INTRODUCTION
In the year 2003, when Naresh Chandra committee, submitted its report entitling “Report of the Committee on Regulation of Private Companies and Partnerships” and subsequently in the year 2005 when Dr Jamshed J. Irani committee came up with its report on Company Law, they both felt the need for the development of some kind of hybrid business structure.
The structure which provides protection of Limited Liability to its member similar to the companies and at the same time structure doesn’t have to comply with the complex compliance structure of the companies.
With above-stated principals as its cornerstone, the LLP Act came into existence in the year 2008. The legislation makes sure that LLP doesn’t have to bear the burden of a complex compliance mechanism. Hence, there are too many compliance relaxations has been provided to the LLP.
The LLP, however, needs to comply with two filing requirement on the annual basis. LLP has to file, solvency statement, and annual return with Registrar of LLP. Here in this write-up, I will be discussing these compliances and allied issues.
ANNUAL RETURN
Every LLP irrespective of the contribution it received from its partners/designated partners or its turnover during the year needs to file the annual return.
1. Annual Return to be filed within 60 days from the end of the financial year (31st March of every year) that is 30th May of every year.
2. Annual Return to be filed in Form 11.
3. Form 11 requires details such as the address of the LLP, address so declared for the service of the document by the LLP under section 13(2) of the LLP Act, 2008, the principal business activity of the LLP, the total number of Designated Partners, the total number of Partners, the total obligation for the contribution of the capital and total contribution received. Details of the partner both individual and body corporate, penalties imposed etc.
4. Compliance Certificate requirement;
a. In case LLP having
1. Contribution up-to Rupees Fifty (50) Lacs, or
2. Turnover up-to Rupees Five (5) Crores during the corresponding financial year
In the above case, compliance certificate from the Designated Partner other than the Designated Partner signing the Form 11 will be sufficient.
However, in all other cases, in addition to the compliance certificate from the designated partner other than the Designated Partner signing the Form 11, the compliance certificate from practicing company secretary will also be required.
It is also to be noted that if any of the conditions stated above are fulfilled then the compliance certificate from company secretary won’t be required.
For example, A LLP having;
Turnover of Ten (10) Crores and Contribution Twenty (20) Lacs: Compliance Certificate from Company Secretary is not required.
Turnover of One Crore and Contribution Sixty (60) Lacs: Compliance Certificate from Company Secretary is not required.
Turnover Six (6) Crores and Contribution Sixty (60) Lacs: Compliance Certificate from Company Secretary is required.
AUDITOR AND ANNUAL ACCOUNT
Unlike Partnership firm and like company, LLP also needs to file annual account and solvency statement to the Registrar of LLP on annul basis. However, before moving to the filing requirement, let us first discuss about auditor and audit of the accounts of the LLP.
As I have already discussed, lesser compliance and working flexibility are at the core of the LLP Act, 2008, the same is being followed here. Unlike a company, every LLP doesn’t need to get its account audited and consequentially don’t need to appoint an auditor.
APPOINTMENT OF AUDITOR
LLP which needs to get its account audited needs to appoint auditor and auditor will be appointed subject to the following conditions.
1. The auditor should be appointed for each financial year.
2. Financial year means, year ending on 31st March of every year.
3. The auditor needs to be appointed at least 30 days before the closure of the financial year that is 31st March of every year.
4. In the case of the first year of LLP, the condition of 30 days is not applicable and the auditor shall be appointed any day before the end of the financial year.
5. Designated Partners have the power to appoint an auditor.
6. In case Designated Partners fails to appoint an auditor then partners may also appoint the auditor.
7. The auditor shall continue to hold office till new auditor is appointed or the same auditor is re-appointed.
8. In case no new auditor is appointed or existing auditor is not re-appointed then the existing auditor shall be deemed to be appointed.
9. Deemed appointment is not applicable in the following case,
a. LLP Agreement requires actual reappointment, or
b. majority of partners issue a notice to the LLP for not appointing the existing auditor.
