Annual Compliance of Limited Liability Partnership
Running a business requires a lot of hard work and determination, but it also comes with certain legal responsibilities. Limited Liability Partnerships (LLPs) in India are no exception. Every year, LLPs must fulfill certain mandatory obligations to remain compliant with government regulations. Failure to do so can result in hefty penalties. In this blog post, we’ll discuss the annual compliance requirements of LLPs in India, including the forms to be filed and deadlines to be met. Stay tuned to ensure your LLP stays on track with its compliance obligations.
1. Introduction to LLP Compliance Calendar
LL in India are required to comply with certain mandatory regulations as set by the Ministry of Corporate Affairs (MCA). Compliance with income tax filings and GST return filing is also mandatory for LLPs. In this article, we will discuss the LLP Compliance Calendar in detail. A Limited Liability Partnership is a corporate business form that offers limited liability benefits of a company and flexibility of a partnership. The LLP can enter into contracts and hold property in its own name, and its existence does not depend on changes made to partners. The liability of the partners is limited to their contribution to the LLP. After an LLP is incorporated, it is required to fulfill certain mandatory compliance or face hefty penalties. The list of important compliance for an LLP includes executing an LLP Agreement, opening a current account in the name of the LLP, obtaining a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN), and registering under the Goods and Services Tax (GST) Act and Rules. Furthermore, LLPs must file the Statement of Accounts and Solvency in LLP Form 8 and the Annual Return or Form 11 every year, and designated partners must file form DIR 3 KYC. Non-compliance can lead to penalties. Therefore, it is essential for LLPs to meet these compliance requirements and maintain their status as a separate legal entity liable to the full extent of its assets.
2. Requirements for Registering an LLP
Registering a Limited Liability Partnership (LLP) in India is relatively easy. To establish an LLP, there should be a minimum of two partners, and at least one of them must be an Indian resident. To ensure smooth operation, the LLP needs to maintain a proper book of accounts, file income tax returns, and submit an annual return to the Ministry of Corporate Affairs (MCA) every financial year.
The LLP provides limited liability protection for the owners, with one partner not answerable or liable for another partner’s misconduct or negligence. Additionally, the LLP can have limitless partners and may raise funds through partners and financial institutions. Overall, the LLP combines the benefits of a partnership firm and a company.
To register an LLP, obtaining Digital Signature Certificates (DSC) for all the Partners is the first step. The next step is to apply for Director Identification Number (DIN) for the designated partners. After obtaining DIN and DSC, the applicant can apply for LLP name approval. Once the name is approved, the applicant may file incorporation documents, including the LLP Agreement, with the Registrar of Companies (ROC).
Following incorporation, there are mandatory compliance requirements. An LLP must file an annual return and statement of account and solvency, using Form 8 and Form 11, respectively. These forms should be filed within 30 and 60 days after the end of the financial year, respectively. Additionally, if an LLP’s turnover exceeds INR 40 lakhs or its capital exceeds INR 25 lakhs, it must have its books audited by a chartered accountant. Failure to meet compliance requirements can result in heavy penalties.
In summary, setting up an LLP requires minimal capital and compliance, making it a popular form of entrepreneurship in India. Registering an LLP is easy with the proper documentation, and meeting annual compliance requirements will ensure smooth operations within the legal framework.
3. Advantages of a Limited Liability Partnership
Limited Partnership or LLP is a preferred choice of business incorporation for many entrepreneurs in India due to the various advantages it offers. The following are the advantages of forming an LLP:
– No minimum capital requirement: There is no requirement for a minimum capital contribution to incorporate an LLP, allowing entrepreneurs to start their business with the least possible capital.
– No limit on ownership: There is no restriction on the maximum number of partners in an LLP, making it an attractive option for businesses with multiple partners.
– Low compliance burden: Compared to private limited or public limited companies, LLP has a relatively lower compliance burden, making it popular among small businesses.
– Tax benefits: LLPs are taxed at a 25% rate for businesses with an annual turnover of up to Rs. 250 crores, while private limited companies are taxed at a 30% rate, irrespective of their turnover. Furthermore, LLPs are exempted from Dividend Distribution Tax (DDT), making it easier for partners to withdraw profits.
– Flexibility: LLPs offer more flexibility than traditional partnership firms, allowing for the separation of management and ownership roles.
– Low registration costs: The cost of registering an LLP is relatively low, with companies like IndiaFilings offering registration services for as low as Rs. 7899.
Despite its advantages, LLPs also have some limitations, such as the requirement to file annual returns even with minimal activity and the inability to attract equity investments from angel investors, HNIs, venture capital, and private equity funds. Overall, for businesses with minimal capital and a smaller number of partners, LLPs offer a cost-effective and flexible option for business incorporation in India.
