S DHANAPAL & ASSOCIATES
Practising Company Secretaries
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
The President under Notification dated 9th May
2007 has amended the Government of India
(Allocation of Business) Rules, 1961. Pursuant to
this amendment, Ministry of Agro and Rural
Industries (Krishi Evam Gramin Udyog Mantralaya)
and Ministry of Small Scale Industries (Laghu Udyog
Mantralaya) have been merged into a single
Ministry, namely, “MINISTRY OF MICRO, SMALL
AND MEDIUM ENTERPRISES (SUKSHMA LAGHU
AUR MADHYAM UDYAM MANTRALAYA)”
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Introduced on 1st
April 2009
Twin Benefits of
Company and
Partnership
5410 LLPs have
been incorporated
As on 04.07.2011
Various Conversion
Options introduced
effective from
31.05.2009
Taxation has been
notifed on
10.07.2009
Limited Liability Partnership is a form of business organization with each partner’s
liability limited to the contribution made by them, except in the case of fraud,
malpractice; wrongs etc., in such case the liability shall be unlimited. LLPs are
treated as persons in the eyes of law and incorporated as persons unlike normal
partnership concerns which are not incorporated as such.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
BODY
CORPORATE Legal Entity
DPIN
integrated with
DIN
w.e.f.
05.07.2011
Perpetual
Succession Minimum 2
Designated
Partner
Limited
Liability and
Agreement as
Per Schedule I
of LLP Act
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
S Dhanapal & Associates
Practising Company Secretaries
No Restriction on Maximum number of
partners
No Major Investment - i.e.
No Minimum Capital
Requirement
Internal Flexibility
No Personally Liablity
Commercially Efficient
Vehicle
Expansion and
Growth which has
perpetuity
Audit Requirement
only if the
Contribution exceeds
25 Lakhs or Trunover
exceeds 40 Lakhs
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
ICSI
An Initiative of ICSI in
Development of MSMEs
LLP
Ministry
Various
Modes of
MSMEs
S DHANAPAL & ASSOCIATES
Practising Company Secretaries




Limited Liability Partnership (LLP) the most apt model for the
small and medium sector enterprises in the country.
Government suggests the MSMEs to adopt structure of LLP
so as to reduce the liability as well as the lower compliance
part.
The idea of getting SME sector to adopt the LLP model is to
make them more competitive by extending them the
benefits of this model.
Converting to a LLP structure will also help SME units get
easier access to credit from banks.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries

LLP registrations were opened in April 2009 but the response has been
very poor, with only 5410 entities being registered till date.

The present number mainly comprises big consulting groups and law
firms, with a relatively small portion of small-sized entities and new
entrants showing interest.

"This (LLP form of business) is a fantastic new opportunity and will
inevitably give a whole new profile to the MSME sector. It will be possible
for the sector to reach out to venture capital.

This can be the stepping stone for partners becoming much larger
industrialists and logging bigger growth by adopting the LLP Structure of
Business.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries






Around 90% of MSMEs are not registered.
In order to spread knowledge, various awareness programs like
energy conservation, intellectual property rights etc have been
organised.
The Contribution of MSMEs towards government is very huge.
40% of exports are done by MSMEs
And around 40% of employment is also provided by them and
Yet another 40% has been contributed by them in GDP.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries

To conduct National level programs for MSMEs.

Subsidies are given in different ways to companies which are
implementing proper techniques and procedures.

The main objective of giving subsidy is to bring some major
changes in MSME sector.

To make MSME sector to have the productive capacity to compete
with large scale industries.

They want it to survive and compete and adopt Corporate
Governance.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Credit guarantee fund scheme for MSME
Credit linked capital subsidy scheme
Scheme for registration for bar coding
Lean manufacturing competitiveness schemes
Scheme for technology and quality upgradation
Design clinic scheme
Scheme for upgradation of information technology and
communication
Scheme for technology upgradation & marketing
Scheme of international co operation
Scheme for capacity building
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Domestic entrepreneurs can now easily access
any information related to global micro, small
and medium enterprises, their products and
technologies on the website launched by
National Small Industries Corporation (NSIC).
www.msmeintelligence.com
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Classifies Enterprises (instead of Industries) which gives due recognition to the Service
Sector
Simplified Registration process with the District Industries Center. Registration is optional in
most cases except for enterprises already registered as SSI Units.
Statutory National Board for MSMEs and Advisory Board Setup to assist implementation of
the Act
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
SME/SSI Registration India
Units would
usually get
registered to
avail some
The SME/SSI
registration
benefits,
scheme has no incentives or
statutory basis. support given
either by the
Central or
State Govt.
Usually the
registration
certificate
issued by the
registering
authority is
seen as proof
of being SSI.
Both the
They relate to Centre and the
development State, whether
under law or
of industrial
States/UTs
estates, tax
otherwise,
have their own
target their
subsidies,
package of
incentives and
power tax
incentives and
subsidies,
support
facilities for
packages
capital
small scale.
investment
generally to
units
subsidies and
other support. registered with
them.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
The regime of incentives offered by the Centre usually contains the following:
Credit prescription (Priority sector lending), differential
rates of interest etc.
Excise Exemption Scheme
Exemption under Direct Tax Laws.
Statutory support such as condition and the Interest on
Delayed Payments Act.
• Where MSME has to be registered ?
DIC (District Industries Centre) is the primary registration centre.
To maintain statistics.
Generally adopt uniform registration
guidelines.
Purpose of Registration
To maintain roll of units for incentive and
supporting services.
States use the same registration scheme
for implementing their own policies.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries

