.
The term also finds its relevance in the various tax treaties of numerous countries when dealing with dividends, interests, royalties and other income clauses. However, the term has not been exhaustively defined anywhere in the statute books, leaving the heinous task at the behest of the judiciary.
The recent interpretations to the term have demonstrated the meaning and helped understand the true nature of the term. The Indonesian Tax Court in the P. T.Transportasi Gas Indonesia vs Direktur Jenderal Pajak case has observed that to determine the beneficial ownership of certain income, the facts of the case should be examined so as to determine if the person could freely enjoy such income and if the country of residence had taxed such income.


Furthermore, in the celebrated case of Prevost Car, the court concluded that the `beneficial owner' of dividends is the person who receives the dividends for his/her own use and enjoyment and assumes the risk and control of the dividend he or she received. Further, the Indonesian Directorate General of Taxation issued two key regulations dated November 5, 2009, laying down the conditions for income recipients to enjoy the treaty benefits include that the company is not established in the jurisdiction of the relevant treaty's counterparty merely to obtain the treaty benefits, and the transaction itself is not structured solely to take advantage of the treaty benefits. Therefore, the recent evolution in this regard reveals that the approach taken for determination of the meaning of the term "beneficial ownership" is based on the substance over form doctrine allowing the authorities to examine the transaction despite the legal situation created by the parties. Furthermore, countries such as Vietnam are seeking to disregard the legal entity set up for determination of the euphemistically known practice "abusive transfers" and impose the corporations income-tax on such transfers, thereby giving the term "beneficial ownership" a new dimension to explore. Also, over recent months, the authorities in various jurisdictions have brought in several significant circulars and regulations introducing additional prerequisites for persons seeking to claim tax treaty benefits. The significant developments in this regard in China are as under: Guoshuihan (2009 No. 601 "Circular 601 ") deals with the requirement in tax treaties that the recipient of interest, dividends and royalties sourced in People's Republic of China should have "beneficial ownership" over the income in order to qualify for any protection under the treaty. The circular, inter alia, requires that a beneficial owner must have substantive operating activities and should not be an agent or a "conduit". The Circular further identifies the various "adverse factors" which may be reviewed by the tax authorities to conclude that a recipient of income should not qualify as the beneficial owner. Guoshuihan (2009 No. 698 "Circular 698") deals with "indirect offshore share disposals" undertaken by investors. Such disposals may be required to be disclosed to the tax authorities and may potentially be subject to taxation in the country where they are considered to be motivated by tax-avoidance purposes. Therefore, it can be seen that the recent judicial and legislative mandate worldwide is hovering around taxation of transactions disregarding the legal standing of the parties and determination of the true nature and the beneficial owner of the income at hand.
(The authors are Partner and Associate, respectively, Amarchand & Mangaldas & Suresh A. Shroff & Co.)