4. Overview of Mandatory Compliance for LLPs
Limited Liability Partnerships (LLPs) have become increasingly popular among entrepreneurs due to the ease of management and a lesser number of legal formalities as compared to traditional partnerships and private limited companies. However, even LLPs are not exempted from mandatory compliance regulations. These regulations ensure that the LLPs operate within the legal framework and adhere to the stipulated guidelines.
The LLPs registered under the Ministry of Corporate Affairs (MCA) in India are required to file their statement of accounts and annual returns for every financial year. Form 8 and Form 11 are the two forms that need to be filed every financial year. Form 8 consists of the statements of account and solvency, while Form 11 portrays the complete details of all the partners. LLPS with turnover above Rs. 40 Lakhs or whose capital exceeds Rs.25 Lakhs are also required to file Chartered Accountant audited tax returns.
It is worth noting that all LLPs, regardless of the business volume or profit margins, must file their returns on time. Failure to comply with the regulations attracts a high penalty. The penalties for non-compliance can go as high as Rs.100 per day for every day of delay.
To ensure compliance, an LLP Compliance Checklist for India is available, which lists all the mandatory compliances that LLPs must follow. The Compliance Checklist includes regulations for annual compliance, year-wise compliance, and compliance forms to be filed. By adhering to the Compliance Checklist and ensuring timely annual and year-wise compliance filings, LLPs can avoid penalties and continue to operate lawfully.
5. Mandatory Compliance Checklist for LLPs
As soon as an LLP is incorporated, it becomes mandatory to comply with certain regulations that are set by the Ministry of Corporate Affairs for all LLPs operating in India. Failure to comply with these requirements may result in hefty penalties. Therefore, it’s crucial for every LLP to follow the mandatory compliance checklist for LLPs. Here is a summary of the most important compliance requirements:
– Execute an LLP agreement and file a copy with the Registrar within 30 days of incorporation.
– Open a current account in the name of the LLP with any bank in India.
– Obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.
– Apply for GST registration if the annual turnover exceeds Rs. 40 lakhs (Service providers Rs. 20 lakhs).
– File the Statement of Accounts and Solvency in LLP Form 8 with the Registrar within 30 days after completion of six months of the financial year.
– File the Annual Return or Form 11 summarizing all the Designated Partners’ details to the Registrar within 60 days from the closure of the financial year.
– File the Income tax return by 31st July every year.
“LLPs need to comply with various legal requirements to ensure smooth functioning and avoid penalties. Filing all mandatory forms, obtaining necessary registrations, and maintaining proper accounts are some of the key requirements. It’s important to remember that even if an LLP has not done any business or achieved profit, filing a return is still mandatory. It’s advisable to seek expert assistance to ensure compliance with all legal regulations,” notes a Vakilsearch blog. Therefore, following the mandatory compliance checklist for LLPs is a crucial aspect for every LLP, which will help the business avoid any legal complications and focus on its growth.
6. Timeline for One-Time Mandatory Compliance
Every Limited Liability Partnership (LLP) registered in India is required to fulfil certain mandatory compliance set by the Ministry of Corporate Affairs (MCA) for LLP. As soon as an LLP is incorporated, certain mandatory compliance need to be fulfilled, failing which the LLP may have to pay hefty penalties. One-time mandatory compliance calendar for an LLP includes the execution of an LLP Agreement by the partners, opening a current account in the name of the LLP with any bank in India, obtaining a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department, and getting GST Registration under Goods and Services Tax (GST) Act and Rules.
It is not mandatory to obtain GST immediately after incorporation of the LLP; however, every business with an annual turnover exceeding Rs. 40 lakhs (service providers Rs. 20 lakhs) is required to obtain GST registration as and when required. The partners are required to file Form 3 with the Registrar or Companies in LLP Form within 30 days of incorporation of LLP.
After fulfilling one-time mandatory compliance, annual mandatory compliance needs to be followed. The financial year for an LLP runs from 1st April to 31st March, and the partners are required to file a Statement of Accounts and Solvency in LLP Form 8 within 30 days of the end of six months of the financial year, and an Annual Return in LLP Form 11 within 60 days from the end of the financial year, irrespective of whether the LLP has completed any business in that specific financial year.
Accounts audit is mandatory for LLPs whose annual turnover exceeds Rs. 40 lakhs or whose contribution exceeds Rs. 25 lakhs. The deadline to file the tax return for an LLP, which is required to get its books audited, is 30th September, whereas for LLPs where tax audit is not required, the due date for tax filing is 31st July. It is crucial for LLPs to comply with the mandatory compliance requirements to avoid heavy penalties and maintain their legal status.