EM ( Entrepreneur Memorandum) has to be submitted to the
Concerned DIC.

The form of Memorandum is in two parts.

Any person who intends to establish a micro, small or medium
enterprise engaged in providing or rendering of services may
file or those who want to establish medium enterprise engaged
in the production or manufacture of products shall file Part- I of
the Entrepreneurs Memorandum to District Industries Centre.

Once the above enterprises start production or start providing
or rendering services, they shall file Part II of the Entrepreneurs
Memorandum to District Industries Centre.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries

In case of non- filing of Part II of the Entrepreneurs Memorandum
within two years of the filing of Part I, the Memorandum (Part I) filed
by the entrepreneur will become invalid.

In case of change in the investment in plant and machinery or in
equipment, the enterprises who have already filed Entrepreneurs
Memorandum should inform the District Industries Centre of the
same in writing within three month of the change in investment.

In case of change of products and that of services or addition in
products or services, the enterprises which have already filed
Entrepreneurs Memorandum shall inform the District Industries
Centre of the same in writing within three months of the change
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Entrepreneur Memorandum Part I is for the
proposed enterprises.
Entrepreneur Memorandum Part II is for
established enterprises after
commencement of commercial production.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
It crosses the investment limits.
It starts manufacturing any new item or items that
require an industrial license or other kind of
statutory license.
It does not satisfy the condition of being owned,
controlled or being a subsidiary of any other
Collateral Free Loans - Micro and Small Enterprises
S DHANAPAL & ASSOCIATES
Practising Company Secretaries

The Act decisively defines the MSMEs by the level of Plant and Machinery (P&M )
investment.

The categorization also makes allowances for the inherently smaller investments of
Serviceenterprises.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Micro
Manufacture
Service
Plant and
Machinery
Equipment
25 Lakhs of
Investment
10 Lakhs of
Investment
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Small
Manufacture
Service
Plant and
Machinery
Equipment
Upto 5 Crores
of Investment
Upto 2 Crores
of Investment
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Medium
Manufacture
Service
Plant and
Machinery
Equipment
Upto 10 Crores
of Investment
Upto 5 Crores
of Investment
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
DIN - Mandatory (DPIN has been discontinued w.e.f 05.07.2011)
Form 1 - Name Reservation - No Attachments Required*
Form 2 - Incorporation Documents - Address Proof of
Registered office and Subscriber Sheet
Certificate of Incorporation
Form 3 - Registration of Initial LLP Agreement - Initial LLP
Agreement to be attached
Form 4 - Consent of Partners - Partners Consent Letters has to
be attached
* RBI Letter required if Business is of Trading in Securities
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
2 Designated Partners
Capital Contribution
DIN
Digital Signature
Registered Office
S DHANAPAL & ASSOCIATES
Practising Company Secretaries

Limited Liability Partnerships are also required to
maintain books of account in respect of their
income and expenditure. These books of account
are required to be kept at the registered office of
the Limited Liability Partnership unless the
Partners decide otherwise as per the terms of
the LLP Agreement. Limited Liability Partnerships
are required to maintain their Books of Account
on cash basis or accrual basis and according to
the double entry system of accounting.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Taxation
Treatment
like
Partnership
firm
No Tax in
Partners'
hands
Classified
under the
MAT
head
Tax @ 30% (Minimum
"Income
+ education Alternate
from
Cess @3%
Tax)
Busienss
Applicable
and
Profession"
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Form 8 for Statement of Accounts of Solvency Balance Sheet and Profit and Loss Account
Form 11 for Annual Return of Limited
Liability Partnership
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Form 1 (Existing Name)
Form 2(Incorporation
Document &
Statement)
Form 16 (COI)
Form 17
(CONVERSION)
Form 18
(CONVERSION)
Form 18
(CONVERSION)
Form 19 (COI)
Form 3 (LLP Agreement) & Form 4
(Consent to become
partners/Designated partner) with
in 30 days of Incorporation.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries



