Limited Liability Partnership Compliance

Overview

A Limited Liability Partnership (LLP) is a distinct legal entity registered under the Ministry of Corporate Affairs (MCA) in India. To register an LLP, there must be at least two partners, one of whom must be an Indian citizen and resident. Partners in an LLP are responsible for maintaining proper books of accounts, filing an Income Tax Return, and submitting an annual return to the MCA every financial year.

To establish and maintain an LLP, periodic returns must be filed to ensure compliance and avoid substantial penalties. LLPs have fewer compliance requirements compared to private limited companies, but the penalties for non-compliance are significant. For instance, while a private limited company may face penalties up to INR 1 lakh, an LLP could be penalized up to INR 5 lakh.

Annual Compliance Requirements for LLPs

1. Maintenance of Books of Accounts

LLPs must maintain proper books of accounts. Auditing of these accounts is required only if the annual turnover exceeds INR 40 lakhs or if the contributions exceed INR 25 lakhs. This makes the annual filing process simpler for many LLPs.

2. Filing Statement of Account and Solvency

LLPs must file their Statement of Account and Solvency within thirty days from the end of six months of the financial year. Given the financial year runs from April 1st to March 31st, the filing deadline is October 30th.

3. Filing Annual Return

LLPs must file their Annual Return within sixty days from the end of the financial year, making the due date May 30th. This filing is mandatory regardless of whether the LLP has conducted any business during the year.

Key Points

• Separate Legal Identity: LLPs have a separate legal identity, and partners are responsible for compliance.
• Simplified Auditing Requirements: Only LLPs with turnover exceeding INR 40 lakhs or contributions exceeding INR 25 lakhs need to have their accounts audited.
• Mandatory Annual Filings: LLPs must file both the Statement of Account and Solvency and the Annual Return every year, irrespective of business activity.

Compliance Deadlines

• Statement of Account and Solvency: October 30th.
• Annual Return: May 30th.

Penalties for Non-Compliance

Non-compliance can result in hefty penalties. While private limited companies may face penalties up to INR 1 lakh, LLPs can be penalized up to INR 5 lakh, emphasizing the importance of timely compliance.

Conditions:

To start an LLP, a minimum of two partners is required, and there is no limit on the maximum number of partners. Unlike a private limited company, there is no requirement for a minimum capital contribution to start an LLP. The LLP is governed by the Limited Liability Partnership Act, 2008, and is regulated by the Ministry of Corporate Affairs.

Annual Filing Requirements

• Income Tax Return: Like any business, your LLP must file an annual Income Tax Return.
• Annual Return (Form 11): This report, filed with the MCA by May 30th of each year, details your LLP’s partners, contributions, and other essential information. This filing is mandatory even if the LLP hasn’t conducted any business in the previous year.
• Statement of Account and Solvency (Form 8): This document, submitted within 30 days of the end of six months of the financial year (usually by October 30th), provides a snapshot of your LLP’s financial standing.

Audit Requirements

Unlike companies, LLPs are not obligated to have their accounts audited unless: Their annual turnover exceeds Rs. 40 lakh (Rs. 4 million). Partner contributions to the LLP surpass Rs. 25 lakh (Rs. 2.5 million).

Benefits of Timely Compliance

Avoiding hefty penalties for non-compliance (up to Rs. 5 lakh for LLPs compared to Rs. 1 lakh for private companies). Maintaining a good reputation and attracting potential investors or partners. Ensuring access to loans and other financial products.

Why Annual Compliance Matters for Your Indian LLP

Maintaining annual compliance for your Indian Limited Liability Partnership (LLP) isn’t just about following the rules – it offers a range of significant benefits for your business. Here’s how staying compliant can give your LLP a boost:

Smooth Conversion or Closure: Thinking of transforming your LLP into a private limited company or winding it down? Timely annual filings make the process much easier. The Registrar’s office verifies your compliance history before approving conversions or closures, so staying on top of filings saves you time and hassle.

Trust and Credibility: The Ministry of Corporate Affairs (MCA) website publicly displays your LLP’s compliance status. This transparency builds trust with potential investors, partners, and clients. They can see your commitment to good governance and responsible business practices.

Financial Strength: Annual filings, including your Statement of Account and Solvency, offer a snapshot of your LLP’s financial health. Potential business partners and lenders use this information to assess your creditworthiness, making it easier to secure funding and partnerships.

Avoiding Penalties and Disqualifications: Falling behind on annual filings can lead to hefty penalties for your LLP and its partners. Even worse, non-compliance can potentially disqualify you from entering into contracts or holding certain positions within the LLP. Regular filing protects you from these costly consequences.

