Running a business with all necessary compliances is equally important as registering a business, whether in the form any registered Company or LLP. To bring more transparency, every LLPs registered with the Ministry of Corporate Affairs are required to follow all the necessary compliances. The LLP compliances depend on business activity. However, it is the responsibility of the partners of an LLP to make sure that all the necessary compliances are duly complied with.
In this topic, we will go through various LLP Compliances, i.e. Filing of Annual Return, Statements of Book of Accounts, Tax Audit, etc. that are necessarily required to comply with by the partners of the LLP.
What is LLP?
LLP stands for a Limited Liability Partnership. Limited Liability Partnership is a form of corporate business that provides the advantage of limited liability of a company and the flexibility of the Partnership. It is treated as a Separate Legal Identity. LLP is governed under the Limited Liability Partnership Act, 2008. The partners in an LLP are not liable for the unauthorized actions of the other partner, and the liability of the individual partner is restricted to his stake in the capital.
Limited Liability Partnership is a combination of both a company and a partnership firm, where the partners will be treated as an agent of the LLP but on the same hand will not be bound by anything done by the partners.
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Structure and Key Features of an LLP
The structure and key features of an LLP are-
- The structure of an LLP is a separate legal entity and enjoys perpetual succession.
- Limited Liability Partnership Act, 2008 governs the LLP.
- To form an LLP minimum of 2 partners are required.
- Ministry of Corporate Affairs administers the working of LLP.
- After LLP incorporation, it can deal with any trade or business.
- The partners of an LLP are treated as an agent but are not liable for any liability caused by a partner.
- The liability of the partners is limited to his stake in the capital except in the case of fraud and negligence.
- The assets and liability of an LLP are separate from their partners.
- LLP Agreement determines the rights and duties of the partners in an LLP. It is required to file an LLP Agreement to the ROC.
LLP Compliance Checklist
Various LLP compliances are required to be fulfilled by an LLP-
- Disclosure in the account about the contribution made by each partner-As per Section 32 of the LLP Act read with sub-rule (1) of Rule 23; every LLP shall disclose in their account the contribution of each of the partner along with the nature of the contribution.
- Books of Account to be preserved for a specified period-The Books of Account of an LLP are required to be preserved for a period of 8 years from the date on which the BOA is made.
The Books of Account shall be maintained by an LLP which relates to its affairs for each year of its existence. It can be on a cash basis or an accrual basis. The books of account shall be kept at its registered office.
- Filing of Annual Return -As per Section 35 of the Act, every LLP is required to file an Annual Return (FORM-11) with the registrar of the LLP within 60 days from the closure of the financial year.
- Filing statement of Account and Solvency-Every LLP shall file Form 8 consist of the statement of Account and Solvency. Along with the fee, within 30 days from the end of 6 months of the financial year.
The form must be certified by a chartered accountant, auditor or the accountant of the company and 2 designated partners must sign the form digitally.
- Signing Authority – Another very important LLP compliance is, On behalf of the Limited Liability Partnership, the designated partners are required to sign the Statement of Account and Solvency of an LLP.
- Account Auditing – Every Limited Liability Partnership falling in the below- mentioned category are required to get their accounts audited-
- Whose turnover in any financial year exceeds 40 lakh rupees,
- Whose contribution exceeds 25 lakh rupees.
To avoid the penalties, Every LLP is required to fulfil the above-mentioned compliances on a timely basis.
Every LLP is required to comply with the provisions of the LLP Act 2008; in case of non-compliances LLP along with its designated partners, shall be punishable with the fine and penalties. Proper compliances result in transparency, and even an LLP who has not commenced any business would have to file the returns to avoid penalty and to maintain the compliances.
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Read our article: Annual Compliance of a Public Limited Company: Rules and Procedures