All the assets and liabilities of the Company immediately
before the conversion shall become the assets and
liabilities of the LLP;
All the shareholders of the Company immediately before
the conversion shall become the partners of the limited
liability partnership and their capital contribution and
profit sharing ratio in LLP should remain in the same
proportion as their shareholding in the company on the
date of conversion;
The shareholders of the company do not receive any
consideration or benefit, directly or indirectly, in any
form or manner, other than by way of share in profit and
capital contribution in the LLP;
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
The aggregate of the profit sharing ratio of the
shareholders of the company in the LLP shall not be less
than fifty per cent at any time during the period of five
years from the date of conversion;
 The total sales, turnover or gross receipts in business of
the company in any of the three previous years preceding
the previous year in which the conversion takes place does
not exceed sixty lakhs rupees; and
 No amount is paid, either directly or indirectly, to any
partner out of balance of accumulated profit standing in
the accounts of the company on the date of conversion for
a period of three years from the date of conversion.

S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Classification of the Micro and Small
Enterprises (manufacturing and service) shall
be under Priority Sector.
The Micro and Small (Service) enterprises shall
include Small Road and Water Transport
Operator, Small Business, Professional and Selfemployed Persons and all other service
enterprises. Retail Trade will not be classified
under Micro and Small enterprises (service
sector).
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Small Road and Water Transport Operator (SRWTO),
Small Business, Professional and Self Employed
Persons (PSEP) will be classified as per the original
cost of equipments either under Micro or Small
Enterprises (service) sector instead of earlier
classification/ definition of 10 vehicles in case of
SRWTO and working capital and /or Term loan limits
in case of Small Business/Professional and Self
employed persons.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Manufacturing Activities
Medical Equipment and Ayurvedic Product
Composite unit of Bacon Processing and Piggery Farm*
Tobacco Processing
Beedi /Cigarette manufacturing and other tobacco Products
Extraction of Agave Spirit from Agave juice ; (imported medicinal plant )
extraction of Agave
Manufacture of Bio-Fertilizer
* Piggery Farm without bacon processing as this is a farming activity.
** The activity of “Bee-Keeping” being farming allied activity.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Section 8 of MSMED
Act
Enter
Entrepreneur's
Memorandum
Registeration
Mandatory
Optional For Micro
and Small Industries
Before Expiry of 180
days
Register at
respective
Government
Authority is General
Manager, District
Industries Centre of
respective State
Government
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
FDI IN SMALL SCALE INDUSTRIAL UNDERTAKINGS
• Check the applicability of Foreign Investment i.e.
main object should not be prohibited under FDI.
• Small Enterprises may come under Automatic
Route.
• In some extent it may have to get approval
under RBI if its activity is notified.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries


The Bank may provide all types of funded and non
funded facilities to the borrower under this sector viz,
Term Loan, Cash Credit, Letter of Credit, Bank guarantee,
etc.
A Composite Loan with maximum limit upto Rs.1.00
crore may be considered by bank to enable the Micro
and Small Enterprises {both for manufacturing and
service sector} to avail of their working capital and Term
loan requirement through Single Window.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
(A) FUNDED
Upto Rs.25000
Above Rs.25000
1.
2.
3.
Minimum Margin
NIL
25%
20% (Under Turnover
Method)
20-25%
NIL
Margin on Book Debts
Exports Bills backed by L/C
confirmed by First Class Bank
(B)
NON-FUNDED
Letter of Credit (DP)
5%
Letter of Credit (DA)
10%
Bank Guarantee
20%
Margin in case of Non Funded facility can be reduced upto 5% by the
GM(PSC) at HO and
below 5% by the Chairman and Managing Director or Executive
Director(in absence of C&MD).
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
As per data available on LLP portal of Ministry of Corporate Affairs,
3513 LLP have been formed as on 24th January 2011, out of which
majority of LLP’s have been formed in the following sector:
SECTORS
LLP
Construction
354
Real Estate
360
Wholesale trade and Commission trade
242
Computer & Related Activity
382
Education
107
Total
1445
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
• MSME sector today accounts for about 45 per cent of the manufacturing output and 40 per
cent of the total exports of the country.
• Around 75%-80% of businesses in MSME sector, are being carried on as proprietorship &
partnership, which generally forms part of the unorganized sector.
• The main reason of non presence of corporate form in this sector is high compliance cost &
large regulatory control vis-à-vis proprietorship & partnership which is subject to complete
flexibility and less compliance cost.
• But for this gain the sector is losing heavily on access to easy & cheap the credit &
technology.
• Now the Limited Liability Partnership form has opened the door for this sector to enjoy the
dual advantage of less compliance with higher access to credits & technology in the market.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
• Another advantage for SMEs that in the new LLP form alike Companies, only the Limited
Liability Partnership having turnover/contribution of more than Rs. 40/25 Lacs have to get
their accounts audited as per the requirement of law providing a step ahead in the flexibility.
• SMEs would benefit most from LLP form, as it would allow an entrepreneur to get into the
business without exposing his full assets to it.
• In an increasingly litigious market environment, the prospect of being a member of a
partnership firm or proprietorship with unlimited personal liability is considered risky and
unattractive and on the other side the corporate form is expensive for MSMEs.
• LLP provides a bridge between the two risks where an entrepreneur would be able to foray
into a business venture without any fear of being held liable for the partners’ misconduct.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
• LLP model has great potential to act as catalyst of growth for
economic development of the country.
• LLP can go a long way in filling the gap created due to inherent
drawbacks of existing business form like company & partnership.
• It can further revolutionize the MSME sector by helping them in
overcoming their limitation by providing easy access to capital,
credit & technology, which can bring far reaching effects.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Sl. Basis of Difference
No.
Small Scale Industries
(SSI)
Micro Small Medium
Enterprises (MSME)
1. Governing Act Small Scale
Industries
Undertaking Rules
Micro Small and
Medium Enterprises
Act, 2006.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Sl.
Basis of
No. Difference
2.
Meaning
Small Scale Industries (SSI)


