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

Penalty for Non-filing of LLP annual returns – Can winding up save penalty?

Although Limited Liability Partnership is one of the most popular forms of starting a business, there are various compliances which are required to be followed annually once the business is incorporated.

The Annual Compliances of LLP primarily include:

  • Filing of Annual Return of the LLP in Form 8 – Due date 30th October of the succeeding FY
  • Filing of Financial Statements of the LLP in Form 11 – Due date 30th May of the succeeding FY

Penalty for Non-filing

Late Filing of Form 8 and Form 11 attracts a late fee of Rs.100 per day each per form immediately after the due date till the date the form is actually filed.

In view of the above, one can understand the huge of penalty that can be imposed if there is a substantial delay in filing the annual forms. One should note that these are online forms and cannot be filed without making the fee payment, in any case.

We get numerous queries from many people who formed their LLP but did not carry out any business since the date of incorporation. The most common questions that arise at this point are:

Is it compulsory to complete the annual filings even if the business has not commenced or not been conducted throughout the year?

Yes, it is absolutely compulsory to complete the Annual Filings even if your business has not commenced or not been conducted throughout the year. There is no exemption to annual filings.

Can the LLP be closed without completing the Annual Filings?

No, it is important to complete the Annual Filings before closing down or winding up the LLP.

Many partners of LLP’s are under the impression that if they wind up the LLP, they can avoid the Penalty on non-filing. But unfortunately, this is not the case.  An LLP cannot be wound up without completing the pending compliances as the process of Annual Filings and Winding up is inter-connected. The LLP can be wound up only when all the ROC compliances are up to date and MCA records are updated in this regard.

Conclusion:

Partners of LLP’s should understand that winding up of the business is not the solution to escape the imposition of penalties.  Rather they have to comply with all pending filings and update the ROC with the status of affairs, may it be for continuing the business or discontinuance.

In view of the above it is utmost important to get your LLP incorporated from experienced and responsible professionals who could guide you in complying with the ROC Compliances.

Compliances for Private Limited Company, LLP and OPC – a clear comparison

Being a Chartered Accountant and interacting with several entrepreneurs, I found that the most common question bothering startup founders is which business entity to form and what are the compliances of these entities. Hence, there is a need to summarize this essential information in a comprehensive manner and layman terms.

The three most preferred business entities in India – Private Limited Company, Limited Liability Partnership (LLP) and One Person Company (OPC) have some important differences in their compliance structure which affect their running costs as well.

This article is focused on detailing the end to end compliance requirements of these entities. There are different set of laws and regulations which govern each business type.

Private Limited Company and OPC are governed by The Companies Act, 2013 and the corresponding company rules. There are various norms right from maintenance of books of accounts to preparation of financial statements and getting most of important events of your company approved by way of conducting board and general meetings with corresponding Registrar of Companies (RoC) filings.

Similarly, in LLP, immediately after incorporation should comply with the statutory requirements of the Limited Liability Partnership Act 2008 and the corresponding LLP Rules. In order to achieve this, the accounts, records of partner’s meetings, changes in partners and LLP Agreement should be prepared and vetted by your legal advisor’s at all times.

It becomes essential to take a note of all the key compliances so that you, as an entrepreneur are aware of the entire regulatory framework of your business and seep through the differences in each of these entities to take an informed decision.

