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Understanding the concept of Limited Liability Partnership (LLP)

CA Muskan Jain 
on 20 May 2020

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INTRODUCTION: -

LLP is a body corporate that includes features of both a partnership firm governed by the Indian Partnership Act, 1932, and Private Limited or Limited Company governed by the provision of Companies Act,2013. Since LLP contains elements of both "corporate structure" as well as "partnership firm structure", LLP is called a hybrid between a company and a partnership.

Every LLP shall have at least two partners and there is no restriction on a maximum number of partners. Further, at least one of the designated partners should reside in India. The liability of partners is limited except in case of an unauthorised act, fraud, and negligence and a partners are not personally liable for the wrongful acts or omission of any other partner. An obligation of LLP whether arising in contract or otherwise is solely the obligation of the LLP.

NOTE: Any Provisions of the Indian Partnership Act, 1932 shall not apply to a Limited Liability Partnership Firm.

Overview of Limited Liability Partnership (LLP)

BENEFITS OF LLP: -

  • Lower Cost of Formation - The cost of registering LLP is low as compared to the cost of incorporating privately limited or public limited company and the formation of LLP is also very easy as compared to private or public companies.
     
  • No Minimum Capital Requirement - LLP can be started with a minimum amount of capital money. Capital may consist of tangible, movable, or immovable assets like land, machinery etc. or intangible property.
     
  • No Limit on partners of business - There is no limit for partners in LLP. It can be formed with minimum 2 partners while there is no limit on maximum number of partners.
     
  • Lower Compliance Burden - There is no need to maintain any statutory records except books of account. Less government intervention and less compliance level is enforced on LLP as compared to restrictions enforced on other business entities.
  • Separate Legal Entity - LLP has its separate existence from its partners. LLP can sue and be sued in its own existence. Due to this, the entry and exit of the partners don’t affect the LLP.
  • Dividend Distribution Tax not applicable -No Dividend Distribution Tax is payable by LLP, so the profits of the LLP can be easily withdrawn by the partners.
     
  • No requirement of Compulsory Audit - All companies whether private or public irrespective of their share capital required to get their accounts audited, but in case of LLP, there is no such mandatory requirements. An audit is required in LLP only when: -
    • The Contribution of the LLP exceeds Rs. 25 Lakhs, or
    • The Annual Turnover of the LLP exceeds Rs. 40 Lakhs.
       
  • Board Meetings - There is no mandatory requirement to hold 4 meetings as required in companies Act. The partners can meet as per their convenience or need basis. Partners can specify about the meetings details and schedule in LLP agreement

STATUTORY COMPLIANCE IN LLP: -

All LLP are required to maintain compliance and file certain statutory compliance with the government each year. Below are the major compliance requirements for an LLP: -

Let discuss the above points in detail: -

BOOKS OF ACCOUNT - An LLP must maintain proper books of account relating to its affairs each year on cash or accrual basis. The books of account must be kept as per double entry system of accounting and shall maintain the same at its registered office.

ROC ANNUAL RETURN FILING - An LLP has to file below 2 types of MCA (Ministry of Corporate Affairs) annual return each financial year along with the prescribed fees: -

   

S. No.

E-Form

Due Date

1

Annual Return (Form 11)

Within 60 days of end of Financial Year

2

Statement of Account & Solvency (Form 8)

Within 30 days from the end of Six months of the Financial Year

INCOME TAX RETURN FILING - An LLP is required to file Income tax return each year, irrespective of revenue or profits. LLP can file its return of Income in ITR-5. LLP that entered into an International Transaction with associated enterprises or undertook certain specified Domestic Transactions are required to file Form 3CEB (Form 3CEB must be certified by a Chartered Accountant)

   

S. No.

Particulars

Due Date

1

In case Audit is not required

31st July of every year

2

In case Audit is required

30th Sept of every year

3

LLP involved in International Transaction

30th Nov of every year

 

NOTE: If the Contribution of LLP exceeds Rs. 25 Lakhs or annual turnover of LLP exceeds Rs. 40 Lakhs, then it is mandatory for LLP to get its account audited by practising Chartered Accountant.

 

TAX STRUCTURE OF LLP FOR A.Y 2020-21: -

  • The Income Tax rate for LLP is 30%.
    • Surcharge- 12% of tax where total income exceeds Rs. 1 crore.
    • Health and Education cess – 4% of income tax plus surcharge

CONCLUSION:

In this article , we discussed about overview, benefits and statutory compliance of LLP. In the next article , I will discuss about how to file an Annual Return Form-11. So stay tuned and be Safe at Home.

Hope the article is beneficial for all.

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