The following requirements are
to be complied with by an
industrial undertaking to be
graded as Small Scale Industrial
undertaking w.e.f. 21.12.1999.
An industrial undertaking in
which the investment in fixed
assets in plant and machinery
whether held on ownership
terms on lease or on hire
purchase does not exceed Rs 10
million.
(Subject to the condition that the
unit is not owned, controlled or
subsidiary of any other industrial
undertaking)
Micro Small Medium Enterprises
(MSME)
CLASSIFIED IN TWO CLASSES:
Manufacturing
EnterprisesThe
enterprises engaged in the manufacture
or production of goods pertaining to any
industry specified in the first schedule to
the industries (Development and
regulation)
Act,
1951).
The
Manufacturing Enterprise is defined in
terms of investment in Plant &
Machinery.
Service Enterprises: The enterprises
engaged in providing or rendering of
services and are defined in terms of
investment in equipment.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Sl.
Basis of
No. Difference
3.
Limits
Small Scale Industries (SSI)
Micro Small Medium Enterprises
(MSME)
Investments upto one crore Micro Manufacturing: P&M
Less than 25 lakhs Micro
can registered as a Small
Scale Industrial Undertaking. Service: P&M Less than 10
lakhs
Small Manufacturing: Less
than 5 crore Small Service:
Less than 2 crore
Medium Manufacturing: Less
than 10 crore Medium
Service: Less than 5 crore
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Sl.
No.
Basis of
Difference
Small Scale Industries
(SSI)
Micro Small Medium Enterprises
(MSME)
4.
Registration
Not Mandatory
Not mandated but if registered can
enjoy privileges.
5.
Perpetuity
Merged and
Discontinued
Exists as Micro Small and Medium
Enterprises Act, 2006.
6.
Web site
www.ssi.nic.in
www.msme.gov.in
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
MSMEs include:
Small road & Water transport operators,
II. Small business,
III. Retail trade,
IV. Professional,
V. Self‐employed persons and
VI. Other service enterprises
I.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries


Lending by banks to medium enterprises will not be
included for the purpose of reckoning of advances under
the priority sector.
MSMED Act, 2006 does not provide for clubbing of
investments of different enterprises set up by same
person / company for the purpose of classification as
Micro, Small and Medium enterprises, the Gazette
Notification No. S.O.2 (E) dated January 1, 1993 on
clubbing of investments of two or more enterprises
under the same ownership for the purpose of
classification of industrial undertakings as SSI has been
rescinded vide GOI Notification No. S.O. 563 (E) dated
February 27, 2009.
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
http://msme.gov.in/
 http://www.smenetwork.net/
 http://smetimes.tradeindia.com/smetimes/index.html
 http://www.fisme.org.in/
 http://www.laghu-udyog.com
 http://www.smera.in/ - rating agency
 http://www.nmcc.nic.in/ - national manufacturing
competitiveness council

S DHANAPAL & ASSOCIATES
Practising Company Secretaries
Any Questions ?
S DHANAPAL & ASSOCIATES
Practising Company Secretaries
S DHANAPAL & ASSOCIATES
Practising Company Secretaries