Annual compliance for LLP

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Annual compliance for LLP

A Limited Liability Partnership or LLP is a legal entity that incorporates the goodness of a partnership firm and a corporation. In this type of partnership, the partners have limited liabilities which mean that the partners are not required to pay off the debts of the company using their personal assets and at the same time, the individual partners are not responsible for another partner’s misconduct or negligence.

An LLP is required to be registered under the Limited Liability Partnership Act, 2008.

Requirements for LLP Annual Compliance: It is mandatory that LLP’s follow their financial year from 1st April to 31st March. The LLP annual compliance has to be met by each and every registered LLP even if there is no business activity.  In fact, it has to be met even if the LLP has been closed down and whether or not a business bank account exists. LLP annual compliance has to be met on a mandatory basis, irrespective of these conditions. The details are given below:

1. Filing of the Statement of Account & Solvency:

  • Fill up in the prescribed format as per LLP Form 8
  • It is compulsory for all LLPs to maintain the Book of Accounts as per Double Entry method.  Form 8 contains a declaration on the solvency state of the LLP by its designated partners as well as gives details of the statement of assets and liabilities and statement of income and expenditure of the LLP.
  • The form 8 needs to be signed by the partners and requires to be certified by a practicing chartered accountant, company secretary or cost accountant.
  • This is required to be filed within 30 days from the end of six months of the close of the financial year that is by 30th October of each financial year.
  • LLPs with a turnover of more than Rs. 40 lakh or the ones with the contribution of more than Rs. 25 lakh need to get their books of accounts audited by an active chartered accountant.

2. Annual Return Filing

  • The return needs to be filed with the Registrar of Companies.
  • Fill up using the prescribed format – LLP Form 11
  • This is required to be filed within 60 days from the close of the financial year, in other words by 30th May of each year.

    3. Filing of Income Tax Return

    • LLPs are required to file their income tax return using Form ITR 5 – it can be downloaded or filed online using the digital signature of the designated partners.
    • As per the Income Tax Act, all LLPs are required to close their financial year by the 31st of March and accordingly file the returns with the IT Department.
    • LLPs with an annual turnover of more than Rs. 60 lakh need to get their books audited and file their return latest by 30th September every year.
    • LLPs whose accounts are not required to be audited need to file their returns latest by 31st July each year.
    • LLPs that have got engaged in international transactions or have undertaken specific domestic transactions have to file Form 3CEB. The form needs to be certified by a qualified chartered accountant and is to be submitted by 30th November of each year.

Penalty Provisions

  • For MCA Filings: As per the Limited Liability Partnership Act, 2008 filing of Form 8 and Form 11 is a mandatory requirement for every registered LLP. Non-compliance with the LLP annual compliance leads to a penalty. The penalty amount is. 100 per day for every form not filed. No upper ceiling is specified for such penalty amount.
  • For Income Tax Filings: The penalty for defaulting on the filing of Income Tax returns on time is two-fold – Rs. 5000 is to be paid by defaulters who miss the filing due date but do so before 31st December of each year. Rs. 10000 is payable by LLPs that fail to stick to the extended deadline.

After Incorporation Compliances

Apart from the LLP annual compliance, there are certain one-time compliances. Once an LLP has been registered it is required to comply with certain requirements, as follows:-

  • It is compulsory for the LLP to execute and file the LLP Agreement as per Section 2(O) & (q), 22 and 23 of the LLP Act, 2008 within 30 days of the formation with the Ministry of Corporate Affairs. The Agreement typically mentions the rights and duties of the partners and the LLP.
  • As per the LLP Act, in case an Agreement is not filed, the mutual rights and liabilities shall be as per Schedule I to the Act. Hence if an LLP wishes to exclude provisions or requirements of Schedule I to the Act, it needs to have an LLP Agreement executed and filed specifically excluding the applicability of any or all provisions of Schedule I.
  • Penalty: Failure to file the Agreement within the stipulated period is liable to be fined at the rate of Rs. 100 per day of default with no upper limit to it.
  • Other than the above, the LLP is required to apply for the LLP PAN and TAN
  • Open LLP Bank Account
  • Purchase the LLP seal and have LLP stationery prepared post incorporation.