10. In case of deemed reappointment, LLP shall issue a notice to the auditor either by hand delivery or any other mode with acknowledgement due.
11. Remuneration to the auditor to be paid as per the LLP agreement and in case the agreement is silent then as may be decided by Designated Partner.
12. The auditor may be removed in accordance with LLP agreement; however, if the agreement is silent then Auditor may be removed by the consent of all the partners. It is to be noted here that Auditor may be appointed by the Designated Partners but removal shall be done only by partners.
13. The auditor may resign from his position by tendering notice of the same effect to the LLP. The notice must include the reason for his resignation subject to the condition that auditor may not provide the reason for resignation if he feels it is of no importance to the partners.
AUDIT OF THE ACCOUNT
Every LLP needs to prepare its accounts for the financial year within six months from the end of the financial year. Financial year-end on 31st March so the accounts to be prepared, and audited (if the audit is applicable) by 30th September every year.
However, as I have already mentioned every LLP don’t need to get their accounts audited, so first examine the conditions subject which LLP is exempted from getting it accounts audited.
As per Rule 24(8) of the LLP Rules, 2009 provides for conditions for the exemption from the audit of the accounts;
1. Turnover does not exceed in any financial year, forty lakh rupees; or
2. Its contribution does not exceed twenty-five lakhs rupees.
If LLP, fulfil any of the above conditions than they don’t need to get their accounts audited or in other words LLP need to breach both the conditions to get its accounts audited.
It is also provided in Rule 24(8) that in order to avail the exemption from the audit of the accounts, accounts shall contain the statement from the designated partners that they acknowledge the responsibility for the complying the requirements with respect to accounting records and preparation of accounts.
Before moving further, I like to discuss a few important differences in the condition for the exemption from the audit of the accounts and exemption from the compliance certificate from the Practicing Company Secretary for the Annual Return.
First Difference is in the pecuniary limit, that is in case of Audit threshold limit for turnover is Forty Lakhs Rupees and in case of Annual Return certification its 5 crores and for the capital contribution it is Twenty Five Lakhs for audit and fifty Lakhs for the Annual Return.
Other difference is, in case of an audit, the audit will be applicable if LLP breaches the threshold limit with respect to turnover even once in its entire life cycle. However, in case of Annual Return Certification, breach of the threshold with respect to turnover to be taken into an account on year to year basis.
FILLING OF STATEMENT OF ACCOUNT
Every LLP Shall file the statement of account and solvency within the 30 days from the end of the 6 months of the financial year to which accounts relates in the e-Form 8. So the last date for filing of the accounts is 30th October of every year.
PENALTY FOR NON-COMPLIANCE
In case of non-compliance related w.r.t section 34 that are maintenance of books of accounts, audit and filing etc., and section 35 that is annual return, both the LLP and Designated Partners will punishable with the following penalty.
On LLP;
1. minimum fine of Twenty Five Thousand Rupees, and
2. maximum Five Lakhs Rupees.
On Designated Partners;
1. minimum fine of Ten Thousand Rupees, and
2. maximum of One Lakhs Rupees.
In case LLP does not file Form 8 and Form 11 for consecutive five years then LLP may be wound up by order of the Tribunal.
LLP SETTLEMENT SCHEME-2020
MCA also introduced LLP settlement scheme 2020 for the LLP, under this scheme LLP can file their pending filing without any additional and will also provide immunity from prosecution in respect of default made good under this amnesty scheme. Is to be noted that due to disruption caused by the COVID-19, the scheme got extend till December 31st, 2020.
Amnesty scheme is applicable with respect to form 8, form 11, form 3 and form 4. For further any further query please write to me at below provided mail id or contact me at the below provided contact no.
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Nice article..
For the purpose of calculating the contribution for audit.. Should we take gross or net contribution ie., contribution bought in or contribution bought in less taken out?