Annual Compliance(LLP)
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Annual Compliance Checklist
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(from receipt of all documents)
What is an LLP Annual Compliance?
An LLP Annual Compliance is the maintenance of a proper book of accounts and statements and filing an annual return with the MCA (Ministry of Corporate Affairs), at the end of every business financial year. Some of the key compliance requirements for an LLP includes:
1. Maintaining a proper book of accounts and Annual returns filing annually with the MCA (Ministry of Corporate affairs)
2. Filing of income tax returns
3. Tax audit filings if the annual turnover is more than 40 lakhs or if there is contribution exceeding 25 lakhs.
4. Statement of accounts filing within 30 days from the end of six (6) months of the financial year and Annual Return within sixty (60) days from the end of the financial year.
What are the Important Annual Compliance Filings of an LLP?
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Sl no:
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E-form
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Due date
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|---|---|---|
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1.
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LLP form 3 (LLP agreement)
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Within 30 days of incorporation of the company-
May 30th of every year |
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2.
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Annual Return (Form 11)– summary of the affairs of the management of the company (with the partner names)
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Within 60 days (about 2 months) of closing the financial year
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3.
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Statement of Account and Solvency (Form 8)– all details about profits and other financial details
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On or before October 30th every year
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4.
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Income tax return (ITR-5)- if audit is not required-(If the LLP does not have an annual turnover that exceeds 40lakh or partner’s obligation of contribution exceeds 25lakh must file their income tax but need not involve an auditor to audit accounts
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31st July of every year
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5.
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Income tax returns (ITR-5) if audit is required-(If the LLP has an annual turnover exceeding 40 lakh or a partner’s contribution exceeding 25lakh they must file their income tax and must get their accounts audited by an auditor under the income tax Act
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30th of September every year
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6.
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Partner KYC
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On or before 30th of September
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What documents are required for filing the Annual Compliances of LLP?
There is a list of documents that you must provide for the filing of annual compliance of your LLP company. They are-
1. Purchase and sales invoices of the year.
2. Invoice of the expenses made during the year.
3. Bank statements dating from April 1st to 31st march of all the bank accounts registered in the name of the LLP.
4. Credit card statements if there are any expenses incurred by the partners on behalf of the company.
5. GST, VAT, and other Tax returns (as required)
6. TDS filing, challan deposits if made.
Key benefits of LLP Annual Compliance:
1. Legal Protection for Partners
Limited Liability: One of the primary benefits of LLPs is that partners' liabilities are limited to their contributions in the LLP. By maintaining annual compliance, LLPs ensure they remain in good standing, protecting the limited liability status.
Legal Standing: Filing annual returns, financial statements, and other mandatory forms ensures that the LLP continues to exist as a legally recognized entity. Non-compliance can lead to penalties or deregistration, causing the LLP to lose its legal status.
2. Avoidance of Penalties and Fines
Penalty for Non-Compliance: Failing to file annual returns and financial statements on time can result in significant penalties. For example, if the LLP does not file its annual return (Form 11) or financial statements (Form 8), it may incur fines that increase over time.
Proactive Compliance: By adhering to the annual compliance requirements, an LLP can avoid penalties, fines, and interest charges that accumulate due to delays in filing.
3. Enhances Credibility and Trust
Transparency: Regular compliance, such as filing the annual return and financial statements, promotes transparency in the business. This can help improve the LLP's credibility with stakeholders, including clients, investors, creditors, and regulatory authorities.
Investor Confidence: Investors, lenders, and business partners generally prefer companies that comply with legal requirements because it demonstrates professionalism, reliability, and a commitment to business growth.
4. Improved Financial Management
Financial Statements: Annual compliance requires LLPs to prepare and file financial statements, which are crucial for the effective management of the business. These financial documents include the balance sheet, profit and loss account, and cash flow statements, providing valuable insights into the financial health of the business.
Audit Readiness: Regular compliance ensures that the LLP maintains proper records, which is beneficial when undergoing audits or inspections. Well-maintained records also help in future business planning and securing loans or other forms of financing.
