LLP is a limited liability structures. However, companies offer certain key advantages, especially for startups. Ownership of the company is defined by share capital, which is easy to transfer compared to ownership transfer in LLP. Also, it clearly differentiates management and ownership. Hence, it is preferred by VCs, angel investors and banks for providing debt or equity funding.
However, one should also consider higher compliance and mandatory audit requirement, making it an expensive structure to maintain.
- An LLP is a form of separate legal business entity that gives the benefits of limited liability but allows its members the flexibility of organising their internal structure as a traditional partnership. They are intended for businesses which carry on a trade or profession, and are particularly attractive to larger professional partnerships.
- In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence
Advantages of Limited Liability Partnership LLP
- As Many Owners As Needed- There is no limit on the amount of owners that can be involved with the business.
- Liability Protection- This type of partnership structure protects individual partners from personal liability for negligent acts of other partners or employees not under their direct control.
- Tax Advantages-The individuals in the partnership are liable for filing their personal income taxes as well as self employment taxes for the Internal Revenue Service. The partnership is not held responsible for paying these taxes. The credits and deductions of the company are divided among the partners according to the amount of interest in the company.
- Flexibility- Partners have the authority to decide how they will individually contribute to business operations. Managerial duties can be divided equally or separated based on the experience of each partner.
Annual Compliances of LLP
- All LLPs registered with the Ministry of Corporate Affairs need to file Annual Returns and Statement of Accounts for every Financial Year. It is mandatory for a LLP to file a return irrespective of whether it has done any business.
- 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
- Filing Annual Return- Annual Return or Form 11 is a summary of an LLP’s Partners. It is also an indication of whether there is any change in the management. Every LLP is required to file Annual Return in Form 11 to the Registrar within 60 days from the closure of a financial year. That is, the Annual Return has to be filed on or before 30th May every year.
- Filing Annual Accounts– All LLPs are required to maintain their Books of Accounts in Double Entry System. They also need to prepare a Statement of Solvency (Accounts) every year ending on 31st March. For this purpose, LLP Form 8 should be filed with the Registrar of Companies on or before 30th October every year.
- It should be noted that LLPs whose annual turnover exceeds Rs. 40 lakh or whose contribution exceeds Rs. 25 lakh are required to get their accounts audited by a qualified Chartered Accountant mandatorily.
Income tax compliance for LLP
- As per Income Tax Act, LLP has to close its financial year as on 31st March every year and has to file the returns with Income Tax Department.
- In case of LLP whose annual turnover is more than Rs.60 Lakhs, the accounts have to be audited as required under Income Tax Act as well.
- No audit under any law required-31stjuly
Accounts subject to audit under any law-30th September of every year or such other date as may be notified by the Income Tax authorities.