Mandatory Compliances for an LLP (Limited Liability Partnership)

All LLPs registered with the Ministry of Corporate Affairs need to file Annual Returns and Statement of Accounts for every Financial Year. It is mandatory for a LLP to file a return irrespective of whether it has done any business. There are three mandatory compliance requirements to be followed by LLPs.

  • Filing of Annual Return
  • Filing of Statement of the Accounts or Financial Statements
  • Filing of Income Tax Returns

Filing LLP Annual Return

Annual Return or Form 11 is a summary of an LLP’s Partners. It is also an indication of whether there is any change in the management. Every LLP is required to file Annual Return in Form 11 to the Registrar within 60 days from the closure of a financial year. That is, the Annual Return has to be filed on or before 30th May every year.

Form 11 or Annual Return is applicable to those LLP’s which were registered till 30th September 2017. For LLPs registered after 1st October 2017, the return can be filed in the year 2019.

Filing Annual Accounts or Statement of Accounts or P&L and Balance Sheet

All LLPs are required to maintain their Books of Accounts in Double Entry System. They also need to prepare a Statement of Solvency (Accounts) every year ending on 31st March. For this purpose, LLP Form 8 should be filed with the Registrar of Companies on or before 30th October every year.

Form 8 or Annual Statements is applicable to the LLPs registered till 30th September 2017. For LLPs registered after 1st October 2017, the Annual Statements can be filed in 2019.

It should be noted that LLPs whose annual turnover exceeds Rs. 40 lakh or whose contribution exceeds Rs. 25 lakh are required to get their accounts audited by a qualified Chartered Accountant mandatorily.

*An Audit of accounts is mandatory under the Income Tax Act when the annual turnover of LLP is more than one hundred lakh rupees.

Forms to be filed Last date for filing
Annual Return (Form 11) 30-05-2018
Accounts (Form 8) 30-10-2018
INCOME TAX RETURN Last date for filing
In case Audit is not required 31-07-2018
In Case Audit is required 30-09-2018

Running a business, be it in the form of a One Person company, LLP or as a Private Limited Company, is no easy task. It is an investment of time, money, and effort and also requires the know how of many formalities, regulatory or financial. Filing of all the forms and returns on time is very essential. Heavy penalties are imposed if the Forms are are not filed on time with the Registrar.

VenturEasy can help you with all mandatory compliances for an LLP. Get in touch with us at [email protected] or drop your queries here

Limited Liability Partnership (LLP) vs Partnership

Selection of the correct form of business entity is the most important decision taken by an entrepreneur. To make choices simpler and assist you in taking a well informed decision, here is a basic comparison chart of Limited Liability Partnership (LLP) vs Partnership

Limited Liability Partnership – A corporate form of Partnership

Limited Liability Partnership has been introduced in India by way of Limited Liability Partnership Act, 2008. The basic premise behind the introduction of Limited Liability Partnership (LLP) is to provide a form of business organization that is simple to maintain while at the same time providing limited liability to the owners. It exhibits elements of both partnership and corporation. In LLP, one partner is not responsible or liable for another partner’s misconduct or negligence unlike a traditional partnership in which each partner has joint and several liabilities.

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Limited Liability Partnership (LLP) vs Partnership

Partnership

Partnership is governed by Indian Partnership Act, 1932. It is the relation between two or more partners who have agreed to share the profits of a Business carried on by all or any of them acting for all. The partners can enter into a verbal or written agreement between them as per their discretion. The Registration of partnership firm is not compulsory.

The Comparison chart will give you a clear distinction between all the three forms of business.

Factors of Comparison Limited Liability Partnership Partnership
Legal Identity It has separate Legal entity different from partners No separate legal entity
Minimum Members   Designated Partners – 2 Minimum Partners – 2
Maximum Members No limit 100
Minimum Capital No minimum requirement No minimum requirement
Regulator Registrar of Companies Registrar of Firms
Compliance Requirements Annual Return Filing No mandatory compliances
Taxation Taxed at 30% Taxed at 30%
Cost of compliance As there are no compulsory compliances for a partnership firm, there are no cost of compliance as such
Liability Limited to Capital contribution Unlimited liability of partners
Credibility Medium Low
Investor Preference Medium Low
Statutory Audit Mandatory if Contribution is above 25 lacs or, if Turnover is above Rs. 40 lacs Not Mandatory
Conversion Can be converted into a Company by following the procedures of Companies Act Can be converted into a Company by following the procedures of Companies Act
Procedure
  • Obtain DSC (Digital Signature Certificate)
  • Obtain DPIN (Designated Partner Identification Number)
  • Name Approval
  • Filing for Incorporation
  • File LLP Agreement
 

  • Preparation of Partnership Agreement
  • Stamping and Notarization of the partnership agreement.
  • Registration of Agreement with the Registrar of Firms – Not compulsory, very expensive and time consuming

 

Time Taken for Registration 10 -15 Days 7-10 days
Relation inter se partners Partners are the agent of firm and the partners. One is responsible for the act of other(s) Partners are agents of the firm only.
Ease of closure An LLP can be closed by meeting certain conditions and following the procedures of LLP Act 2008. A Partnership can be closed anytime as per the conditions laid down in the deed or agreement.