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

Factors of Comparison Private Limited Company One Person Company Limited Liability Partnership
Governing Law and Regulatory Authority The Companies Act 2013 and the Ministry of Corporate Affairs (MCA) The Companies Act 2013 and the Ministry of Corporate Affairs (MCA) The LLP Act 2008 and the Ministry of Corporate Affairs (MCA)
Minimum Requirement for formation 2 Shareholders 2 Directors   Directors and Shareholders can be same persons 1 Shareholder 1 Director 1 Nominee of Sole Member   Director and Shareholder can be same person 2 Designated Partners
Maintenance of Books of Accounts Mandatory Mandatory Mandatory
Maintenance of Basic Statutory Records Resolutions and Minutes of the Board Meetings and General Meetings.   Share Register and Share Certificates Resolutions and Minutes of the Board Meetings and General Meetings.   Share Register and Share Certificates Minute book to be maintained to record minutes of meetings of partners.
Board Meetings First meeting within 30 days from the date of Incorporation   Minimum Four Board Meetings in a calendar year No meetings required if the company has only one director   In case of more than one director, first meeting to be conducted within 30 days from the date of Incorporation of company.   At least one meeting of the Board of Directors has to be conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days. No compulsory meeting of the partners is prescribed in the LLP Act or Rules.   Meetings of Partners may be called for events prescribed in the LLP Agreement such as: • Remuneration, Admission, Cessation or Expulsion of the partners • Induction of the heir of any existing partner as a partner(s) of the LLP • Amendment in the objects of the LLP
Annual General Meetings (AGM) Mandatory No AGM Required No AGM Required
Annual RoC Filings Balance Sheet, Profit & Loss Account, Cash Flow Statement, and Statement of changes in equity in Form AOC-4   Annual Return in Form MGT-7 Balance Sheet, Profit & Loss Account, Cash Flow Statement, and Statement of changes in equity in Form AOC-4   Annual Return in Form MGT-7 Statement of Account and Solvency in e-Form 8.   Annual Return in e-Form 11.
Annual Tax Filings Mandatory – Tax Return in Form ITR-VI Mandatory – Tax Return in Form ITR-VI Mandatory – Tax Return in Form ITR-V
Statutory Audit Mandatory Mandatory If turnover > 40 lakhs or contribution > 25 lakhs
Tax Audit If turnover > 1 Crore If turnover > 1 Crore If turnover > 1 Crore
Alteration of Name, Address, Objects etc Fillings Required with RoC Approval from Central Govt. in some cases Fillings Required with RoC Approval from Central Govt. in some cases Fillings Required with RoC
Conversion A Private Company can be converted into OPC, subject to: • Paid up share capital <= 50 lakhs, or • Average annual turnover <= 2 crores. An OPC shall be converted into private limited company mandatorily, subject to: • Paid up share capital >50 lakhs, or • Average annual turnover > 2 crores during preceding 3 Financial years Cannot be converted into a Private Limited Company directly
Closure/ Dissolution Can be initiated voluntarily, • By the shareholders, or • By the Creditors, or • By the Tribunal. Can be initiated voluntarily, • By the shareholders, or • By the Creditors, or • By the Tribunal. Can be initiated voluntarily, • By the Partners, or • By the Order of the Tribunal.
Taxation Taxed at 30% Taxed at 30% Taxed at 30%
Fund Raising Options High Low Low
Compliance Cost High Medium Medium

Simply put, there is nothing better than a Private Company from an Investor’s perspective and credibility; however the cost of compliance is definitely higher. If you want to take it slow and steady and raising funds is not on cards, hitch to the easiest and simplest option of an LLP. Check out our annual compliance packages

This article was originally published on YourStory

Private Limited Company vs LLP vs OPC

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 Private Limited Company vs LLP vs OPC – the three most common yet credible forms of business in today’s time.

Private Limited Company – The most successful business type.

In a private company, the business owners hold all shares of the company privately. Shareholders may operate the business themselves, or hire directors to manage the company on their behalf. Registering a private limited company results in protection of personal assets, access to more resources, financial assistance and greater credibility.

Limited Liability Partnership (LLP) – A corporate form of Partnership

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 liability. All these three forms of business have the feature if Limited Liability and Separate Legal Entity, ie, the members or partners have no personal liability. Yet, they are different from each other in various aspects.

One Person Company (OPC) – A corporate form of Proprietorship.

One Person Company (OPC) has been recently introduced in India to promote business enterprises that are owned and managed by a single Entrepreneur. OPC allows for a single individual to own and manage the business. One Person Company is therefore a viable option for those looking to start an unregistered Proprietorship. The Comparison chart will give you a clear distinction between all the three forms of business.

Factors of Comparison Private Limited Company One Person Company (OPC) Limited Liability Partnership (LLP)
Minimum Requirement Members – 2 Directors – 2 Member – 1 Director – 1 Nominee of Sole Member – 1 Designated Partners – 2
Minimum Capital No minimum requirement No minimum requirement No minimum requirement
Regulator Registrar of Companies Registrar of Companies Registrar of Companies
Compliance Requirements Annual Return Filing Board Meetings & General Meetings Annual Return Filing No Board Meetings, if only one director No General Meetings Annual Return Filing
Taxation Taxed at 30% Taxed at 30% Taxed at 30%
Credibility High Medium Medium
Investor Preference High Low Medium
Statutory Audit Compulsory Compulsory If Contribution > Rs 25lacs or, Turnover > Rs. 40lacs
Conversion Can be converted into LLP Cannot be converted before 2 years Cannot be converted into a Company
Time Taken for Registration 15 – 20 Days 15 – 20 Days 10 – 15 Days
Procedure Obtain DSC (Digital Signature Certificate) Obtain DIN (Directors Identification Number) Name Approval Filing for Incorporation Obtain DSC (Digital Signature Certificate) Obtain DIN (Directors Identification Number) Name Approval Filing for Incorporation File Nominee details Obtain DSC (Digital Signature Certificate) Obtain DPIN (Designated Partner Identification Number) Name Approval Filing for Incorporation File LLP Agreement
Conclusion:
  • Private Limited Company is the most popular type of corporate entity in India. Therefore its post incorporation compliance’s are easier. Click here for Private Limited Company Registration.
  • Non – convertibility of Limited Liability Partnerships into a Company makes it a less interesting option.
  • One Person Company has been recently introduced in India. Therefore, there may be difficulties in obtaining certain licenses or registration after incorporation of a One Person Company.

