Audit Requirement for an LLP in India
What is an LLP?
LLP or Limited Liability Partnership is an alternative business form that provides the advantages of a limited liability company and the flexibility like that of a partnership firm.
An LLP, therefore, exhibits elements of both partnerships and corporations. This innovative and most awaited form of company was introduced into the Indian corporate world in 2009 by the Limited Liability Partnership act of 2008.
This unique hybrid combination of a limited and partnership company is thus suitable for small, medium-sized businesses or professionals.
Being one of the easiest types of businesses to incorporate and manage there are over one lakh registrations received in India since the introduction. Minimum two partners can incorporate an LLP, there is no upper limit as such.
In an LLP one partner is not responsible for the other partner’s misconduct or negligence. The mutual rights and the duties of the partners with an LLP are governed by an agreement that is signed between the partners.
As LLPs, are not capable of issuing equity shares LLPs should not be chosen for any business that plans for raising equity funds Angel’s investors, Venture Capitalists, or Private Equity.
LLP Annual Filing and Audit Requirements
Compared to a Private Limited Company, LLPs have minimal annual filing and accounts maintenance requirements. In this article, we review the annual compliances required for an LLP in terms of annual filing with the ROC and accounts maintenance.
LLP Accounts Maintenance
All LLPs are required to maintain proper books of accounts since registration on a cash basis or accrual basis. Private Limited Companies are required to maintain the book of accounts only on an accrual basis;
However, LLPs have the option of maintaining the book of accounts on a cash basis as well. The book of accounts must be maintained at the Registered Office of the LLP and must contain information about all the money received and expended, assets, and liabilities, statement of COGS, inventories, and finished goods statement.
At the end of each financial year, all the LLPs are required to prepare their financial statements within 6 months for filing with the ROC.
Exemption from the audit to LLP
LLPs are required to have their accounts audited by a practicing Chartered Accountant only if they fulfill the below-given conditions:
- If Annual turnover, in any financial year, exceeds Rs.40 lakhs or
- Its contribution exceeds Rs.25 lakhs.
In order to avail the exemption from audit, the LLPs accounts filed with the ROC must contain a statement by the Partners to the effect that the Partners acknowledge their responsibilities for complying with the requirements with respect to accounting and preparation of financial statements.
Auditors Appointment
LLPs are obliged to appoint an LLP auditor within one month before the end of the financial year. To put it in other words, an auditor should be appointed before the 1st of March every year.
Appointing by designated partners
The designated partners may appoint the auditor;
- At any time for the first financial year but before the end of FY.
- Within one month before the end of the FY.
It can be done to;
- To fill a general vacancy in the office of auditor.
- To fill a vacancy caused by the auditor’s removal.
Appointing by partners
If the designated partners have not been appointed, the partners are allowed to assume their responsibility.
Holding office
An auditor must hold office from the day the preceding auditor ceases to hold office and up to the end of the next period for appointing a new auditor until re-appointed.
Annual returns
Every LLP is obliged to submit an annual return in form 11 with RoC within two months of the closure of the financial year. The annual return would be available for public inspection on payment of stated fees to the registrar.
Penalty
Any LLP (limited liability partnership) that fails to abide by the requirements should be punished with a fine as stated below:
- Fine should not be less than Rs 25000 but not beyond Rs. 5 lakhs.
- Every designated partner should be punished with a penalty that should not be less than Rs 10000 but not going beyond Rs. 5 lakhs.
Required documents for public inspection in the office of the registrar.
The accounts of every LLP (limited liability partnership) have to be audited as per rule 24 of the LLP Rules, 2009.
The list of documents or information will be needed for assessment by any person as given below for an LLP audit;
- Incorporation documents.
- Partners’ names and changes, if any, made therein.
- Statement of account and solvency.
- Annual returns.
The fees for such examination of the LLP are Rs. 50 and fees for certified copy or extract of any document under section 36 should be Rs. 5 per page.
