LIMITED LIABILITY PARTNERSHIP (LLP) MANDATORY COMPLIANCES

LIMITED LIABILITY PARTNERSHIP OR LLP is the combination of a Company and partnership firm. As the name suggest, under LLP the liability of partners tends to be limited in the company or they have limited liability (depending on the jurisdiction) so that the personal assets of the partners are not used for paying off the Company’s debts. Limited Liability Partnership being a legal entity was formed under the Limited Liability Partnership Act, 2008. Under which partners can enjoy the both, benefit of Limited Liability Company and the flexibility of partnership firm. Coz it contains the elements of both, a corporate structure and partnership firm structure.

Also, in LLP, each partner is not liable or not responsible for another partner’s misconduct or negligence. LLP can be formed with two or more persons. Thus, minimum two people are required to form LLP and you will be happy to know that there is not any limit to the maximum numbers of partners that could take part in LLP. Also, there is not a requirement of minimum capital to be needed to invest in LLP. Due to which, LLP can do exist in any type of industry.

Now a days, LLP sort of business entity is becoming more popular due to various BENEFITS. Some of them are discussed below:-

  • Limited Liability – Under LLP, The partners can enjoy the benefit of limited liability by not keeping their personal assets on risk and keep themselves safe from unwanted financial exposures.
  • Formation with an Ease – As formation of LLP does not requires any particular capital in amount. This virtue makes it easy to form LLP in low cost.
  • Each Other’s Act – The Partners under LLP are not responsible for each other’s act.
  • Restrictions and Compliances – There are less restrictions and compliances under LLP as compare to other types of business entities.
  • Cannot be Sued for Dues – The partners under LLP formation cannot be sued for dues against LLP.

Though, there are several benefits for the formation of LLP. There are minor compliances which should be adhered too :-

  • OBTAINING DSC – DSC (Digital Signature Certificate) which acts as a proof of identity of an individual. Before the formation of LLP, a designated partner is required to apply for DSC from certified Authorities. DSC is mandatory for signing the E-Forms at the time of registration.
  • OBTAINING DPIN – Just like DSC. DPIN (Designated Partner Identification Number) is also mandatory for the formation of LLP. The person intended to be a designated partner in LLP must acquired DPIN. It issued by the Central Government.
  • GET THE BUSINESS AND AGREEMENT REGISTERED – After getting done with DSC and DPIN, The partners under LLP are then required to getting their business registered with the Registrar Of Company (ROC) with mentioning other relative details like number of partners, contribution by each partner etc. Then, there is also need to register the LLP agreement. As per the Section 23 of Limited Liability Partnership Act, 2008, it is mandatory to register LLP agreement within the 30 days of incorporation of LLP.
  • APPOINTMENT OF THE AUDITOR – It requires the appointment of the auditor of the company within the 30 days of incorporation of LLP. The auditor would be the CA who will take care of auditing (the accounts) of your company at the end of year. Also, appointment of the Auditor is only mandatory if its turnover exceeds the limit of Rs 40 Lakhs or its capital contribution exceeds the limit of Rs 25 Lakhs.
  • FILING STATEMENT OF ACCOUNT AND SOLVENCY – Statement of Accounts and Solvency (SAS) is required to be filed every financial year in E-Form 8. It’s a kind of declaration by all partners that they all have sufficient solvency to pay their debts in future. This form has to be filed on annual basis. This form must be filed within the 30 days from the end of 6 months (of financial year) with the Registrar of Company (ROC). It is also mandatory to certify the same by a Chartered Accountant / Company Secretary / Cost Accountant after getting attested by the signatures of the designated partners.
  • FILING ANNUAL RETURN – Under LLP, it is required to file annual return or Form-11 with the Registrar of Company (ROC). Just like Form 8 (as mentioned above), it should also be filed annually by LLP. This Form must be filed within the 60 days from the closure of the financial year. As Form – 11 contains information like number of partners, contribution received by each partners, summary of all the partners etc. Under LLP, it is also required to file Form – 11 before the business winding-up. Means no LLP is allowed to close without filing its Annual Returns. Or in other words, If no transactions are there then in that situation also, the allied and venture formation expenses has to be booked. These expenses later, can be the part of LLP losses and same further can be carried forward or set off in subsequent years. It is also necessary that LLP must maintain their books of accounts as per Double Entry System.

     In case of non filing of this form with the Registrar of Company, shall cause penalty of Rs 100 per day.

  • FILING OF INCOME TAX RETURNS – It is mandatory to file income tax return annually by every LLP with the Income Tax Department. As, Income Tax Return is a kind of form in which you show your LLP Income and calculation of tax liability and thereafter pay the taxes to the Government accordingly. Rebates should also be shown if received from the Government.

     All those LLPs whose annual turnover is below the limit of Rs 60 Lakhs are required to file their income tax return by 31st of July every year. Also they don’t need to get their accounts audited by Chartered Accountant (CA). But if the LLP having an annual turnover excess the limit of Rs 60 Lakhs then they are required to file their income tax return by 30th of September every year. Also it is mandatory for them to get their accounts audited by Chartered Accountant (CA) under the Income Tax Act.

As compare to other form of business entities, LLP has less compliance. So, it is mandatory for all LLPs to adhere these above mentioned compliances prescribed by the law under Limited Partnership Act, 2008. Otherwise, Non-Compliance will attract penalty in terms of fines and punishments.

 

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