5. Better Taxation Management
Tax Filings: Annual compliance includes filing income tax returns (ITR) for the LLP. Timely filing of ITR helps in managing tax liabilities efficiently, reducing the chances of interest and penalties due to non-payment or late payment of taxes.
Tax Deducted at Source (TDS): Ensuring that TDS returns are filed correctly also helps in avoiding issues with tax authorities and allows the LLP to claim eligible credits.
6. Maintaining Good Standing with the Registrar of Companies (ROC)
ROC Filings: Every LLP must file certain forms with the Registrar of Companies (ROC) annually. These include the LLP Form 11 (Annual Return) and Form 8 (Statement of Accounts & Solvency). Maintaining these filings on time ensures that the LLP remains in the ROC's good books and avoids being struck off.
Statutory Requirements: Regular compliance assures that the LLP is meeting all the statutory requirements and regulations prescribed by the Ministry of Corporate Affairs (MCA), which is important for its continued legal existence.
7. Facilitates Business Expansion
Ease of Raising Funds: An LLP that adheres to annual compliance is seen as more credible and trustworthy, which can make it easier to secure financing from banks, investors, and venture capitalists.
Partnership Opportunities: Regular compliance helps in maintaining the LLP's reputation, enabling it to explore strategic partnerships and joint ventures without facing legal or financial challenges.
Consequences of LLP Non-Compliance
1. Penalties and Fines
Late Filing Penalties : If the LLP fails to file its annual returns (Form 11) and financial statements (Form 8) within the prescribed deadlines, it will attract penalties. The penalties increase over time, depending on the delay.
For Form 11 (Annual Return), the penalty starts at ₹100 per day after the due date of filing.
Interest on Late Payment: Failure to comply with tax filing deadlines (e.g., Income Tax Return or TDS returns) may result in interest charges along with penalties.
2. Disqualification of Designated Partners
Penalties for Partners: Non-compliance can lead to the disqualification of designated partners. If the LLP fails to file annual returns and financial statements for a long period, the designated partners may be barred from acting as partners in other LLPs or companies
Loss of Partner Status: Disqualified partners lose their ability to legally represent the LLP, which could affect the functioning of the business, as there must always be at least two partners in an LLP.
3. Loss of Limited Liability Protection
Legal and Financial Exposure: One of the key benefits of an LLP is that the liability of its partners is limited to their contribution to the LLP. However, non-compliance may expose partners to risks, including the potential for personal liability if the business is struck off or if any legal action is taken against the entity due to non-compliance.
No Shield from Creditors: When an LLP is not in good standing with authorities due to non-compliance, creditors may take legal action against the partners personally, especially if the entity is struck off.
4. Increased Scrutiny from Authorities
Tax and Legal Investigations: Non-compliance with statutory filings or tax payments may prompt scrutiny from the Income Tax Department or other regulatory bodies. This can lead to audits, investigations, and legal complications.
Risk of Fraud Charges: In some cases, repeated non-compliance or failure to maintain financial records may lead to allegations of fraudulent activity or misrepresentation, which can result in legal action and penalties.
5. Legal Action and Litigation Risks
Defaulting on Legal Obligations: If the LLP fails to meet its statutory obligations, it may face lawsuits from third parties such as suppliers, creditors, or even employees. Non-compliance can be viewed as negligence or breach of contract, leading to legal disputes.
Tax Liabilities: The Income Tax Department or other regulatory authorities may take legal action against the LLP or its partners for failing to comply with tax filing and payment requirements. This can lead to heavy fines, penalties, or even prosecution in extreme cases.
6. Additional Legal and Operational Costs
Rectification Costs: If the LLP fails to comply with the regulatory filings and is penalized or struck off, the costs of rectification or reinstatement can be significant. These include professional fees, legal costs, and the expenses involved in re-establishing the business.
Operational Disruptions: Non-compliance can cause disruptions in day-to-day operations, such as halting business activities, freezing of bank accounts, and delays in financial transactions.
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Form 8 must be duly filled by the 30th of October. Failure to file can incur a penalty of Rs.100 per day of delay.
