Annual Compliance for Limited Liability Partnership

Limited Liability Partnership (LLP) is a unique form of business structure that combines the benefits of a partnership and a company. Introduced in India under the Limited Liability Partnership Act, 2008, LLPs are favored by professionals and small businesses due to their flexible structure, limited liability, and minimal compliance requirements compared to private limited companies.

However, despite being relatively less burdensome, LLPs still have mandatory annual compliance obligations to ensure legal functioning and avoid penalties. These compliances include filings with the Ministry of Corporate Affairs (MCA). This maintains proper accounts, and, in certain cases, conducts audits. In this blog, you will learn about Annual Compliance for Limited Liability Partnerships (LLP) in detail.

What is an LLP?

A Limited Liability Partnership (LLP), as defined under the LLP Act, 2008, is a business structure that combines the benefits of a partnership with the protection of limited liability. It allows two or more individuals to start and run a business together. It keeps their personal assets safe in case the business faces losses or legal issues. An LLP is a separate legal entity, which can own property, sign contracts, and be taken to court in its own name just like a company.

Limited liability is one of the biggest advantages of an LLP. The partners are only responsible for the amount they invest in the business. It also involves fewer legal formalities and lower compliance costs compared to private limited companies to manage. LLPs are ideal for startups, consulting firms, small service providers, or professionals who want a flexible and low-risk business model without too much paperwork or hassle.

Why is Annual Compliance Important for LLPs?

Annual compliance is crucial for Limited Liability Partnerships (LLPs) in India, as it ensures adherence to legal mandates. Here is the list of key reasons:

• Legal Compliance: Fulfilling annual filing obligations is mandatory under the Limited Liability Partnership Act, 2008. Non-compliance can lead to penalties, fines, or even dissolution of the LLP.
• Maintaining Limited Liability Status: Timely compliance helps preserve the LLP's status as a separate legal entity. It safeguards partners' personal assets from business liabilities.
• Enhanced Credibility: Regular compliance boosts the LLP's credibility. It facilitates loan approvals and attracts potential investors or partners.
• Financial Transparency: Annual filings provide a clear record of the LLP's financial health that aids in informed decision-making by stakeholders. 
• Avoidance of Penalties: Staying compliant with filing rules helps you avoid large fines and legal trouble. Regular, on-time submissions save your LLP from unnecessary costs and stress caused by late or missed paperwork.
• Facilitation of Business Operations: Following all compliance rules ensures smooth operation of your LLP. It also simplifies processes if you ever decide to restructure or close your business. Everything is easier and faster when your records are up to date.

Thus, regular annual compliance is vital for LLPs to operate legally, maintain their limited liability protection, and uphold their reputation in the business community.

Annual Compliance for Limited Liability Partnership (LLP)

LLPs must adhere to the following annual compliance filing irrespective of their turnover or business activity during the year. Here they are:

1. Filing of Annual Return– Form 11

Filing the Annual Return (Form 11) is a crucial compliance requirement for Limited Liability Partnerships (LLPs) in India. This document provides an overview of the LLP's structure and management. It ensures transparency and adherence to the legal framework established by the Ministry of Corporate Affairs (MCA).?

Legal Basis:

According to Rule 25(1) of the LLP Rules, 2009, every LLP must file its annual return using Form 11 with the Registrar of Companies (ROC). This has to be done within 60 days after the financial year ends. It is a key legal requirement to keep your LLP active and compliant.

Key Details of Form 11:

• Due Date: 30th May every year (within 60 days from the end of the financial year).?
• Applicability: All LLPs must file the annual return, even if they had no business or income during the financial year.

Information Included:

• Details of all partners and designated partners as of March 31.?
• Summary of management affairs.?
• Declaration of contributions received from partners.
• Details of any penalties imposed on the LLP, its partners, or officers.?
• Information about compounding offenses, if applicable.?

Filing Process Described:

Step 1: Preparation:

You must gather updated details of all partners and designated partners.? You need to make sure that the LLP agreement is current and reflects any changes.

Step 2: Accessing the Form:

You must visit the MCA portal's LLP Forms Download section to access Form 11. ?

