Financial Disclosure & Annual Compliances of Limited Liability Partnership

What is LLP?

A partnership arrangement between two or more than two partners who gets them registered under The Limited Liability Partnership Act, 2008 whereby partners intends to carry an objective clearly mentioned through an agreement is known as business form of Limited Liability Partnership.

LLP is a body corporate which is governed by Limited Liability Partnership Act, 2008 (“Act”) and LLP Rules 2009 (“Rules”).

Similar to the Companies, LLP’s are also required to submit details and information with the Registrar on an annual basis and non-compliance of such submissions may lead to removal of name of LLP from the Registers of LLP.

Chapter VII of the Act states about Financial Disclosures and Annual Filing of LLP whereby LLP are required to follow the provision given under respective sections.

Manner of Accounting

Section 34 of the Act, mandatesLLP to maintain proper books of account on cash or accrual basis and as per double entry system of accounting at its registered office address.

As per rule 24 of the Rules, LLP is required to maintain proper books of account that will reflect the accurate transactions of LLP in such manner that it:

  • discloses with reasonable accuracy, at any time, the financial position of the limited liability partnership; and

  • enable the designated partners to ensure that any Statement of Account and Solvency prepared under this rule complies with the requirements of the Act.

What Books of Account LLP should maintain?

As per rule 24(2) of the Rules, the books of account of LLP shall contain

  • particulars of all sums of money received and expended: Profit & Loss Account

  • a record of the assets and liabilities of the limited liability partnership;Balance Sheet

  • statements of cost of goods purchased, inventories, work-in- progress, finished goods and cost of goods sold; Cost Account

  • any other particulars which the partners may decide; Trial Balance, Reconciliation etc.

For how many years Limited Liability Partnership should preserve its Record?

As per rule 24(3) of the Rules, Limited liability partnership is required to keep books of account for 8 years from the date on which they are made.

Is Audit of LLP mandatory?

LLP Act has prescribed certain limits, if any LLP exceeds the limit then it has to mandatorily get its audit done through a qualified Chartered Accountant in practice.

As per rule 24(8) of the Rules, if any LLP exceeds either of limits as given below than its accounts needs to be audited:

  1. Turnover Exceeds Rs. 40 Lakh in any financial year

OR

  1. Contribution exceeds Rs. 25 Lakh

How Auditors can be appointed in LLP?

As per rule 24(10) of the Rules, an auditor or auditors of a limited liability partnership shall be appointed for each financial year of the LLP for auditing its accounts.

Designated partner may appoint auditors as:

  • In 1st year of incorporation: at any time before the end for the first financial year.

  • Other than 1st year: at least 30 days prior to end of each financial year.

An auditor shall hold office as per term of their appointment to hold the office till:

  • The new auditor is appointed
  • They are reappointed

As per rule 24(14) of the Rules, where no auditor has been appointed, any auditor in office shall be deemed to be re-appointed, unless

  • the limited liability partnership agreement requires actual reappointment, or

  • the majority of partners have determined that he should not be re-appointed and have given a notice to this effect to the LLP.

What E forms are required to be Filed by LLP on Annual basis?

There are two E forms which are required to be filed by any LLP.

  1. Statement of Account and Solvency in LLP Form 8
  2. Annual Return in LLP Form 11

Below given is brief summary of provisions related to both forms:

Form 8: Statement of Account and Solvency

  • Rule 24(4) of the Rules states every limited liability partnership shall file the Statement of Account and Solvency in Form 8 with the Registrar, within a period of thirty days from the end of 6 months of the financial year to which the Statement of Account and Solvency relates.

  • Statement of Account and Solvencyshall be signed on behalf of the limited liability partnership by its designated partners as per rule 24(6) of the Rules.

  • Each designated partner, signing the statement, shall be taken to be a party to its approval unless he shows that he took all reasonable steps to prevent their being approved and signed.

  • While submission of Form the partners should declare that they had taken proper care and responsibility for maintenance of adequate accounting records and preparation of accounts in accordance with the provisions of the LLP Act and the Rules made thereunder.

Form 11 LLP: Annual Return

  • As per section 35 of the Act, every limited liability partnership shall file an annual return with the Registrar in Form 11 within 60 days from closure of financial year.

  • As per rule 25(2) of LLP Rules, 2009 ,the annual return of an LLP having:

Turnover up to Rs. 5 crore during the corresponding financial year
Or
Contribution up to Rs. 50 Lakh

shall be accompanied with a certificate from a designated partner, other than the signatory to the annual return, to the effect that annual return contains true and correct information.

Else

If the above said limit exceeds than the annual return shall be accompanied with a certificate from a Company Secretary in practice to the effect that he has verified the particulars from the books and records of the LLP and found them to be true and correct.

Timelines of Forms at a Glance

Form 8 LLP Statement of Account & Solvency Within 30 days from the end of six month of the Financial Year

For example For FY 20-21 Form 8 LLP to be filed before 30st October 2021

Form 11 LLP Annual Return

Within 60 days from the closure of the Financial Year

For example For FY 20-21 Form 11 LLP to be filed before 30st May 2021

What are the consequences of non filing?

Non Compliance Provision Penalty
LLP Designated Partner
LLP Form 8 Section 34(5) Fine not less than Rs. 25,000 which may extend Rs. 5 Lakh Fine not less than Rs. 10,000 which may extend upto Rs. 1 lakh.
LLP Form 11 Section 34(2) Fine not less than Rs. 25,000 which may extend Rs. 5 Lakh Fine not less than Rs. 10,000 which may extend upto Rs. 1 lakh.

Besides above stated penalties the major consequence of non-filing is that the Registrar has power to strike off the name of LLP from the register of LLP under section 37 of the LLP Act,2008. Further Government of India has started the drive to remove all shell entities pursuant to which already thousands of LLP has been removed from the Registers in the year 2017-18 and so on.

It is advisable that all LLP should comply with provisions of annual filing in timely manner.

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