How to Start a ANNUAL COMPLIANCE OF LLP

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Overview of Annual Compliance for LLP

A Limited Liability Partnership (LLP) is an enhanced version of a General Partnership. The Limited Liability Partnership Act, 2008 was published in the Official Gazette of India on January 7, 2009, and became effective on March 31, 2009.

As the name implies, an LLP is a partnership where some or all partners have limited liability. Compared to a private limited company, LLP registration and compliance are relatively simpler.

LLPs have a distinct corporate identity, separate from its partners. This enables the LLP to own property in its own name, enter into contracts, sue and be sued, and open accounts. It is governed by the Companies Act, 2013. Timely annual compliance is crucial to avoid penalties and maintain good standing. LLPs also benefit from "perpetual succession," meaning they continue to exist regardless of changes in the partners.

The name of the LLP must include "Limited Liability Partnership" or "LLP" as the last words. If necessary, winding up can be initiated through voluntary consent or by the intervention of the concerned tribunal.

Who is Responsible for LLP Compliance?

The designated partners are primarily responsible for ensuring that all compliance obligations under the LLP Act, 2008 are met. They are accountable for fulfilling the necessary legal requirements and filings.

While the personal liability of the founders is protected after LLP registration, they may still be held liable for any business-related errors or omissions. However, this liability is distinct from that of the LLP itself.

LLP Compliance in India

In the rush to establish an LLP, many businesses overlook the importance of annual compliance, which can lead to serious consequences. It’s essential to ensure that all regulatory requirements are met for the LLP's smooth functioning and future growth. The best approach is to seek guidance from professionals with expertise in LLP annual compliance, ensuring all obligations are fulfilled efficiently.

For expert assistance, feel free to contact us.

 

LLP Compliance Requirements After Incorporation

After obtaining the incorporation certificate, an LLP must promptly fulfill a series of compliance steps to ensure proper legal standing and avoid penalties.

  1. Obtain TAN (Tax Deduction and Collection Account Number): If applicable, an LLP should apply for a TAN immediately after incorporation for tax-related purposes.

  2. Execute the Partnership Agreement: Within 30 days of incorporation, the partners must execute a partnership agreement, which should be signed by all parties involved.

  3. LLP Seal: Two rubber seals with the LLP's name and designation should be created. These seals are necessary for activities such as opening a bank account and applying for PAN.

  4. Letterhead and Stationery: Prepare official stationery, including letterheads and invoices, displaying the LLP's name and registered office address.

  5. Maintain Books of Accounts: LLPs are required to maintain proper books of accounts, either manually or using accounting software, on a cash or accrual basis. The books should be kept at the registered office and available for inspection if required.

  6. PAN Application for the LLP: Once the LLP is incorporated, a PAN card must be applied for. The application can be submitted online using Form 49A. Once the application is processed, the PAN card will be sent to the registered office.

  7. Open a Bank Account: The LLP must open a bank account using the following documents:

    • Copy of the LLP agreement
    • Designated Partner Identification Number (DPIN)
    • LLP registration certificate
    • Resolution for opening the bank account
    • List of authorized signatories with specimen signatures
    • PAN allotment letter
    • All documents should be signed by a designated partner and stamped with the LLP seal.

  8. Appointment of an Auditor: If the LLP’s turnover exceeds Rs. 40 lakhs or its capital contribution exceeds Rs. 25 lakhs, an auditor must be appointed to audit the books of accounts.

  9. Maintain Annual Accounts: The LLP must maintain and audit its accounts annually. If turnover exceeds Rs. 40 lakhs or capital contribution exceeds Rs. 25 lakhs, an audit by a chartered accountant is mandatory.

LLP Compliance Forms:

  1. Form 8 (Statement of Accounts and Solvency): This form needs to be filed annually by the LLP, containing financial details and solvency information.

  2. Form 11 (Annual Return): An annual return must be filed within 60 days from the end of the financial year. This form includes details about the partners, contributions, and other vital financial information. For LLPs incorporated after October 1 of a financial year, the first financial year can extend up to 18 months.