Checklist

Here are the steps to register an LLP:

1. Obtain a Digital Signature Certificate (DSC) for all designated partners
2. Apply for Director Identification Number (DIN) for all designated partners
3. Reserve the desired name of the LLP through the RUN-LLP (Reserve Unique Name for Limited Liability Partnership) form
4. File the incorporation documents with the Registrar of Companies (ROC) within 20 days of name approval. The documents include:
   • LLP Agreement
   • Form 2 (Incorporation Document and Subscriber’s Statement)
   • Form 3 (Details of LLP Partners)
5. Obtain the Certificate of Incorporation from the ROC

Documents Required:

1. PAN card of all designated partners
2. Address proof of all designated partners
3. Digital Signature Certificate of all designated partners
4. Passport size photograph of all designated partners
5. Address proof of registered office
6. NOC from the owner of the registered office
7. Rental agreement of registered office (if rented)

Organizing Indian LLP’s Annual Compliance

Staying compliant for your Indian Limited Liability Partnership (LLP) involves two key filings: Annual Return and Statement of Account & Solvency. Here’s a breakdown of the process and deadlines:

1. Annual Return (Form 11):

• Preparation: Based on your LLP’s financials and activity in the previous year, you’ll need to prepare the Annual Return using Form 11.
• Verification: Ensure the information submitted in Form 11 is accurate and complete.
• Filing: Once verified, submit the final Annual Return with supporting documents to the Ministry of Corporate Affairs (MCA) by May 30th of each year. This deadline applies regardless of your LLP’s business activity.

2. Statement of Account & Solvency (Form 8):

• Purpose: This form captures your LLP’s financial health and solvency.
• Documents Needed: Form 8 requires data on profits, sales, and other financial details.
• Certification: Partner signatures and certification by a Chartered Accountant, Company Secretary, or Cost Accountant are mandatory.
• Deadline: File Form 8 with the MCA within 30 days of the end of six months of your financial year. This typically translates to a deadline of October 30th each year.
• Non-Compliance Penalty: Failing to file Form 8 by the due date incurs a penalty of Rs. 100 per day of delay.

Additional Considerations:

• Audit Requirement: LLPs with a turnover exceeding Rs. 40 lakh or a contribution of more than Rs. 25 lakh need to have their accounts audited by a Chartered Accountant.
• Income Tax Return: The deadline to file your LLP’s Income Tax Return, if an audit is required, is September 30th.

By keeping this timeline in mind and gathering the necessary documents well in advance, you can ensure a smooth and timely annual compliance process for your Indian LLP.

Tax Structure for LLPs (as of April 13, 2024)

Tax Rate: LLPs are taxed at a flat rate of 30% on their total income for the financial year.

Surcharge: A surcharge is levied on the income tax payable depending on the total income: No surcharge if the total income is up to Rs. 1 crore. 12% surcharge on income tax if the total income exceeds Rs. 1 crore.

Marginal Relief: A mechanism exists to ensure the total tax liability (including surcharge) doesn’t exceed the tax payable on Rs. 1 crore by more than the amount exceeding Rs. 1 crore in income.

Health and Education Cess: An additional cess of 4% is applied on the total income tax and surcharge.

Minimum Alternate Tax (MAT): LLPs are subject to MAT, ensuring the income tax paid is not less than 18.5% (including surcharge and cess) of the adjusted total income as per Section 115JC of the Income Tax Act.

Tax Filing: LLPs are required to file their income tax return in Form ITR-5. The filing can be done electronically through the income tax website using the designated partner’s digital signature.

Important Dates : Due date for tax filing for LLPs that are not required to be audited: July 31st. Due date for tax filing for LLPs required to be audited (turnover exceeding Rs. 40 lakh or contribution exceeding Rs. 25 lakh): September 30th.

Form 11: Annual Compliance for Your LLP

What is Form 11?

Form 11 is an annual return that all Limited Liability Partnerships (LLPs) in India must file, regardless of their business activity or turnover in a particular year. Even if your LLP hasn’t conducted any business during the financial year, you still need to file Form 11.

What Information Does it have

• Basic LLP Details: Name, address, and other registration information.
• Partner/Designated Partner Details: Names, addresses, and any changes in the partnership structure.
• Financial Contributions: Total contributions made by/to partners during the year.
• Penalty and Offense Notices: Details of any penalties imposed or offenses compounded during the financial year (if applicable).

Filing : The MCA portal offers a pre-fill option to simplify the process by automatically populating some information. You can electronically file Form 11 directly on the MCA gateway.

Additional Documents: You may need to attach details of other LLPs or companies where your partners/designated partners hold positions. Any other relevant information can be submitted as an optional attachment.