Annual compliance for a Limited Liability Partnership (LLP) ensures that the entity remains in good legal standing. This involves filing essential documents with the Registrar of Companies (RoC) such as the annual return and financial statements, which include the balance sheet and profit and loss account. LLPs must also hold an annual meeting, maintain and update their statutory records, and adhere to deadlines for submissions to avoid penalties. This process is crucial for maintaining transparency, upholding the LLP’s credibility, and ensuring that the business operates smoothly and efficiently throughout the year. Regular compliance helps prevent legal issues and fosters trust with stakeholders and regulatory authorities.
What is LLP
A Limited Liability Partnership (LLP) is a business structure that blends the benefits of a partnership with the limited liability protection typically associated with corporations. It offers partners protection from personal liability for the business’s debts and obligations, meaning their personal assets are not at risk beyond their investment in the LLP. This structure provides flexibility in management and operations, allowing partners to determine how the business is run and how profits are shared. An LLP is a separate legal entity, meaning it can own property, enter into contracts, and be sued independently of its partners. Its existence is not affected by changes in partnership, and it benefits from tax treatment similar to that of a partnership, avoiding double taxation.
Advantages of Limited Liability Partnership
- Powers to Sue and Be Sued: An LLP can engage in legal actions in its own name.
- Powers to Open a Bank Account: The LLP can manage its finances separately from its partners.
- Powers to Employ Persons: It can hire employees and manage payroll.
- Powers to Enter Legal Contracts: The LLP can enter into contracts and agreements.
- Protection from Partner’s Misconduct: Partners are not liable for each other’s negligence or misconduct.
- Direct Business Management: Members have the right to manage the business directly.
- Limited Liability Security: Owners enjoy protection from personal liability beyond their investment.
- Continuity with Fewer Partners: The LLP can continue to operate with fewer than two partners until a new partner is found.
- Unlimited Number of Partners: An LLP can have an unlimited number of partners post-establishment.
- Separate Legal Existence: The LLP is a distinct legal entity with its own assets and accounts.
- Fundraising Flexibility: It can raise funds from partners, banks, and NBFCs.
Privileges for LLP in Corresponding to a Private Limited Company
Limited Liability Partnerships (LLPs) provide several advantages over private limited companies. They offer greater management flexibility, allowing partners to directly run the business without needing a board of directors. LLPs also eliminate the need for a minimum capital investment, which can ease the financial entry requirements compared to private limited companies.
Additionally, LLPs face fewer compliance demands. They are not required to hold annual general meetings (AGMs), unlike private limited companies which must conduct these meetings and maintain formal documentation. LLPs also offer more flexible profit-sharing arrangements and simplify the process of transferring ownership. This flexibility and reduced regulatory burden make LLPs an appealing choice for many businesses seeking a more adaptable and less bureaucratic structure.
Annual Filing Process for LLP
- Annual Filing Requirement: File the mandatory annual return for the LLP with the Ministry of Corporate Affairs (MCA) to maintain compliance.
- Preparation of Annual Return: Prepare the annual return using financial data and business activities from the previous fiscal year.
- Verification: Review the prepared annual return to ensure accuracy based on the submitted specifications, and obtain confirmation and approval from the relevant authorities.
- Final Submission: After approval, submit the annual return along with any necessary attachments to the MCA to complete the filing process.
Documents Required for Annual Filing of Compliance for LLP
- PAN Card & COI: PAN Card and Certificate of Incorporation of LLP
- LLP Agreement: The LLP Agreement along with any supplementary agreement, if any
- Financial Statements: Financial Statement of LLP duly signed by the Designated Partners
- Digital Signature: DSC of all Designated Partners is required
- LLP Identification Number: Verification
- Name of the LLP: Proof of Title
- Registered office address of the LLP: The documentation needed regards to Location
- Business Classification of the LLP: Record of Business/ Service/Occupation/Others
- Principal business enterprises of the LLP
- Aspects of Designated Partners and Partners of the LLP
- Total responsibility for the contribution of partners of the LLP
- Total input supported by all partners of the LLP
- Review of Designated Partners and Partners
- Details of penalties imposed on the LLP, if any
- Facts of intensifying offenses, if any
- Features of LLP and or company in which Partners hold the position of Director/Partner.
Limited Liability Partnership Compliance Requirements
Declarations Of Accounts And Solvency: All registered LLPs are expected to have their books of accounts in place and fill in data concerning the profit made, and other economic data in regards to sales, and submit it in Form 8, each year. Form 8 must be attested by the impressions/signatures of the designated partners and should also be certified by a practicing ‘chartered accountant or a practicing ‘company secretary’ or a practicing ‘cost accountant. Neglecting to file, the statement of accounts & solvency records within the designated due date will lead to a fine of INR ‘100’ per day. The due date to submit form 8 for the financial year 2017-18 is October 30, 2018.
Arranging Annual Return: Annual Returns are to be submitted in the designated Form-11. This Form is to be entertained as a summary of the management affairs of LLP. These are like numbers of partners, simultaneously with their names. However, form 11 has to be filed by May 30 every year.
Filing And Audit Obligation Under The Income Tax Act: As explained earlier, Limited Liability Partnerships whose turnover is higher than INR 40 lakh or whose participation has exceeded INR 25 Lakh have to get the books of account audited by practicing ‘Chartered Accountants. The last date to file the tax return for an LLP, which is supposed to get his books evaluated, is September 30.
Latest Tax Structure: Commencement 2020
The threshold limit for tax audits has been increased from Rs 1 crore to Rs 5 crore starting from AY 2021-22 (FY 2020-21), provided that the taxpayer’s cash transactions do not exceed 5% of their gross receipts or total turnover, and cash payments are also capped at 5% of total payments. For LLPs, tax audits are not required unless they engage in specific conditions. The deadline for filing tax returns is July 31.
LLPs involved in international transactions with associated enterprises or specific domestic transactions must file Form 3CEB, which needs to be certified by a practicing Chartered Accountant. LLPs required to file this form have an extended deadline until November 30. Additionally, LLPs should file their income tax returns using Form ITR-5, which can be submitted online through the income tax portal using the digital signature of the authorized partner.
Tax Structure of LLP 2019-20
Overcharge, Health, and Education Cess
For the fiscal year 2019-20, Limited Liability Partnerships (LLPs) are taxed at a base rate of 30% on their income. Additionally, a Health and Education Cess of 4% is levied on the income tax amount, which is used to fund health and education initiatives. This cess is calculated on the total tax liability, including any surcharge applicable
Alternative Minimum Tax (AMT)
LLPs are subject to Alternative Minimum Tax (AMT) under Section 115JC of the Income Tax Act, which ensures that LLPs with income below the basic threshold but with significant deductions still pay a minimum level of tax. The AMT rate is 18.5% of the adjusted total income, plus a 4% Health and Education Cess. This mechanism ensures that even LLPs availing substantial tax benefits contribute a minimum amount towards tax obligations.