Step 3: Filling the Form:

You must enter all requisite details accurately.? Then, verify the information to avoid discrepancies.

Step 4: Digital Signatures:

A designated partner needs to sign this form digitally.? If the total obligation of contribution exceeds Rs. 50 lakh or turnover exceeds Rs. 5 crore, it should also be certified by a Company Secretary in practice.?

Step 5: Submission:

You must upload the digitally signed form on the MCA portal.? Then, you need to pay the required filing fee, which varies based on the LLP's contribution amount.

Penalties for Non-Compliance:

If you don’t file Form 11 on time, you need to pay the penalty fee of Rs.100 for each day you delay. There is no maximum limit, so the longer you wait, the more it costs.

2. Statement of Account and Solvency (Form 8)

The Statement of Account and Solvency (Form 8) is a mandatory annual filing for Limited Liability Partnerships (LLPs) in India, serving as a declaration of the LLP's financial status and solvency. This filing ensures that the LLP maintains transparency and adheres to the compliance requirements set by the Ministry of Corporate Affairs (MCA).

Legal Framework:

According to Rule 24 of the Limited Liability Partnership Rules, 2009, every LLP is required to file Form 8 with the Registrar of Companies (ROC). 

Key Components of Form 8:

• Due Date: Form 8 must be filed within 30 days from the end of six months of the financial year, making the due date October 30 each year.
• Applicability: This filing is compulsory for all LLPs, regardless of their turnover or business activity during the financial year.

Contents of the Form:

• Statement of Assets and Liabilities: A comprehensive overview of the LLP's financial position, detailing assets and liabilities.
• Statement of Income and Expenditure: A summary of the LLP's financial performance over the financial year.
• Declaration of Solvency: An affirmation by the designated partners regarding the LLP's ability to meet its obligations and continue its operations.
• Disclosure of Contingent Liabilities: Information on any potential liabilities that may arise in the future.

Filing Procedure:

Step 1: Preparation:       

You must ensure that the LLP's books of accounts are accurately maintained and updated. Then, you need to prepare the financial statements in accordance with applicable accounting standards.

Step 2: Accessing Form 8:

You must visit the MCA portal's LLP Forms Download section to access Form 8.

Step 3: Completing the Form:

You must clearly fill out all required financial details and declarations. You must also check that the information provided reflects the true financial position of the LLP.

Step 4: Digital Signatures:

The form must be digitally signed by at least two designated partners of the LLP. If the turnover exceeds Rs. 40 lakh or the contribution exceeds Rs. 25 lakh, the form must also be certified by a practicing Chartered Accountant, Company Secretary, or Cost Accountant.

Step 5: Submission:

You must upload the digitally signed form on the MCA portal. Next, you need to pay the requisite filing fee, which is determined based on the LLP's contribution.

Penalties for Non-Compliance:

Failure to file Form 8 within the stipulated timeframe incurs a penalty of Rs. 100 per day of delay. Notably, there is no upper limit to this penalty, underscoring the importance of timely compliance.

3. Income Tax Return (ITR-5)

The Income Tax Return Form ITR-5 is designated for entities such as firms, Limited Liability Partnerships (LLPs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), and other similar entities to report their income and tax obligations to the Income Tax Department of India. This form is not applicable to individuals, Hindu Undivided Families (HUFs), companies, or entities required to file returns in Form ITR-7. 

Key Features of ITR-5:

• Applicability: ITR-5 is suitable for entities including firms, LLPs, AOPs, BOIs, artificial juridical persons, cooperative societies, and local authorities.
• Structure of the Form:

1. Part A: General information about the entity, including name, PAN, date of formation, contact details, and status (e.g., firm, LLP).
2. Schedules: Detailed sections for reporting various income sources, deductions, and tax computations.
3. Part B: Computation of total income and tax liability.                                                                         

Filing Process:

Step 1: Preparation:

You must make sure that all financial statements are accurate and up-to-date. Next, you must collect necessary documents such as Form 26AS, TDS certificates, and details of deductions.

Step 2: Accessing the Form:

You must visit the Income Tax Department’s official website and download the latest version of the ITR-5 form.

