LLP in India: Advantages and Compliances

Introduction

LLP is abbreviation of Limited Liability Partnership. It is the body corporate that contains features of both a private limited or limited company governed by the companies act, 2013, and a partnership firm managed by the Indian partnership act, 1932. Since the Limited Liability Partnership includes components of both partnership firm structure and corporate structure, the LLP is known as a hybrid structure betwixt a partnership and a company. It is essential to register a partnership firm in India.

Every Limited Liability Partnership should have at least two partners, and there is no limitation on the maximum number of partners. Also, at least one of the designated partners has to be an Indian resident. The partners’ liability is finite except in case of the unauthorized act, negligence, fraud, and the partners are not personally liable for the unlawful acts and omission of any other partner. Whether arising in the contract or otherwise, the LLP’s obligation is only the obligation of the Limited Liability Partnership.

NOTE – any provision stated in the Indian partnership act, 1932, will not apply to the Limited Liability Partnership firm.

Advantages of the LLP firm.

Low cost of set up or establishment – the cost of Limited Liability Partnership registration in India is low compared to the cost of incorporating a public limited company or private limited company, and the set-up of the Limited Liability Partnership is also straightforward compared to public or private companies.

No minimum requirement for capital – Limited Liability Partnership can initiate with the minimum amount of capital money. Capital might include movable, tangible, or immovable assets such as machinery, lank or intangible property and so forth.

LLP in India: Advantages and Compliances 2

No limit on the number of partners in the business – there is no limit for the partners in the Limited Liability Partnership. It can be set up with a minimum of two partners while there is no limit on the maximum of partners in the Limited Liability Partnership.

Compliance burden will be less – there is no requirement to maintain any statutory records except books of accounts. Less compliance level and less government intervention are enforced on the Limited Liability Partnership compared to limitations enforced on the other business structures.

Separate legal entity – Limited Liability Partnership has its independent existence from its partners. LLP can file a lawsuit and can be sued in its own existence. Due to this, the entry and exit of the partners do not impact the LLP.

DDT (dividend distribution tax) will not be applicable – no DDT (dividend distribution tax) is payable by LLP, so the partners can easily withdraw the LLP’s profits.

No compulsory audit – all the companies, whether public or private, are obliged to get their accounts audited regardless of their share capital. Still, in the case of the LLP, there are no such compulsory requirements. An audit has to be completed in the LLP when the following things happen;

– When the LLP’s contribution goes beyond Rs. twenty-five lacs.

– When the annual turnover goes beyond Rs. Forty lacs.

Board meetings – there is no compulsory requirement to convey four meetings as needed in the companies act. The partners can meet according to their convenience or if the need arises. Partners can specify the details of the meeting and schedule in the LLP agreement.

Statutory compliances in the LLP.

All the LLPs are obliged to maintain compliance and submit certain statutory compliance with the government each year. Here are some of the significant requirements for the Limited Liability Partnership;

Books of account – the LLP is obliged to maintain accurate accounting books concerning its affairs each year on a cash or accrual basis. The books of account must be kept according to the double-entry accounting system and should maintain the same at its registered office.

RoC annual return submission – the Limited Liability Partnership must submit two types of the ministry of corporate affairs (MCA) annual returns each financial year along with mentioned fees;

– Annual return form 11 – within two months of the end of the financial year.

– Statement of account and solvency form 8 – within one month from the end of six months of the financial year.

Income tax return submission – the LLP taxation include filing yearly ITR yearly, regardless of profits or revenues. Limited Liability Partnership can submit its return of income in ITR-5. Limited Liability Partnership that has entered into an international transaction with associated enterprises or undertook several specified domestic transactions are needed to submit form 3CEB, which has to be verified by the CA.

– When the audit is not needed – 31st of July every year.

– When the audit is needed – 30th of September every year.

– LLP involved in the international transaction – 30th of November every year.

NOTE – if the LLP’s contribution is more than Rs. Twenty-five lacs or annual turnover is more than Rs. Forty lacs, it is compulsory for LLP to get its account audited by practising CA.

The tax structure of Limited Liability Partnership for the annual year 2020-21.

– The income tax rate for Limited Liability Partnership will be thirty per cent.

– Surcharge will be twelve per cent of tax where total income is more than Rs. one crore.

– Health and education cess will be four per cent of income tax plus surcharge.

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