Overview of Annual Compliance of LLP
The (LLP) limited liability partnership is upgraded version of General Partnership. The Limited Liability Partnership Act 2008 was published in the official Gazette of India on 7 January 2009 and has been notified with effect from 31 March 2009.
As the name suggests a limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. LLP registration has been made easy and LLP compliance is very less as compared to the private limited company.
LLP is having a corporate character and a separate legal identity from its members. It has the right to deal in property in its own name, the power to sue and be sued, execute contracts, open account and is governed by the Companies Act 2013. Annual compliances for LLP is very important to avoid penal consequences. The Legal Entity-Continue its existence irrespective of Changes in partners i.e. perpetual succession in LLP.
The words “Limited Liability Partnership” or use the word “LLP” as the last words in its name. Through voluntary consent or necessary interference of the concerned Tribunal, Winding up is processed.
Who is Responsible for LLP compliances?
The designated partners are held liable for the purpose of all the LLP compliances and such related matters, acts, pursuant to the applicable provision of the LLP Act 2008.
However the founder's liability after LLP registration is protected as the personal liability of a partner which may arise due to the errors or omissions, or any other liability may arise in business is separate from LLP.
LLP Compliance in India
With a cutthroat race of getting LLP established, many companies are completely missing on annual compliances for the LLP, hence one must keep in mind that initial precautions work well for future growth of the LLP. Best methods would be to give your headache to a professional who is expert in LLP annual compliances expert or you can contact us.
LLP Compliances is to be done immediately after obtaining the Incorporation Certificate
- Obtain the TAN for the LLP if applicable.
- After the receipt of the incorporation Certificate, one must execute the partnership agreement within 30days and must also be signed and executed between the parties.
- Seal for the LLP
Two rubber seals – round type with LLP name and LLP name with designation should be prepared after incorporation of an LLP. The LLP seal would be required for the purpose of opening of the bank account of the company, for applying for PAN, such other registrations for the company and is yet another important step towards LLP compliance.
LLP stationery like letterhead, invoice, official documents, etc., can be prepared with the LLP name and registered office of the LLP.
- Book of Accounts of the LLP
Maintaining a proper book of accounts on cash or accrual basis is a must condition, it can be maintained manually with the register kept at the registered office or electronically through accounting software popular in the market.
- LLP PAN Application
- On successful application of the LLP, PAN card for the LLP can be applied. The PAN can be applied even online, by filling the PAN application (Form 49A) for LLP.
- Once, an application is submitted online, the PAN acknowledgment must be signed and sealed by a Designated Partner of the LLP.
- The PAN card of the LLP will be sent to the registered office address of the LLP in usually 10 – 20 working days.
- Bank account opening for the LLP.
Documents required for LLP Bank Account Opening
Bank account for an LLP is considered to be a corporate entity. The following documents must be submitted for the opening of LLP bank account:
- LLP agreement copy;
- DPIN of the designated partners;
- Copy of the LLP Registration Certificate issued by the ROC;
- Copy of the Resolution to open a bank account;
- List of authorized person/s along with the specimen signatures to operate the account duly attested by Designated Partners;
- PAN allotment letter copy;
NOTE: All the documents are required to be signed by a Designated Partner and must have the seal of the LLP.
- Appointment of the Auditor to meet the LLP Compliance
The Auditor appointment is required to be for the purpose of audit of the book of accounts of an LLP after the turnover exceeds Rs. 40 lakhs or capital contribution exceeds Rs.25 lakhs. An auditor anyway helps in keeping up with the LLP compliances.
- Books of Account
An LLP is required to maintain the books of account pertaining to the financial year on a cash or accrual basis in a double entry accounting system as the crucial part of LLP compliance. The books of account must be maintained at the registered office of the company as can be asked for inspection as LLP compliance check by authorities. Accounts are also required to be audited by a charter accountant in cases when the LLP’s turnover is more than Rs.40 lakhs or capital of over 25 lakhs.
- Form 8 (Statement of Account & Solvency) as LLP Compliance Part
- Form 11 (Annual Return): LLP Compliance Part
Important key points regarding the filling of annual return in Form 11-LLP annual compliance:
- Form 11 pertains to Annual return filling and is required to be filled within 60 days from the closure of the financial year with the prescribed fee with MCA portal and forms very vital component of LLP compliances.
- Form-11 consists of the information such as total number of Partners, contributions received by each partner, the summary of all the Partners, among other information such other vital information about the partner's contribution.
- In cases where an LLP has been incorporated on or after 1st October of the financial year, then LLP is allowed to close its first financial year either on the coming or next 31st March. The legal requirement is the LLP shall file its first financial year details for 18 months.
