Limited Liability Partnership (LLP) - Explained

One of the quickest, in-expensive way to float a Company is through is LLP

This document covers

1. Concept of LLP
2. Features
3. Small LLP ^NEW
4. Registration
5. Advantages
6. LLP Annual Compliance
7. FAQs

1. Concept of LLP

• There are many different ways to form a business, and one of the more common ways is through a Limited Liability Partnership, or LLP. This type of business structure that involves two or more people coming together to own and operate a single business. There is a wealth of benefits to be enjoyed and reasons that people choose to go the limited liability partnership route for their business. Tax benefits and limited liability are two of the biggest. While there are many great reasons to choose an LLP, and also some significant draw backs in choosing this structure.
• LLP means Limited Liability Partnership. It is a separate legal entity and business organisation that gives the benefit of limited liability of company and the flexibility of a partnership. LLP is new form of business entity with limited liability.
• Limited Liability Partnership not only gives the benefits of limited liability at low compliance cost but allows its partners the flexibility of organising their internal structure as a traditional partnership. LLP will be liable for the full extent of its assets and the liability of partners will be limited.
• LLP is called a hybrid between a company and partnership. LLPs are governed by Limited Liability Partnership Act 2008 and the Ministry of Corporate affairs, and the Registrar of Companies (ROC) are entrusted with the task of administering the LLP act 2008

2. Key Features of Limited Liability Partnership (LLP)

• Limited liability protects the member's personal assets from the liabilities of the business. LLP's are a separate legal entity to the members.
• Flexibility: The operation of the partnership and distribution of profits is determined by written agreement between the members. This may allow for greater flexibility in the management of the business.
• The LLP is deemed to be a legal virtual person. It can buy, rent, lease, own property, employ staff, enter into contracts, and be held accountable, if necessary.
• Corporate ownership: LLP's can appoint two companies as members of the LLP. In a LTD Company, at least one director must be a real person.
• Designate and non-designate members: You can operate the LLP with different levels of memberships.
• Protecting the partnership name: By registering the LLP at Companies House you prevent another partnership or company form registering the same name.

3. Small LLP^NEW

There is a new concept of small LLP introduced by LLP (Amendment) Act,2021. Small Limited Liability partnership means a LLP

1. Whose Contribution does not exceed Rs 25 lakhs or such higher amount which could be increased by Government upto maximum of Rs 5 Crores
2. Whose Turnover in previous financial year does not exceed Rs 40 lakhs or such higher amount which could be increased by Government upto Rs 50Crores

The purpose of Small LLP is to reduce the compliance burden, reduce the normal fees, reduce the penalty for non-compliance and eliminating the need for a professional signatures. All LLP and ROC documents form "Small LLP" can be done through self certification of the designated partner(s) of the LLP.

4. Steps to Register a Limited Liability Partnership (LLP)

While EZTax.in will take care of the entire process in registering a company, below are few steps to understand the process.

• Obtain Digital Signature Certificate [DSC] for the proposed Director(s).
• Obtain Director Identification Number [DIN] for the proposed director(s).
• Select suitable Company Name, and make an application to the Ministry of Corporate Office for availability of name.
• New User Registration
• Payment of Requisite fee to Ministry of Corporate Affairs [MCA] and also Stamp Duty.
• Incorporate a LLP : Once the name is approved, the user has to file form FiLLiP with partners details, registered place of business, Contribution percentage, objectives of business etc. This form needs to be filled with MCA by paying applicable fees
• File LLP Agreement : Once the LLP incorporation is done, LLP Agreement is required to be filed with the registrar in e form 3 within 30 days of Incorporation of LLP

5. Advantages of LLP

The following are the advantages of forming LLP

• LLP is organized and operates on the basis of an agreement
• It provides flexibility without imposing detailed legal and procedural requirements
• LLP is easy to form
• All partners of LLP enjoys Limited Liability
• LLP has flexible capital structure
• LLP has less compliance cost

6. LLP Annual Compliance

1. Annual Return (Form 11)

What is it?

Every LLP should file Annual Return within 60 days from the closure of financial year. It must be signed by the designated partners of LLP.

The Due date for filing Annual Return (Form 11) is May 30th every year . Refer Tax Compliance Calendar for the latest.

Note: If the turnover of LLP exceeds Rs 5 Crores or contribution of partners of LLP exceeds Rs 50 Lakhs, Form 11 should be certified by Company Secretary in full time practice

Normal Filing fees for Form 11


Penalty:

The Penalty for non-filing of Form 11 is Rs 100 per day till 31st Mar 2021. w.e.f 01st Apr 2022, Late fee for LLP Compliance has been reduced as follows

2. Statements of Accounts and Solvency (Form 8)

Form 8 should be filed within 30 days from the end of 6 months from the end of Financial year. Form 8 consists of 2 parts ie.. Part A- Statement of Solvency and Part B-Statement of Accounts, Statement of Income and Expenditure. Form 8 Should be signed by the designated partners and it should be certified by Chartered Accountant, auditor or accountant of LLP.

The Due date for Form 8 is 30th Oct every year. Refer Tax Compliance Calendar for the latest.

Normal Fees for filing Form 8

Penalty: The Penalty for non-filing of Form 8 is Rs 100 per day till 31st Mar 2021. w.e.f 01st Apr 2022, the late fee for LLP Compliance has been reduced as follows

3. Director KYC

Every Designated partner of LLP must file Director KYC every year before Sep 30th. In case a DIN is de-activated, the penalty for re-activation of a DIN is Rs 5000.

4. Income Tax

Every LLP should file the Income Tax Return in ITR 5 every year. The due date for filing Income tax returns for LLP's (Non Audit) is July 31st and LLP (Audit) is Sep 30th

5. Audit

Audit is required for LLP's whose contribution exceeds Rs 25 lakhs or whose turnover exceeds Rs 40 lakhs per year

Maintenance of Books of Accounts: The LLP should maintain such proper books of accounts like Bank book, cash book, ledgers, expenses , incorporation certificate, Annual returns etc which is related to its affairs for each year of its existence at its registered business place on case basis or accrual basis

Rates of Income applicable to Limited Liability Partnership (LLP): LLP's are required to pay flat 30% on total Income (profit). Surcharge @ 12% is levied if the LLP total income exceeds Rs 1 Crore.

Example: Let's Consider the following example with 2 income slabs