ANNUAL COMPLIANCES OF LIMITED LIABILITY PARTNERSHIP FIRM

INTRODUCTION:

Limited Liability Partnership (“LLP”) is a separate legal corporate entity registered as defined under the Limited Liability Partnership Act, 2008 (LLP Act, 2008). The term has been defined under Section 2(n) of the LLP Act, 2008. The operations of LLP are being regulated by the Ministry of Corporate Affairs. The primary feature of LLP is that it is a separate legal entity. It means its existence is different from its members.

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A BRIEF ABOUT LLP:

The flexibility of the partnership Act and the benefits of Private Limited Company combined together to form an LLP. It required a minimum of two members to start an LLP. The members of an LLP are responsible for the payment of Tax. There is no fixed amount of minimum investment to start an LLP. Few characteristics of LLP and Company are similar in nature, like issuing of debentures on fixed or floating price, the procedure for filing and accounting compliance, and the trading disclosure. The functions of LLP need to remain confidential, like (LLP agreement) amongst the members.

REGISTRATION OF LIMITED LIABILITY PARTNERSHIP:

It is registered under the Registrar of Companies (ROC), Ministry of Corporate Affairs (MCA). For the formation of LLP minimum of two members required while there is no limitation on the number of maximum members. In the case of LLP, Foreign partners are allowed. The nature of LLP is perpetual succession. No matters if a member wants to leave may leave LLP still continues to work, but in the case of a traditional partnership, if a partner is bankrupt or, dead partnership firm became dissolved.

LLP AGREEMENT:

An LLP Agreement is a written document between members and the firm which provides all the details of rights and duties and powers regarding its members and to the firm. The filing of the LLP Agreement is compulsory at the time of registration of the firm within a period of 30 days after the formation of the LLP. The Agreement defines the precise role and responsibility of the firm towards each other. It helps in avoiding any future conflicts. It describes the date of an agreement, the name of the LLP firm, contribution by the partners, and the admission of a new partner. It provides the provision for the Book of Account. It is to be noted that elected partners has a duty to maintain the book of accounts in a proper manner and file the annual return of the respective LLP with the Ministry of Corporate Affairs (MCA) annually within the defined deadline. LLP does not require auditing its books of account except in case where its annual turnover exceeds INR 40 Lakhs or contribution by partners is more than INR 25 Lakhs. If these two conditions are fulfilled, then the LLP is not required to get audited its books of accounts.

LLP is required to file their statement of Accounts and Solvency within a period of 30 days at the end of six months of any particular financial year and the annual return within 60 days from the end of any specific financial year. LLP is compulsorily required to maintain the financial year from 1st April to 31st March. The statement of Account and Solvency is required to be filed on or before October 30th of every financial year, and the annual return for LLPs is due on May 30th every even if the LLP has not completed any business in that fixed financial year.

WHAT ARE THE COMPLIANCES FOR LLP?

Following are the Compliances of LLP as specified under the law.

  • Filing of Annual return;
  • Filing of Statement of the Accounts or Financial Statement;
  • Filing of Income Tax Returns;
  • Maintaining of Books of Accounts; and
  • Maintaining of other Business documents.

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FILING OF ANNUAL RETURN:

In India, Annual Return filing is mandatory for all LLP. It must be filed in the specified format with the Ministry of Corporate Affairs. The procedure for the filing of annual returns with MCA is different from that of the Income-Tax Department. The annual return of LLP is due within 60 days of close Financial Year. It must be maintained uniformly by LLPs so that the annual report is due on or before May 30th of each financial year. Annual Return Filing is a mandatory compliance for all LLPs is that they have to file two kinds of annual returns in each other financial year in FORM-8 and FORM-11.

FORM-8: It is filed within 30 days from the closure of six months of the financial year with the prescribed fee. Form-8 must be at least 2 members of an LLP and certified by a Company Secretary/ Chartered Accountant/ Cost Accountant. Additionally, this form is sub-divided into two parts, Part A, which includes the statement of solvency, and Part B that requires the statement of Accounts, the stamen of Income, and expenditures.

The penalty for not filing of Form 8 is INR 100 per day until the LLP complies with it.

The FORM-11: This form includes the information of all partners, such as the total numbers of partners of LLP, contribution received by each partner, details of the corporate body, and summary of the partners. The filing of Form-11 must be done within 60 days from the closer of the financial year together with prescribed fees. The due-date for filing by FORM 11 is 30th May each year.

FILING OF INCOME TAX RETURN:

This compliance for LLP is to file an annual income tax return, irrespective of the profits or revenue. Consequently, a sleeping LLP that has not undertaken any transactions needs to file an income tax return.

BOOKS OF ACCOUNT:

All the LLP firms must maintain a proper book of accounts in considering their affairs each year on a cash basis. These books shall follow double-entry accounting system and shall be presented at the registered office of the LLP. If the turnover of LLPs is more than INR 40 Lakhs or capital exceeds the limit of INR 25 Lakhs, then the accounts must be audited by a proficient Chartered Accountant.

MAINTAIN IMPORTANT DOCUMENTS:

Once the registration procedures is done, an LLP is required to hold a report of its incorporation documents, proof of fee paid names of the partners, statement of account and solvency, annual returns filed with the Registrar. These documents must be made available for verification at the request of the concerned authority.

ADVANTAGES OF LIMITED LIABILITY PARTNERSHIP:

LIABILITY OF PARTNER IS LIMITED:

As per the terms defined in the agreement, the partners of LLP have limited liability and equal responsibility. The contribution made by them is only considered as their liability. If someone sues LLP, the members will not be considered liable for that amount and no person property can be attached to the pay off the debts/default.

ROLE OF PARTNERS ARE FLEXIBLE:

The role of management for the partners is very flexible. The partners can choose their own role in LLP. Each partner has the right to manage the LLP and has the right to choose how much management they want.

EASE OF FORMATION:

The process of formation of an LLP is as simple and easy. The partners and are required to fill out a registration form and then file it. It could easily be done, and you could also opt for a consultant for smoothing the process.

LOW REGISTRATION COST:

As compared to any private limited company or any public limited company, the registration cost for LLP is less. The registration process is simple, and lesser law enforcement in it. It saves money and time.

For more information, please contact us on info@trijuris.com or call us Mb. No. 85100 58386 or 9310 717274.

DISADVANTAGES OF LIMITED LIABILITY PARTNERSHIP:

PENALTY:

Even if there is no business throughout the year done by LLP, it still needs to file its Income Tax Return (ITR return) and Annual Return with appropriate authorities, failing which may incur a late fee of 100 per day. Further, other compliances also need to be done as specified under the LLP Act.

EQUITY INVESTMENT IS UNAVAILABLE

The equity or shareholding concept as like a private company, does apply in the LLP. LLP relies on promoters for the investment as private equity cannot invest.

CONCLUSION:

The LLP has fewer compliance requirements in comparison to the company. It is less in cost in the attachment of such compliances. The most significant benefit of doing business as an LLP is that the liability of each partner is limited to the extent of their contributions as opposed to the sole proprietorship or the traditional partnership firm where the personal assets of the proprietor or partners could be at risk