- For the cases, whereas on 31st March of the financial year for which return is being filed, the total number of designated partners (DP) and partners exceeds two hundred, details are required to be updated through the screen. i.e. the details are required to be provided by filling e-Form 11.
- Once the e-form 11 is generated and submitted, the site shall update the same on the LLP portal and a service request number (SRN) shall be generated.
- In cases where any other form 11 pending for the purpose of payment of a fee or any other e Form 11 is under processing or already approved in respect of the SRN, the filing of form 11 shall not be allowed.
- An LLP is mandated to maintain annual accounts for LLP annual compliance purpose, and it is expected that the annual accounts are reflecting the true and fair view of its state of affairs.
- A Statement of Accounts and Solvency is required to be filed by every LLP with the Registrar of LLP every year to meet LLP compliance rules.
NOTE: It is to be noted that an LLP is required to file Form-8 and Form-11 even when there has been no business in the LLP. The Form-11 required to be filed before winding-up the business of the LLP. An LLP is not allowed to close without filing its Annual Returns.
- In an annual return to be filed for LLP annual compliances, we need to provide following details:
- The earning of the LLP from all sources,
- All tax liabilities of the LLP,
- Taxes paid for the financial year,
- Rebates that it receives from the government.
- The LLPs are required to close their financial year on 31st March every year.
- Income tax return:
- Income Tax Return is mandatory to be filed by every LLP annually and forms an important part of LLP annual compliance.
- Whether you have revenue or not, still, you are required to file the Income tax return. Income tax return filling forms the as part of annual compliance of LLP.
The Income Tax Liability of an LLP can basically be divided into the following Two Categories
Let us discuss this in detail turnover requirements for Income tax filling-Crucial part of annual compliance of LLP in India.
- LLPs having a turnover less than INR 60 lakh:
- LLPs having the annual turnover less than INR 60 lakh are required to file their Income Tax by 31st of July every year.
- Note that it is mandatory to get the accounts audited by Chartered Accountants.
- LLPs having a turnover in excess of INR 60 lakh:
- LLPs having an annual turnover in excess of INR 60 lakh are required to file their Income Tax by 30th of September every year. In the case where there is any notification issued by the Income Tax Department for that year that date is to be taken as the deadline for the filing Income tax.
- Note that it is mandatory to get the accounts audited by Chartered Accountants.
Income tax rate for LLP in India
- The Income Tax rate for LLP is flat 30% in India. However, a surcharge of 10% is also levied on LLPs whose income exceeds INR 1 crore.
- In addition, a 2% of the Income Tax and Surcharge is levied as Education Cess and 1% of the Income Tax and Surcharge is levied in the form of Higher and Secondary Education Tax on the LLPs.
What about the Appointment of the Auditor?
- The auditor must be appointed by the LLP (basically by the Designated Partners) on annual basis.
- The very first auditor is required to be appointed before the end of the financial year.
- For next years, the appointment and reappointment of auditors are to be carried before the closure of the financial year.
- The appointment of an auditor is the responsibility of the designated partner.
What is the Qualification of the Auditor for LLP?
- Independent Auditor: It is mandatory to appoint an independent auditor. He /she must not be an employee or partner or an associated partner to the employer or LLP.
- Member of ICAI:The auditor must be qualified and member of ICAI (Institute of chartered accountants).
ROC compliances for LLP
- Appointment of Partners to the LLP;
- Any change in the Capital Contribution of LLP;
- Filing of Annual returns i.e. Form 11 & Form 8;
- ROC Filing which happens to be event based LLP compliances, it can be any Change in the Registered Office, Changes in Designation of Partners, Change in the Name and Main objects of the LLP, Change in the DIN etc;
- Loan & Charge Management.
Filing of the LLP Agreement
- A strong LLP agreement plays a vital role when a company gets stuck in the legal matters hence it is very important to frame a strong LLP agreement.
- We highly suggest you get your LLP agreement drafted from a professional having expert knowledge about the LLP Agreement and who can take care of your legal rights.
- An LLP agreement must be filed within 30 days at the MCA portal after incorporation of the company.
- It governs the rights and duties of partners and the LLP.
- LLP agreement is mandatory for all LLPs.
- However in the case of the absence of a specific LLP Agreement, an LLP Agreement must be executed, specifically excluding applicability of any or all paragraphs of Schedule I. The schedule I is basically a default LLP agreement.
The LLP Registration Fees
The LLP Registration Fees depend on the Total Contribution of the LLP. Have a look:
- For cases where the capital contribution is less than 1 lacs, the LLP registration fees are Rupees 500/-.
- For cases where the capital contribution is between 1 lakh and 5 lakh (1, 00,000-5, 00,000), the LLP registration fees are Rupees 2,000/-.
