What are LLPs?
Limited Liability Partnerships (LLPs) are a flexible legal and tax entity that allows partners to benefit from economies of scale by working together while also reducing their liability for the actions of other partners.
To understand an LLP, it is best to start with the general partnership. A general partnership is a for-profit entity that is created by a mutual understanding between two or more parties. This is a very technical way of describing two or more people working together to make money. A general partnership can be quite informal. All it takes is a shared interest, perhaps a written contract (though not necessarily), and a handshake. Of course, with the informal nature of a general partnership, there is a downside. The most obvious risk is that of legal liability. In a general partnership, all partners share liability for any issue that may arise.
For example, if Joan and Ted are partners in a cupcake venture and a bad batch results in people getting sick, then they can both be personally sued for damages. For this reason, many people quickly turn general partnerships into formal legal entities to protect personal assets from being part of any lawsuit.
The actual details of an LLP depend on where you create it. In general, however, your personal assets as a partner are protected from legal action. Basically, the liability is limited in the sense that you may lose assets in the partnership, but not those outside of it (your personal assets). The partnership is the first target for any lawsuit, although a specific partner could be held liable if they personally did something wrong.
Where Is LLP Defined?
The Indian Partnership Act of 1932[1], Section 4 states that a firm is one in which “people who have formed a partnership with one another are referred to as “Partners” individually and “a firm” collectively. The name under which their business is operated is referred to as the “Firm Name.”
The Income Tax Act of 1961 states, a business incorporate as a limited liability partnership (LLP) as specified by the Limited Liability Partnership Act of 2008. A “limited liability partnership” is defined in The Limited Liability Partnership Act of 2008’s Section 2(1) (n), as a partnership created and registered under the Act.
The LLP is a distinct legal person, liable for the full amount of its assets, but the partners’ responsibility is only as much as their agreed-upon investment in the LLP.”
A partnership firm (including an LLP) is subject to a 30% tax for the years 2022–23. LLP is a legal entity distinct from its partners, with perpetual succession.
Compliance for LLP
Every form of business structure registered in India, limited liability partnerships, etc., is required to submit certain documentation to the registrar of companies on a yearly basis. In line with the 2008 Limited Liability Partnership Act and the 2013 Companies Act, all Indian businesses and LLPs are required to submit ROC annual filings. Both the annual ROC file and its submission at specific times are necessary.
A Limited Liability Partnership (LLP) is a form such as one-person businesses, public limited companies, and private limited firms, a partnership, and a corporation. The Registrar of Companies (ROCs), Ministry of Corporate Affairs, regulates LLPs. A particular kind of corporation is a limited liability partnership that can have as many members as it likes, with no maximum. Although the compliance requirements for an LLP are less stringent than those for a private limited company, it is nevertheless critical to keep track of all the major statutory due dates for the LLP’s annual filing. These include ROC submission, income tax submission, and GST submission. An LLP must be well-prepared and keep track of significant dates to ensure that all relevant compliances are satisfied in a particular financial year.
Distinct Legal Entity
– Assets that are moveable, immovable, tangible, or intangible may be purchased, sold, or held.
– The capacity to file a claim and be brought one.
– Opening a bank account authority, the ability to hire people.
– Having the capacity to conduct any type of legal transaction having the capacity to conduct any type of legal transaction.
– All LLPs are expected to maintain compliance and submit certain statutory filings to the government annually in accordance with their powers. We examine the main LLP compliance requirements in this post.
Compliance with ROCs Is Important
The relevance of ROC compliance in India is that it guarantees effective company running, protects stakeholders’ rights, and preserves openness and accountability in company business operations. Failure to comply with ROC rules can result in sanctions, consequences under the law, and damage to your reputation.
One-Time Mandatory Compliance for LLP
LLP Form 3:
Within 30 days of the LLP’s establishment, the partners must sign an LLP Agreement and file a copy with the Registrar of Companies in LLP Form 3.
Opening a Bank Account:
Any bank in India must create a current account in the LLP’s name. All LLP-related transactions should be conducted solely through the LLP bank account.
PAN and TAN numbers:
Every LLP is required by the Income Tax Department to get a Tax Deduction and Collection Account Number (TAN) and a Permanent Account Number (PAN). (According to the LLP 2nd Amendment Rules, 2022, the same will henceforth be assigned with the Incorporation Certificate.)
Registration for GST
Every business with an annual revenue of more than Rs. 40 lakh (for service providers, Rs. 20 lakh) must adhere to the goods and services Tax (GST) Act and Rules is obliged to register for GST. It is not necessary to get GST immediately after the LLP is formed. The LLP can get this registration as needed.
Annual Mandatory Compliance for LLP
Form 8: Statement of Accounts and Solvency for LLP:
Every LLP must prepare and close its accounts by March 31 of each year. At least two Designated Partners must file Form 8 with the Registrar within 30 days of the financial year’s halfway point, together with a specified fee. The LLP’s interim resolution specialist can now sign the Statement of Account and Solvency on the company’s behalf. Rules for LLP (2nd Amendment), 2022
Form 11 of the LLP Annual Return:
Every year, LLPs with an Indian registration are required to send the Registrar of Companies an annual report. Form 11 includes details on the number of partners, the total number of partners, the sum of all partners’ contributions, details on body corporations as partners, and a list of all partners. 60 days following the end of the fiscal year, all LLPs are required to submit this form together with the required filing fee. Consequently, the deadline for submissions is May 30 of each year. LLP Form 11 for the current financial year (2022-2023).
Even LLPs without any active businesses must Annual returns and financial statements are submitted to the MCA. A NIL return must be submitted since it is required under the Limited Liability Partnership Act, even if there are no modifications or no transactions made by an LLP. Until all yearly returns are submitted, an LLP cannot be dissolved or disbanded. Therefore, in order to avoid a fine, it is crucial to submit your LLP Annual Return on time or earlier.
Income Tax Return
Each year, LLPs must submit an income tax return. Every year, the deadline for filing LLP returns is July 31st. However, any LLP subject to a tax audit
Recent Amendments
The Limited Liability Partnership (LLP) landscape witnessed substantial changes with the enactment of the Limited Liability Partnership (Third Amendment) Rules, 2023 by the Ministry of Corporate Affairs. These amendments, effective from the notification date of October 27, 2023, primarily revolve around crucial modifications related to maintaining a comprehensive register of partners and declaring beneficial interests.
A key addition to the LLP rules is rule 22A, requiring LLPs to uphold a register of their partners in form 4A. For LLPs incorporated after the implementation of these rules, compliance with this requirement is immediate, starting from the date of their incorporation.
Existing LLPs are provided with a 30-day window to establish and maintain this register at their registered office. The register includes personal information of partners, corporate identification numbers, asset details, contribution particulars, beneficial ownership, and other pertinent data.
This amendment aligns with the existing obligations for companies, where a register of members is mandated under section 88 of the Companies Act, 2013, emphasizing transparency and accountability.
Furthermore, rule 22B mandates individuals listed in the partner register without any beneficial interest in contributions to declare the actual benefactors within 30 days of their inclusion. Additionally, individuals acquiring or holding a beneficial interest must submit a declaration in form 4C within the same timeframe.
Upon receiving declarations in forms 4B or 4C, LLPs are obligated to record these details in their partner register and file a return in form 4D with the Registrar of Companies within 30 days from the receipt of the declaration. These changes aim to enhance transparency, accountability, and compliance within the LLP framework.
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