  3. Filing Annual Accounts: The LLP is required to file Form 8 and Form 11, even if no business has been conducted. These forms must be filed before winding up the LLP’s operations.

Income Tax Return:

  1. Income Tax Filing: Every LLP is required to file an income tax return annually, even if there has been no revenue.

    • LLPs with turnover less than INR 60 lakhs must file their returns by July 31 each year.
    • LLPs with turnover over INR 60 lakhs must file by September 30, or as per any updated deadlines from the Income Tax Department.

  2. Tax Rate: The tax rate for LLPs is a flat 30%, with an additional surcharge of 10% for income exceeding INR 1 crore. An education cess of 2% and a secondary education tax of 1% are also applicable.

Appointment of an Auditor:

An auditor must be appointed annually to audit the books of accounts. The first auditor should be appointed before the end of the first financial year, and subsequent appointments should occur before the financial year ends. The auditor must be independent and a member of the Institute of Chartered Accountants of India (ICAI).

ROC Compliances for LLP:

LLPs must comply with various event-based filing requirements, including:

  • Changes in Capital Contribution: Any changes in the LLP's capital must be reported.
  • Changes in Partners: If there is any change in the partners or their designation, it must be filed with the Registrar of Companies (ROC).
  • Filing Annual Returns: Form 11 and Form 8 must be filed annually.
  • Other Changes: Any changes in the registered office, partners' designation, or the LLP’s name and objectives should be updated with ROC.

LLP Agreement:

The LLP agreement, which governs the rights and duties of the partners, must be filed within 30 days of incorporation. If there is no specific agreement, the default LLP agreement (Schedule I) applies. It is essential to have a well-drafted LLP agreement to avoid potential legal disputes.

For detailed guidance on LLP compliance or assistance with filing annual returns, our experts are available to help streamline the process and ensure all legal requirements are met.

LLP Registration Fees

The registration fees for an LLP depend on the total capital contribution. Here's a breakdown of the fees:

  • Capital Contribution Less Than ₹1 Lakh: ₹500
  • Capital Contribution Between ₹1 Lakh and ₹5 Lakh: ₹2,000
  • Capital Contribution Between ₹5 Lakh and ₹10 Lakh: ₹4,000
  • Capital Contribution Above ₹10 Lakh: ₹5,000

Fees for LLP Agreement Registration

Under Schedule I of the LLP Act, mutual rights and liabilities are applicable unless specified otherwise in an agreement. If the designated partners want to exclude some or all provisions of Schedule I, the LLP agreement must be registered with the Registrar of Companies (ROC). The fees for registering the LLP agreement depend on the capital contribution as follows:

  • Capital Contribution Less Than ₹1 Lakh: ₹50
  • Capital Contribution Between ₹1 Lakh and ₹5 Lakh: ₹100
  • Capital Contribution Between ₹5 Lakh and ₹10 Lakh: ₹150
  • Capital Contribution Above ₹10 Lakh: ₹200

Penalties for Non-Compliance

  1. Penalty for Non-Filing of Form 8 and Form 11:

    • A penalty of ₹100 per day is levied for each day the form remains unfiled. For example, if there’s a 5-day delay, ₹500 will be charged for each form (Form 8 and Form 11 are filed separately).

  2. Penalty for Designated Partners:

    • The penalty can range from ₹10,000 to ₹100,000, and the ROC may initiate legal action against the LLP for non-compliance.

  3. Penalty for Non-Filing of LLP Agreement:

    • If the LLP agreement is not filed within 30 days of the LLP’s formation, a penalty of ₹100 per day of default is imposed, with no upper limit on the fine. It’s crucial to ensure that the agreement is executed and filed on time to avoid significant penalties.

Avoiding Penalties

Many LLPs fail to comply with deadlines for filings and end up incurring substantial penalties. To avoid such issues, it’s highly recommended to hire a legal consultant or firm that can provide timely reminders and handle the filings for you, ensuring that all compliance requirements are met within the stipulated timeframes.

We offer comprehensive services to manage your LLP's compliance requirements, ensuring timely filings and avoiding unnecessary penalties. Contact us today for expert guidance.