LLP News

Anil Ambani group's Reliance Realty taps HNIs to build an LLP fund

MUMBAI: Reliance Realty, part of the Anil Ambani group, is knocking on the doors of rich investors for raising a real estate fund that will have the innovative structure of a limited liability partnership (LLP) with investors as partners.

A hybrid of a company and partnership, the new structure will be free of dividend distribution tax and minimum alternative tax ( MAT). Market circles said the move could encourage more funds to come out with LLP structures because there is no regulatory cap on the number of partners that an LPP can have.

"LLPs, which are comparatively less regulated, offer a lot of scope for innovation. We may see new fund offerings in different LLP forms because of the benefits," said Arun Gupta, partner, Corporate Professionals, Advocates & Solicitors. He said such structures are possible in sectors like real estate, gold and other commodities but not in securities because LLPs are barred by the central bank from carrying out investments in securities.

The internationally followed tax-efficient structure, which was introduced in 2008, is aimed at making life easier for small businesses and professional outfits like law and audit firms. But LLPs are slowly become a tax-saving instrument for the promoters.

A large number of promoters of top-listed entities have converted their holding firms into LLPs to save tax and smoothen succession planning. RIL was among the first to rejig its promoters' shareholding by transferring 33% stake valued at around 1 lakh crore from promoter group entities to LLPs.

Over the years, government and regulators have brought several changes to make the LLP route less attractive to business houses, possibly sensing the tax loss it could cause. For instance, in several cases companies have been told to obtain a no-objection certificate from RBI, foreign direct investment is often subject to clearance from the Foreign Investment Promotion Board and an alternate minimum tax (AMT) has been introduced.

"There is a real benefit from the clause in the LLP Act that puts no limit on the number of partners. But innovative structures could also draw the attention of regulators like RBI, the income-tax department and Sebi. They may be perceived to bypass provisions of collective investment scheme," said Gupta.

Reliance Realty is the managing partner of Reliance Realty LLP. It will manage the activities of Reliance Realty LLP and its business on behalf of all the partners. This shall involve both a project-specific role and an administrative role, said a note circulated to prospective investors.

Reliance Capital Asset Management PMS, a subsidiary of Reliance Capital and also the investment manager to Reliance Mutual Fund, is the advisor to the realty fund. The fund was launched a few weeks ago.

"All profits and losses would be shared in a ratio as set out in the partnership agreements and all partners have similar rights. Reliance Realty LLP has an independent governance committee. The provisions pertaining to exit mechanism forms an important part of the partnership agreement. The said exit mechanism not only facilitates an exit for a partner without undue restrictions, but also ensures that the interests of other remaining partners are duly and adequately safeguarded," said a Reliance Group spokesperson. However, the person did not disclose the amount mobilised by the fund so far.

Experts said that the fund makes interesting use of the LLP structure. "Since it is difficult to receive LLP registration with the objective of 'investments', the fund's objective is investment in real estate projects. Since there is no investment in securities, there is no objection. Again, the mandatory requirement of director identification number or DIN equivalent is required only for designated partners, but the investing partners are admitted only as partners who would not need DIN. Besides, there is saving in service tax: the share in the income received by the advisor or managing partner as a partner of the LLP is not liable to service tax," says Vinod Ambavat, partner, Jain Ambavat and Associates.

he partner who intends to exit has to find out another person to purchase the share in the LLP as the LLP will not buyout the share of the partner. Besides, the documents do not suggest that a partner with a larger investment will have more rights than a partner who puts in less.