A Limited Liability Partnership, commonly known as LLP is a hybrid form of business in India which has the combined features of a Partnership firm and Private Limited Company. LLP is a corporate entity and is operated by rules procedures as given in the Limited Liability Partnership Act, 2008. An LLP can be formed with a minimum 2 designated partners as per the provisions of the Companies Act, 2013.
An LLP has to comply with numerous compliances with regard to its incorporation and functioning. These compliances are categorized as one time compliances and annual compliances of the LLP and filed with the Registrar of Companies.
One time compliances for Limited Liability Partnership:
- Digital Signature Certificate: For signing the forms relating to LLP incorporation and LLP annual compliances every designated partner of the LLP is required to obtain a digital signature certificate. A digital signature certificate is the digital form of physical signatures that act as the proof of identity of an authorized person.
- Registration of LLP Agreement: Every LLP needs to get a limited liability partnership agreement drafted and registered within 30 days of its incorporation. An LLP agreement lays down the agreement between partners of an LLP and defines their rights and duties towards the LLP as well each other. Such agreement specifies the profit and loss distribution between the partners, ownership rights, management rights, rules regarding day-to-day activities of LLP etc.
- Designated Partner Identification Number: DPIN or Designated Partner Identification Number is an equivalent of DIN that acts as the identity number of designated partner in LLP. DPIN is to be obtained from the Ministry of Corporate Affairs and requires a digital signature certificate for filling of the application for obtaining DPIN.
Annual Compliances for Limited Liability Partnership:
Every LLP requires filing of different annual compliances for the financial year with the Registrar of Companies. Non-compliances with such annual filings can result in heavy penalties. These annual compliances become applicable over the LLP right from the moment it gets registered. The annual compliances include the following:
- Filing of Financial Statement: An LLP is required to maintain its Books of Accounts in Double Entry System and prepare its statement of solvency for every financial year on or before 30th It is compulsory for LLP to audit its accounts and financial statement including balance sheet, profit and loss statement, cash flow statement, notes and schedules by the Chartered Accountant if the annual turnover of such LLP exceeds Rs. 40 lakh or its contribution exceeds Rs. 25 lakh.
- Filing of Annual Return: Annual returns of an LLP are filed in Form-11 with the Ministry of Corporate Affairs. Annual returns of the LLP describe the details relating to the management of LLP, number of partners, their names, address etc. Annual returns must be filed by 30th May every year for the financial year ending on 31st
- Income tax return filing: LLP can file its return of income in Form ITR 5. The books of accounts must be audited and return must be filed before 30th September if annual turnover of such LLP is more than Rs. 60 lakhs or its contribution exceeds Rs. 25 lakh. Form 3CEB is required to be filed if LLP involved in international transactions with associated enterprises or has undertaken specified domestic transactions. This form is to be certified by practicing Chartered Accountant and must be filed by 30th
Penalty for Non-Compliance with Annual Filings:
The Limited Liability Partnership Act, 2008 states that non-compliance with the LLP annual compliances with Registrar of Companies can lead to a penalty of Rs. 100 per day for every not filed. There is no upper limit for such penalty amount. On non-filing of the statement of accounts, designated partners also have to face a personal penalty of Rs. 10,000 extendable up to Rs.1 lakh. The Registrar of Companies can issue notice to LLP and initiate legal proceedings like strike off.
Penalty of Rs. 5000/- can be imposed on non filing of Income Tax returns if the ITR is filed after the deadline but before 31st December. If the ITR is filed after 31st December, then a fine of Rs. 10,000 is required to be paid to the Income Tax Department.
Running a business, be it in the form of a One Person Company, LLP or as Private Limited Company, is not easy task, it is an investment of time, money, and effort and also requires the knowledge of so many formalities, regulatory or financial. Filing of all the forms and returns on time is very essential. Heavy penalties can be imposed if the forms are not filed on time with the Registrar.
Associate at Aggarwals & Associates, S.A.S. Nagar, Mohali