Step 3: Filling the Form:

You must fill out all the necessary information in the respective sections of the form.  Next, you need to validate the form to check for errors.

Step 4: Verification:

Once you submit the form, confirm it using any one of the available verification methods:

• Digital Signature Certificate (DSC): This document is mandatory for tax audit cases.
• Electronic Verification Code (EVC): EVC code is generated through the e-filing portal.
• Aadhaar OTP: A one-time password was sent to the registered mobile number linked with Aadhaar.
• Physical ITR-V Submission: If you verify your return by post, sign the ITR-V form and mail it to the Centralized Processing Centre (CPC) in Bengaluru within 120 days of e-filing.

Due Dates:

• Non-Audit Cases: For entities not requiring an audit, the due date for filing ITR-5 is 31st July of the assessment year.
• Audit Cases: For entities requiring an audit under Section 44AB, the due date is 31st October of the assessment year.

Audit Requirements:

If your business earns over Rs. 1 crore, or your profession makes more than Rs. 50 lakh in a year, you must get your accounts audited. This is required under Section 44AB of the Income Tax Act.

Penalties for Late Filing:

Failure to file the return within the due date can result in penalties under Section 234F:

If you file your tax return after the deadline but before December 31st, you will have to pay a Rs. 5,000 late fee. If you file after December 31st, the late fee is Rs. 10,000.

4. Audit Requirements

Audit requirements for Limited Liability Partnerships (LLPs) in India are governed by both the Limited Liability Partnership Act, 2008, and the Income Tax Act, 1961. These regulations stipulate specific thresholds and conditions under which LLPs must undergo audits. It ensures financial transparency and compliance.

Audit Requirements under the Limited Liability Partnership Act, 2008:

According to Section 34(4) of the LLP Act, 2008, LLPs are mandated to have their accounts audited if they meet either of the following criteria:

• Turnover Threshold: An LLP with an annual turnover exceeding 40 lakh in any financial year.
• Contribution Threshold: An LLP where the partners' total contribution exceeds Rs. 25 lakh.

LLPs falling below these thresholds are generally exempt from mandatory audits under the LLP Act. However, they must still file the Statement of Account and Solvency (Form 8) annually. It declares their financial status and solvency.

Audit Requirements under the Income Tax Act, 1961:

According to Section 44AB of the Income Tax Act, LLPs must get their accounts audited if their total income or turnover crosses certain limits. This helps ensure proper tax reporting and financial transparency.

• Business Entities: LLPs engaged in business with gross receipts or turnover exceeding Rs. 1 crore in a financial year.
• Professional Entities: LLPs engaged in a profession with gross receipts exceeding Rs. 50 lakh in a financial year.

It is important to note that these thresholds are subject to change based on amendments to the Income Tax Act. Therefore, LLPs should regularly consult the Income Tax Department's official notifications for the most current information.

Filing of Audit Reports:

If an LLP needs an audit under Section 44AB, it must submit the audit report using the official prescribed forms:

• Form 3CA-3CD or Form 3CB-3CD: These forms comprise the audit report and a statement of particulars, respectively.

The audit report must be submitted at least one month before the due date for filing the income tax return under Section 139(1) of the Income Tax Act.

Penalties for Non-Compliance:    

Failure to comply with the audit requirements can result in significant penalties:

• Under the LLP Act: Non-compliance may attract fines, and continuous default can lead to additional daily penalties.
• Under the Income Tax Act: Non-filing or delayed filing of the audit report can result in penalties up to 0.5% of the turnover or gross receipts. It is subjected to a maximum of Rs. 1.5 lakh.

5. DIR-3 KYC (for Designated Partners)

The DIR-3 KYC is an annual compliance requirement mandated by the Ministry of Corporate Affairs (MCA) for individuals holding a Director Identification Number (DIN). It includes Designated Partners in Limited Liability Partnerships (LLPs). This process ensures that the MCA maintains up-to-date and accurate information about these individuals.

Applicability:

If you have been given a DIN or DPIN (for LLP partners) before the end of a financial year, and your DIN is marked as 'Approved', you must file the DIR-3 KYC form. This rule applies to all designated partners to keep their details updated with the government.

