LLPs (Limited Liability Partnerships) are very popular in India, as they allow for flexibility, lower liability, reduced compliance costs, and very little regulation of their operations compared to other forms of business organizations.
The Limited Liability Partnership Act of 2008 requires that each registered LLP with the Registrar of Companies file an annual return, regardless of whether it is in business or has made any profit during that time. Failure to file the annual return will result in the LLP being subjected to substantial penalties, receiving a notice of failure to comply and/or facing actions contrary to the goodwill of the LLP.
This blog will be a detailed reference manual for LLPs to use for filing their annual compliance paperwork and include important information about compliance deadlines and penalties for the LLP so that they can ensure that they are fully compliant with applicable regulations.
LLPs should recognize that Annual Filing for LLPs on time is critical to the validity and credibility of the LLP. Timely filing of all required compliance paperwork maintains the integrity of the limited liability structure of the LLP.
When an LLP (Limited Liability Partnership) makes its return submissions in a timely manner, this is an indication that this LLP is adhering to good practices in the eyes of both the MCA (Ministry of Corporate Affairs) and NIC (National Income Tax). In addition to this support for good practice.
Filing your returns on time will provide:
1) Transparency – the ownership of the LLP and how the LLP is managed will be known to all interested parties, which should improve the level of confidence in the LLP.
2) Financial Information about the Financial LLC – through your filings;
3) Credibility of the Financial LLC;
4) To reduce the likelihood that designated partners would incur civil penalties or pay late fees associated with the Financial LLC; therefore, designated partners will not face any regulatory penalties; and
5) To provide comfort that the Financial LLC will continue operating, thereby providing an ongoing opportunity for growth for the LLP.
II. The Legal Framework Governing the Annual Filing of LLPs
The legal framework for the annual filing of Limited Liability Partnerships includes the following laws:
1. The Limited Liability Partnership Act of 2008
2. The Limited Liability Partnership Rules(2009)
III. Applicability of Annual Filings for All LLPs
Although some LLPs have the mistaken impression that they only have an obligation to file annual returns when they generate revenue, this is not correct. All LLPs registered and filed with the Registrar of Companies are required to file an annual return each year, regardless of whether:
1. The LLP has commenced business operations; or
2. The LLP has had zero turnover for the year.
VI. Mandatory Annual Compliances for LLPs
Every registered LLP is required to file the following annually:
The Limited Liability Partnership Act, 2008 and the Rules, 2009 prescribe Form 8 and 11, whereas the Income Tax Act of 1961 mandates ITR filing of LLPs in India.
V. Are inactive LLPs mandated to file annual returns?
Yes, they must submit annual returns even for years where substantial transactions did not take place. There remains an obligation to fulfill each of the statutory obligations for an LLP, from registration through formal cessation of business activities, until it has been formally dissolved or removed from the register kept by its designated Registrar.
VI. Non-compliance penalties
Non-compliance with regulations and requirements may result in harsh penalties being imposed. Each day forms 8 and 11 are filed late, a penalty of ₹100 per day will be incurred for each form submitted after the deadline.
There is no maximum penalty amount. Accordingly, since a non-compliance penalty accrues until it is corrected, this provides potential liability for a non-judged event.
Individuals who have filed their income tax returns late will also incur interest and late payment fees, and due to the nature of their filing, will result in lost opportunity regarding certain losses being disallowed by the agencies due to their late filing, and there is increased risk of audit or notice.
VII. Effects of non-compliance regulations.
As a result of non-compliance and/or ongoing penalties, an LLP can also incur other effects such as:
I. Receiving a Notice of Non-Compliance as the Registrar of Companies.
II. Adjudicative proceedings against designated partners.
III. The risk of designated partners being disqualified.
IV. Issues relating to bank credit.
V. Difficulty obtaining bank loans or tenders or government approvals.
VI. Potential litigation for a finding of default/ disqualification and removal from the Government Registry.
VIII. CONCLUSION
Though there are significant benefits to operating as a Limited Liability Partnership, it is imperative to comply with the annual requirements of LLPs. Failure to do so could result in severe penalties and the potential loss of stature, plus prosecution. Consulting with a professional service provider, such as Kanakkupillai, provides a simple, efficient and stress-free method of ensuring that you comply with current requirements for limited liability partnerships or LLP licences.