The Limited Liability Partnership Bill having been passed in Dec, 2008 by both the Houses of Parliament received the assent of the President on 7th January, 2009. It came on the statute books as The Limited Liability Partnership Act, 2009(6 of 2009). This act provides that the liability of LLPs would be limited to the extent of the assets owned by them; the liability of the partners would be limited to the extent of their contribution. Besides that limit no partner would be liable on account of the independent or un-authorized actions of other partners, allowing individual partners to be secured from joint liability created by another partner’s wrongful business decision or misconduct. The main purpose of enacting LLP law is to make small and medium entrepreneurs, especially professionals like lawyers, accountants, architects, etc.
Features and Requirements
- It is a body corporate with distinct legal entity and perpetual succession. It is an artificial person created by law having a distinct name, a common seal, which can sue and can be sued.
- Minimum two partners are required for its formation of whom one has to be Indian resident and there is no limit on maximum number of partners.
- Corporate and professionals will be allowed to form LLPs.
- Liability of partners will be limited except in the case of fraud and negligence.
- Every LLP shall have at least two designated partners, they will be answerable for the all acts, matters and things as are required to be done under LLP Act including filing of any document, return or any statement.There are three mandatory compliance requirements to be followed by LLPs.
- Filing of Annual Return
- Filing of Statement of the Accounts or Financial Statements
- Filing of Income Tax Returns
With respect to annual return, every LLP is required to file annual return in form 11 to the registrar within 60 days from the closure of the financial year. What each LLP is required to do is the maintenance of the Books of Accounts in Double entry System and also need to prepare a statement of solvency every year. Another thing which to be complied is that if the annual turnover of the LLP exceeds Rs. 40 lakh or whose contribution is more than 25 lakh, the accounts of LLP must be audited by the qualified Chartered Accountant mandatorily.
- The annual return of an LLP having turnover up to 5 crore rupees during the corresponding financial year or contribution up to 50 lakh rupees 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.
- The limited liability partnership shall maintain such proper books of accounts as may be prescribed relating to its affairs for each year of its existence on cash basis or accrual basis and according to double entry system of accounting and shall maintain the same at its registered office for such period as may be prescribed.
- Every limited liability partnership shall keep books of accounts which are sufficient to show and explain the limited liability partnership‘s transactions and are such as to—
(a) Disclose with reasonable accuracy, the financial position of the limited liability partnership at that time; and
(b) Enable the designated partners to ensure that any Statement of Account and Solvency prepared under this rule complies with the requirements of the Act.
- The accounting records shall in particular contain— (a) entries from day to day of all sums of money received and expended by the limited liability partnership, and the matters in respect of which the receipt and expenditure takes place, and a record of the assets and liabilities of the limited liability partnership.
- Preservation of Books of Account; the books of account which a limited liability partnership is required to keep shall be preserved for eight years from the date on which they are made.
- Destruction of old records Source; every LLP shall preserve the documents permanently as specified but the records in his office may be destroyed after the expiration of the period of their preservation.
- Record of documents destroyed to be maintained; the Registrar of Companies shall maintain a Register in two parts, wherein he shall enter brief particulars of the records destroyed and shall certify by his own hand writing therein the date and mode of destruction.
- Statement of Account and Solvency; every limited liability partnership shall, within a period of six months from the end of each financial year, prepare a Statement of Account and Solvency for the financial year as at the last day of the said financial year in such form as may be prescribed, and such statement shall be signed by the designated partners of the limited liability partnership. Every limited liability partnership shall file the Statement of Account and Solvency within a period of thirty days from the end of six months of the financial year to which the Statement of Account and Solvency relates.
- The Finance (No.2) Act, 2009 had introduced the provisions regarding taxation aspect of the Limited Liability Partnership. Section 2(23) of the Income Tax Act had been amended by the Finance Act, 2009 to include LLP‘ & its Partners under the Income Tax Act, 1961. According to the Act, tax treatment of LLPs is to be same as that of Partnership Firms.
Penalties
In contravention to any of the requirements of the LLP to file Annual Return in the prescribed manner or fails to maintain the proper books of accounts and other records, prepare Statement of Account and Solvency, get its accounts audited along with fees shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees. Also in case of failure of LLP, the designated partner of such LLP shall be punishable with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
So it becomes necessary to comply with the provisions of LLP Act, 2008 otherwise it will invoke liability on the individual or the partners of the partnership.
Author: This blog is written by Ms. Roopanshi Virang, a passionate blogger & intern at Aapka Consultant.
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