devesh02's blog
Introduction
If you have incorporated your business structure as a Limited Liability Partnership structure in India. Then you should be aware of certain annual compliance for LLPwhich is necessary to be filed every year. The annual compliance is ITR, DIR 3 KYC, Form 8 and Form 11 which should be filed after the end of the financial year. This blog we will focus on 2 mandatory annual compliance filed by an LLP that are Form 8 which is regarding statement of account and solvency and Form 11 which is regarding annual returns.
What is Form 8 of LLP?
Form 8 is submitted to ROC each year for filing the solvency and statement of accounts of LLP. This Form includes a declaration on the LLP's solvency by the authorized partners, as well as information of the LLP's assets and liabilities and revenue and expenditure statements. This compliance for LLPshould be filed annually.
What is Form 11 of LLP?
Form 11 is submitted to the ROC each year for filing the annual return of an LLP. This form includes information about the number of Partners, Designated Partners, and Body Corporate as Partners, amount of obligation for contributions, actual contributions received from Partners, Designated Partners, and a summary of Partners and Designated Partners as of 31st March. This compliance for LLPshould be filed annually.
Requirements and attachment of Forms
Form 8
Listed below are the requirements to file Form 8 and attachments with the form:
Both designated partners should provide digital signatures.
It is necessary to obtain certification by the auditor of the LLP if the annual total of firm exceeds Rs. 40 lakhs or the contribution of each partner reaches Rs. 25 lakh.
LLP should attach certain documents such as a copy of the balance sheet of LLP, profit and loss statement, MSME 2006 disclosure, and statement of contingent liabilities not anticipated, if any.
Form 11
Listed below are the requirements to file Form 11 and attachments with the form:
Both designated partners should provide digital signatures.
It is necessary to obtain certification from a practicing company secretary if the total contribution of the LLP partners exceeds Rs. 50 Lakhs or the turnover of the LLP exceeds Rs. 5 Crore.
In Form 11 the list of companies or limited liability partnerships where partners or designated partners have acted as directors or partners should be attached.
Due Date of Forms
Both Forms are filed by an LLP every year and they should be filed after the closure of the financial year. The Form 8 should be filed on 30th October every year. The Form 11 should be filed on 30th May every year.
Fines for non-filing of Forms
If you fail to file the Form 8 and Form 11 within the set deadline, then the penalty for non-filing is Rs.100 per day for this LLP annual compliance.
Introduction
LLP stands for Limited Liability Partnership firm. It is an alternative business form that offers limited liabilityprotection like all other business structures and the flexibility of a partnership. There is no impact on this type of business, when there is any change in the partners arrangement in the firm. This dynamic structure is rapidly becoming a common form of business formation for many individuals. Even in nations like the United States, the United Kingdom, Australia, and Germany, this business strategy is widely considered.
A key advantage of an LLP is that it shields an individual partner from joint liability and errors made by other partners in a partnership firm. While there are various company structures to select from, the Limited Liability Partnership(LLP)structure is a popular choice nowadays among the entrepreneurs. It is important to look into the benefits of selecting an LLP as your business structure. Keep reading this blog, we will talk about- "Why should you choose to form an LLP as your business structure?"
Why Choose The LLP Structure For Your Business?
There are several benefits of selecting an LLP as your business structure. Let us explore them in detail:
1. Easy Formation with low investment: A Limited Liability Partnership (LLP) enables partners to work together even if they have limited resources because there is no minimum capital requirement for establishment. Moreover, capital contributions can be contributed in any form including intangible assets, machinery, and land.
2. LLP can have an unlimited number of members: LLPs can have any number of partners but there is a minimum of 2 partners are required. The total number of partners that an LLP can have is unlimited.
3. Separate legal entity: The members of the LLP are not responsible for any liability incurred by LLP, whether it be debt payments or lawsuits because the LLP partnershipstructure is a separate legal entity from their partners or owners.
4. The ability to sue: An LLP, being a separate legal entity, can sue in its own name and can be sued by parties.
5. Flexibility in Management: The LLP agreement gives owners the freedom to choose how they want their company to run and expand. A managing partner or a committee leader can be appointed by the LLP partners to oversee day-to-day operations. In an LLP, management is completely flexible since partners can distribute tasks and responsibilities according to their expertise and skills.