Filing Procedure:

Step 1: First-Time Filing or Updating Information:

Individuals filing their KYC details for the first time or needing to update existing information must use the eForm DIR-3 KYC. This form requires the submission of personal details, including unique mobile numbers and email IDs, which will be verified through One-Time Passwords (OTPs).

Step 2: Subsequent Annual Filings (No Changes):

For those who have previously submitted the eForm DIR-3 KYC and have no updates to their information, the DIR-3 KYC Web service can be utilized for annual compliance. This web-based service simplifies the process by allowing verification without resubmitting unchanged details.

Due Date:

You must file the DIR-3 KYC every year by September 30th. For example, if your DIN was issued on or before March 31, 2025, you need to submit the KYC by September 30, 2025. It helps keep your records active and updated.

Consequences of Non-Compliance:

Failure to file the DIR-3 KYC within the stipulated time frame results in the DIN being marked as 'Deactivated due to non-filing of DIR-3 KYC'. To reactivate the DIN, a late fee of Rs. 5,000 is applicable.

6. Other Event-Based Filings (If required)

Limited Liability Partnerships (LLPs) in India are required to comply with various event-based filings as prescribed by the Ministry of Corporate Affairs (MCA). These filings are necessitated by specific occurrences or decisions within the LLP. It must be reported within stipulated timeframes to ensure legal compliance. Below is a detailed overview of key event-based filings applicable to LLPs:

1. Change in Partners or Designated Partners (Form 4):

• Purpose: To notify the Registrar of Companies (ROC) about any appointment, cessation, or change in particulars of partners or designated partners.
• Timeframe: This form must be filed within 30 days of the event.
• Details Required: Information about the incoming or outgoing partner, along with their consent and other relevant details.

2. Change of Registered Office Address (Form 15):

• Purpose: To inform the ROC about a change in the LLP's registered office address.
• Timeframe: This form must be filed within 30 days of the change.
• Details Required: New address details and proof of address.

3. Change of Name (Form 5):

• Purpose: To apply for a change in the LLP's name.
• Timeframe: The form must be filed as per the procedure laid down by the MCA.
• Details Required: You must propose a new name and reasons for the change.

4. Change in LLP Agreement (Form 3):

• Purpose: To notify the ROC about modifications in the LLP agreement.
• Timeframe: Form 3 must be filed within 30 days of the amendment.
• Details Required: Details of the changes made to the agreement.

5.  Application for Strike Off (Form 24):

• Purpose: To apply for the striking off of the LLP's name from the register.
• Timeframe: As per the LLP Act provisions.
• Details Required: Reasons for strike off and declarations as required.

6. Return of Deposits (Form DPT-3):

• Purpose: To furnish details of deposits or outstanding loans.
• Timeframe: This form must be filed annually or as specified.
• Details Required: Information on deposits, loans, and related particulars.

7. Declaration of Beneficial Interest (Form 4D):

• Purpose: To declare any beneficial interest in the contribution of the LLP.
• Timeframe: The Form 4D must be filed within 30 days of receiving the declaration.
• Details Required: Details of the beneficial owner and nature of interest.

8. Return to the Registrar in Respect of Declaration of Beneficial Interest in Contribution (Form LLP BEN-2)

• Purpose: To file the return of the declaration received regarding beneficial interest in the contribution.
• Timeframe: This form must be filed within 30 days from the date of receipt of the declaration.
• Details Required: Information about the beneficial owner and the extent of beneficial interest.

Thus, Non-compliance in filing these may lead to penalties and rejection of future filings.

Conclusion

In conclusion, LLPs must ensure the timely filing of all mandatory and event-based forms with the Ministry of Corporate Affairs (MCA) to stay compliant. Neglecting these filings may result in penalties, deactivation, or legal complications. Adhering to updated MCA guidelines helps maintain legal standing, business credibility, and operational continuity. Throughout this article, you have learned about the Annual Compliance for limited liability partnership. If you want to file an annual compliance, contact Online Legal India. They have experts to guide you or work for you.