RICE group of companies wants to establish an SPV. It has 4 companies and 2 LLPs in the group. The management is in dilemma whether to use a company or LLP as an SPV. As an experienced professional in Business Collaborat

A Limited Liability Partnership (LLP) Firm combines the simplicity of a partnership firm with the advantage of limited liability as available in the case of a company. Before the passing of the Limited Liability Partnership Act in 2008, a foreign company intending to participate in tender or some other project in consortium with an Indian company had only the option of setting up a company (whether private or public) as a Special Purpose Vehicle (SPV). The disadvantage was that winding up such a company is difficult. LLP as an SPV has the advantage of being easy to wind up after the purpose is over and the liability of the partner is limited. Key advantages of using an LLP as an SPV as compared to a company are as follows: Low cost of incorporation of an LLP; Flexibility of rules of management and governance based on Agreement between the contracting Partners; Partners can be companies while management is by Designated Partners who are individuals. By this, there is divorce between ownership and management; Low annual maintenance cost; There may not be any necessity of getting the accounts audited before the project takes off; An LLP firm does not have to pay Dividend Distribution Tax (DDT) on share of profits transferred to the Partners, which makes it tax efficient; Voluntary winding of an LLP firm which has no creditors is very easy and can be done without intervention of any court or tribunal; Investment in LLP Firms is permitted only in sectors in which 100% FDI is permitted through automatic route without any performance linked conditions. Both company and LLP are suitable mode of SPV. However, in view of the above, it is advisable to use any of the two LLPs that are in the group instead of the companies, to register as an SPV.