LLP Formation

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CA NEERAJ KUMAR AGARWAL

+91-9313010417
neeraj@mnrsindia.com

LLP Formation and Management

Concept of “Limited Liability Partnership” (LLP) in India was introduced by enacting the Limited Liability Partnership Act, 2008. Henceforth, India has also joined the league of countries who allows creation of an LLP, which requires least compliances with the benefit of limited liability. It has the advantages of a company and the flexibility of a partnership firm into a single structure. This unique hybrid model is suitable for setting up small and medium-sized businesses.

To register an LLP minimum 2 partners are required, there is no upper limit as such. The LLP agreement states the rights and the duties of the Partners.

The salient features of the LLP Act, 2008 are as follows: –

  • The would be available for use by any enterprise which satisfies the requirements of the Act.
  • As the LLP is a “separate legal entity”, liable to the full extent of its assets, the liability of the partners is limited to their agreed contribution in the LLP. Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partners wrongful business decisions or misconduct.
  • An LLP is a body corporate and a legal entity separate from its partners, which have perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs and there is no upper limit on number of partners in an LLP unlike an ordinary partnership firm, where the maximum number of partners are restricted to 20.
  • An LLP is under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. Since tax matters of all entities in India are governed by the Income Tax Act, 1961, the taxation of LLPs are also addressed by the same Act.

As a legal entity, a Limited Liability Partnership (LLP) in India has certain legal compliance requirements that it must fulfil to maintain its status and avoid penalties. Here are some of the key legal compliance requirements that an LLP in India has to ensure:

LLP Agreement: Every LLP must have an LLP agreement, which is a legal document that outlines the rights and obligations of the partners, the management structure of the LLP, the profit-sharing ratio and other important details. The LLP agreement must be filed with the Registrar of Companies (RoC) within 30 days of incorporation.

LLP Identification Number (LLPIN): Every LLP must obtain an LLPIN from the Ministry of Corporate Affairs (MCA), which is a unique identification number used for all correspondence with the RoC.

Annual Returns: Every LLP is required to file an Annual Return with the RoC within 60 days from the end of the financial year. The Annual Return must include details such as the LLP’s registered office address, the partners’ details, and the LLP’s financial statements.

Financial Statements: Every LLP is required to maintain proper books of accounts and prepare financial statements in accordance with the Indian Accounting Standards (Ind AS) or Indian Generally Accepted Accounting Principles (GAAP). ‘Statement of Accounts & Solvency’ is also required to be filed within 30 days from the end of six months of the financial year to which it relates. Every LLP has to maintain uniform financial year ending on 31st March of a year.

Income Tax Returns: Every LLP is required to file its income tax return annually, showing the income earned and tax paid.

Other Compliance Requirements: Every LLP must also comply with other applicable laws and regulations, such as the Goods and Services Tax (GST) law, if applicable, and the Payment of Gratuity Act, 1972, if LLP has more than ten employees.

It is important for an LLP to ensure timely compliance with all legal requirements to avoid penalties and maintain its status as a legal entity in India

How Can MNRS Help?

In the matter of LLPs, MNRS offers services starting from advisory as to formation of an LLP to filing of RoC and Tax Returns and assessment, which inter alia includes:

  • Procuring DSC (Digital Signature Certificate) and getting these registered with Registrar of Companies (RoC).
  • Applying for DPIN (Designated Partners Identification Number).
  • Reservation of Name of proposed LLP.
  • Drafting of LLP agreement.
  • Speedy incorporation of LLP and securing Certificate of Incorporation.
  • Post incorporation services like applying PAN/ TAN and other registrations as required for running the business.
  • Securing GST Registration for supplying of goods and/or services attracting GST liability.
  • Statutory audit under Limited Liability Partnership Act, 2008, wherever applicable.
  • Tax audit under Income Tax Act, wherever applicable.
  • Filing of Tax Return of LLP and its Directors / Employees.
  • Representations before tax authorities for assessment and appeals proceedings.
  • Certification work including the issuance of various certificates.
  • Diagnostic tax reviews to check financial health of the organization.