6. Low Registration Fees: Compared to other business structures (like Public Limited Company or Private Limited Company), an LLP has a low registration cost. The registration procedure is pretty simple, and the average time required to complete the registration process is between 15 and 20 days.
7. Audits are optional: As audits are not optional, limited liability partnership firms have certain compliance perks over other business structures. For individuals who are starting an LLP, this is a huge advantage for them. Tax audits are only compulsory in cases where annual donations exceed INR 25 lakh and total income exceeds INR 40 lakh.
8. Partners mid-way entry or exit: One more fundamental aspect is allowed in the LLP agreement that the new partners who have their own companies can be added and old partners can easily leave the company. However, the current partners are required to approve the addition of a new partner.
9. Taxation outlook: The tax rate for limited liability partnerships is a flat 30% of their total turnover. An LLP should also pay an additional 12% surcharge on the income tax if the total income is more than INR 1 crore. Along with paying income tax plus the surcharge, there is also a 4% health and education fees to be paid.
To Sum Up
LLP partnership structure is more effective for companies that offer services or are engaged in technical or professional domains. It is also appropriate for companies that offer venture capital funding. We can conclude after reading this blog that registering your business as an LLP form of structure is more beneficial than any other form of business.
Introduction
The Limited Liability Partnership (LLP) is a hybrid form of business where LLP enjoys the benefit of partnership and Private Limited Companies. The partners of LLP are only liable for the portion of shares they own and no partner is responsible for the carelessness and wrongdoing of the other partner. The most important question is - How do partners of Limited Liability Partnership(LLP)receive income? The answer to this will be discussed in this blog.
What is a Limited Liability Partnership (LLP)?
A Limited Liability Partnership (LLP) is a partnership firm in which some or all of the partners have limited liability. Moreover, it has the characteristics of both companies and partnerships. In an LLP, no partner is responsible or liable for the bad behavior and negligence of another partner. The partners are only liable for the shares they own.
Partners are eligible for remuneration and maximum remuneration
The LLP agreement specifies that which partners can receive returns and which cannot. If the percentage of the profit or interest of a partner is clearly stated in the LLP agreement then they should be provided that amount regardless of whether the partner is working, inactive, sleeping, or not working. However, the Income Tax Act, 1961restricts the amount of remuneration LLP can pay-out to its partner. The maximum limits allowed on the remuneration of partners are as follow:
On the first Rs. 3 lakhs of book profit or, in the event of a loss, Rs. 1,50,000 or 90% of book profit, whichever is greater; on the remainder of the book profit – 60% of book profit.
The annual interest rate due to partners shall not exceed 12%.
Remuneration allowed to LLP
The LLP agreement also contains provisions for salaries and wages because it is an essential part of running a business. As a result, each partner wants maximum returns for the work done, and the partner should know the types of returns available in order to balance the agreement properly. The below are the three most common types of returns available to partner of LLP.
1. Interest in the capital
This is a payment method that is directly related to the capital of the partners that was put in when the company was just getting started. It has no relation to the present project going on in the company. When the partnership was formed, each partner is required to contribute a portion or percentage to the total share capital. Therefore, the interest return they received will be from the percentage of the amount they investe.
2. Remuneration on salary
This term refers to everything from incentives and commissions to a partner's or employee’s total compensation. It is given to the partners who work hard to assist the LLPs to grow and prosper. It is a remuneration system based on the amount of work completed and little on the capital contributed at the outset of the partnership.
3. Profit sharing
The return in the profit sharing becomes available when the LLP starts making profit. This return considers both the amount of work that has been put in and the capital that has been invested. As soon as the LLP begins to earn profit, that profit is reviewed, divided into pieces as per the amount of work performed, and capital is distributed among the partners as required.
Conclusion
The designation of partners and the provisions included in the LLP agreement filed during LLP partnership firm registrations and later through modifications determine eligibility for returns and remuneration of the partners in LLP. The partners must carefully analyze the designation and rights of each LLP member, before forming an LLP agreement. In addition, it should highlight that the Income Tax Act governs the tax ability of returns, LLP profits, and remuneration of partners regardless of the provisions and limitations on remuneration in the LLP Agreement.