- For cases where the capital contribution Between 5 lakh and 10 lakh (5, 00,000-10, 00,000), the LLP registration fees is Rupees 4,000/-.
- For cases where the capital contribution 10 lakh and above (10, 00,000 <), the LLP registration fees are Rupees 5,000/-.
The Fees Payable for Registration of the LLP Agreement:
- The Schedule I of the LLP Act provides for mutual rights and liabilities that will be applicable to all the LLPs in the absence of an agreement.
- If one has to exclude some or all of the provisions mentioned in Schedule I of the act, then it is absolutely necessary for the Designated Partners of that LLP to get the agreement registered with the ROC.
- They will need to specifically exclude those provisions that they do not want applying to their LLP.
The Fees Payable for the LLP Agreement Registration:
- For cases where the capital contribution is less than 1 lacs, the LLP registration fees are Rupees 50/-.
- For cases where the capital contribution is Between 1 lakh and 5 lakh (1,00,000-5,00,000), the LLP registration fees are Rupees 100/-.
- For cases where the capital contribution Between 5 lakh and 10 lakh (5,00,000-10,00,000), the LLP registration fees is Rupees 150/-.
- For cases where the capital contribution 10 lakh and above (10,00,000 <), the LLP registration fees are Rupees 200/-.
Penalty Imposed on LLP for non-filing of Form 8 and 11 as part of LLP compliance:
- Penalty on LLP
Per day Rs 100 till the form is filled. Say for 5 days delay Rs 500/- is to be paid on each form, Form 8 individually and Form 11 separately.
- Penalty on Designated Partner
The penalty may extend from Rs. 10,000 to Rs. 100,000, and even the ROC can issue Notice to LLP and initiate legal proceedings against such LLP.
The Penalty for Non-filling of LLP agreement
In case one fails to file the LLP Agreement within 30 days of the formation of the LLP, heavy penalty is levied i.e. Rs.100 per day of default with no ceiling on the maximum fine. So better take care of the legal provision and ensure that the LLP agreement is properly executed and filed within the due date. LLP agreement is quite an important part of LLP compliance.
Most of the LLPs fails to comply with the LLP compliances, filing due dates and end up paying heavy penalties. However one can evade this by hiring legal consultant for the same, in case you wish to hire a consultant for strong follow-up and reminders, we are highly equipped with the system to ensure that your filings are done on time.
Frequently Asked Questions
A limited liability partnership or an LLP is a partnership in which some or all partners have limited liabilities.LLP is defined as a separate legal entity from its member, which has the power to extend all its assets thus keeping the liabilities of partners.
A minimum of two members are required to form a partnership for a limited liability partnership.
A Limited Liability Partnership or an LLP is regulated and governed by the Limited Liability Partnership Act, 2008.
There is no maximum numbers or threshold for partners to form a Limited Liability Partnership or an LLP.
The designated partners of an LLP are held liable for the purpose of all the LLP compliances along with all the related matters, acts, pursuant to the applicable provision of the LLP Act 2008.
A partner must follow specific compliance requirements in order to be appointed as a designed partner such as at least one partner must be a resident, Consent must be given by one partner to the other being appointed as designated partner. ROC must be initiated by an LLP within 30 days of appointment of designated partner, partners must obtain designated Director’s Identification Number.
There are basically three compliances which are deemed necessary for every LLP for any financial year such as Annual Return, Financial Statements of the LLP and Income Tax Returns Filings.
Form 8 is required to be filled for the Statement of Account and Solvency of a Limited Liability Partnership.
Form 11 is required to be filed for the Annual Return of limited Liability Partnership Compliance.
Annual Return of a limited liability partnership must be filled within 60 days from the closure of the financial year along with the prescribed fees.
The set of documents required for opening of a bank account are LLP agreement copy, DPIN of all the designated partners, Copy of LLP Registration Certificate which is issued by the ROC, Copy of the Resolution, signatures of all authorised persons to operate the account duly attested by all the authorised Partners and PAN allotment letter copy.
Any limited liability partnership or LLPs should file their income tax return in Form ITR 5.
Annual Filing of an LLP is deemed necessary for every LLP since its incorporation. The LLP's must file both the forms within the prescribed time limit from the closure of its first financial year. Thus, it can be stated that annual compliance is mandatory for every LLP irrespective of the number of transaction, turnover or any commercial activity undertaken.
In case an LLP delays in filing, the same is charged with an additional fee of ₹ 100 for each day of delay. Also, there is no ceiling limit for such an additional fee. In case of continuous failure to annual LLP compliance, the ROC can even remove the name of that particular LLP from its register. However, apart from these additional fees, the penalty may also be levied upon LLP and its designated partners.