Conclusion:

– Partnership firm, even if registered, is not a separate legal entity.

– LLP is comparatively a more organized form of business, hence has more credibility.

– Partners of a partnership are agent of one another, which makes all the partners responsible for any fraudulent act of one of the partners.

– And partners are personally liable to the extent of dues of the partnership. But contrary to this, in LLP, partners are not liable for the act of one another. They are only responsible for their acts and liable to the extent of their contribution.

LLP Agreement

LLP Act 2008 defines LLP agreement as “Any written agreement between the partners of the Limited Liability Partnership or between the LLP and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that LLP”. Hence, in simple terms, it is an agreement inter-se between the partners of the LLP, which forms the bylaws of the LLP.

The LLP Act, 2008 requires every LLP to draft and execute a LLP agreement and file it with the registrar within 30 days of incorporation in form in Form 3.

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LLP Agreement

Why do we need an LLP agreement?

Doing business in partnership is not as easy as it sounds. Initially, there might not be any complexities in business, but with due course of time they are sure to arise. An absence of a written method to adopt in such scenarios would not only affect the relation between the partners but also hamper the business to a great deal.

A written agreement would not only help to manage different expectations of the partners and but also give them confidence about the future of the business venture. It acts as a safeguard that protects both the business venture and each partner’s investment.

Drafting of LLP Agreements The aim of an LLP Agreement is to provide a written structure for the business with respect to each partner’s responsibility, rights, profit/liability sharing, and also the terms on which the partnership can be terminated. Four key points should be remembered while drafting an LLP Agreement:

OWNERSHIP: It includes the %of ownership of each partner in the LLP. What will be the profit sharing ratio, voting rights and so.

MANAGEMENT: It includes Partners’ authority to bind the partnership into agreements. What types of decisions a partner may make unilaterally, and which ones require a vote? Who will be the signing authority for any bank accounts or any special agreement.

LIQUIDATION: It includes conditions for liquidation of the LLP. What will be the outcome if any partner(s) dies, ceases, retires or resigns. What will be the procedures for buying out a partner, conditions for adding/removing a partner.

CONFLICT: If a conflict arise, what would be the method of resolving the same?

Keeping in view the above points, an LLP agreement can be drafted containing the following provisions:

  • Name of LLP, Place of Business and Nature of Business
  • Date of agreement
  • Details of the parties to the agreement
  • Capital of LLP
  • Interest on Capital Contribution and Loans
  • Duties and Liabilities of Partners
  • Sharing of Profit or Loss/voting rights/ownership
  • Remuneration to Partners
  • Management of business and fiduciary duties
  • Liability of LLP to Indemnify the Partner
  • Liability of Partners to Indemnity
  • Provisions related to addition/expulsion/resignation/retirement of partner (s)
  • Book Keeping and Management of Bank Account(s)
  • Lending Money or Transacting Business by Partners with LLP
  • Liability on Ceasing Partner whether by Resignation or Retirement
  • Terms for Appointment of new partner
  • Rendition of Accounts /Books of Account, Annual Accounts & Audit
  • Decision making in the LLP
  • Meetings and Recording of Minutes of meetings
  • Non-Compete clause
  • Dispute Resolution
  • Protection of IPR
  • Transfer or Assignment of Interest
  • Extent of Liability of LLP
  • Dissolution / Winding Up
  • Compulsory Cessation of Partnership

How to close LLP: Procedure for winding up of LLP

Procedure for winding up of LLP:  A Limited Liability Partnership can be closed down by declaring the LLP as defunct.

Declaring the LLP as Defunct: In case the LLP wants to close down its business or where it is not carrying on any business operations for the period of one year or more, it can make an application to the Registrar for declaring the LLP as defunct and removing the name of the LLP from its register of LLP’s.

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How to Close LLP: Procedure for winding up of LLP

Procedure: File E-Form 24 with the RoC along with the following documents:

  • Copy of detailed application. There is a prescribed format of detailed application in MCA which needs to be submitted.
  • Copy of authority to make the application.
  • Copy of consent of all the partners
  • Copy of consent of all the creditors
  • Copy of affidavit for each of the designated partners
  • Copy of the undertaking/ indemnity bond for striking off name (Please refer the note below)
  • Statement of assets and liabilities duly certified as true and correct by auditor/chartered accountant in practice
  • Copy of acknowledgement of latest Income tax return
  • Attested (by CA) copies of PAN and address proof of all designated partners/partners
  • A paragraph of reason for which the LLP is proposed to be shut down

Once all the documents are executed, the same are filed with the Registrar in e-form 24. The Registrar will keep the application open for a period of one month to check if there are any objections and once it is satisfied, an order will be issued to strike off the name of the LLP from its records and complete the process.

Although this process does take some time, it is one of the most convenient ways to close a LLP, which has not undertaken any business during the last one year.