5 reasons why Private Limited Company or LLP is preferred

The most common problem which startups or new ventures face while starting their business is whether to form a proprietorship or a Company.

Sole Proprietorship, being the most traditional form of business is still one of the most common types of business entity in India. The easy formation procedure and minimum compliance requirements in a Sole Proprietorship make it a ready option to start a business.

However, there are various disadvantages of a proprietorship which startups fail to understand at the initial stage.

A review of a number of factors which make a Private Limited Company or LLP a much better option than a Sole Proprietorship are stated as under:

Unlimited Liability: In a sole proprietorship, there is no distinction between the proprietor and his business. The proprietorship firm does not have a separate legal entity of its own but runs on the merit of the proprietor. The assets and liabilities of the firm and the proprietor are considered one and the same. This means that the proprietor’s personal assets can be used to dispose of any outstanding liability of his firm. Thus, the liability is both unlimited and personal.

On the other hand, a LLP or Private Limited Company or One Person Company have the advantage of limited liability and separate legal entity which gives it an identity of its own with separate assets and liabilities, distinct from that of its promoters or directors. This ensures the credibility of the company, as a separate entity.

Limited Capital: In a sole proprietorship firm, there is no option but to rely on the proprietor’s funds for raising capital. Bank Loans can also be obtained but only after a thorough due-diligence as there is no distinction between the assets of the business and the assets of the proprietor. There are no partners or co-promoters to pool in any capital. Moreover, the feature of unlimited liability makes it a very risky affair for investors to put in money in a proprietorship form of business.

Therefore, the fund raising ability of a proprietorship firm is severely limited. In a LLP or a Private Limited Company, partners’ capital or equity capital can always be raised easily.

Difficulty in Raising Capital: It is a known fact that Private Equity firms, Angel Investors and Venture Capitalists always prefer investing in a corporate form of business having an organized structure and a good team rather than a proprietorship, which is mostly run single handedly.

Banks and Financial Institutions are also reluctant in sanctioning proprietorship business loans compared to corporate loans as it involves more screening about the credibility of the proprietor. Hence, a proprietor is left with extremely limited choices for raising funds. This creates difficulties as the business grows and the requirement for capital increases.

Limited Growth Prospects: A sole Proprietorship form of business fails to grow in the long term due to constraints of capital and human resource. Lack of skilled employees and proper working space due to limited capital makes it difficult to run the business as it grows. The burden of business promotion, work delivery as well as back office lie on the Sole Proprietor leaving him out of capacity many a times. Unlike LLP and Private Companies, a Proprietorship fails to get the support of co-partners or directors running the business simultaneously. Thus, due to lack of pooled in skills and resources, a proprietorship often lags behind in making a successful business model. Hence, startups usually covert into LLP or Private Company soon after starting their business as a proprietorship, to overcome barriers of team work and resources.

Business Continuity: A proprietorship firm is, for all practical purposes, totally dependent on the proprietor. If for any reason the proprietor is unavailable, the business suffers to a great extent. There is no substitute of the proprietor. Moreover, the legal entity of the proprietorship firm comes to an end with the death or incapacitation of the proprietor. The goodwill earned by the firm is associated with its proprietor and holds no value later on. However, in a corporate form of business, the goodwill earned is that of the company and holds value even if the company is taken over or there is a change in the promoters. Therefore, the business continuity or duration of a sole proprietorship firm is limited unlike a LLP, Private Limited Company or One Person Company.

The reasons cited above clearly explain why a Sole Proprietorship form of business is not suitable for a budding business in the contemporary scenario. Although, many startups wish to start as a Proprietorship and later convert into a company, it is recommended that “the sooner – the better”. Having an organized and transparent business structure from the very beginning increases credibility, investor confidence, ensures better internal controls and finally helps in scaling up quickly.

VenturEasy aims at helping startups to form a LLP or Company and thereafter run it smoothly by ensuring all the compliances and accounting are done on time. Explore our Company Formation Packages