As the due date of annual returns of Limited Liability Partnerships is drawing to a close, designated partners of Limited Liability Partnerships registered with Ministry of Corporate Affairs are raising frequent queries via mail or phone, which is ranging from minimization of penalty for non-filing ROC returns to closing the LLP and rescue themselves from the penal provisions. Can winding up LLP save penalty on non-filing ? Our corporate law team is of the opinion that these queries and solutions there on needs to be addressed by a detailed article, which would address the rising issues at this high time, when we are fast approaching 31st May, 2013.
All LLPs are required to mandatorily file the annual returns, whether or not it does business or not. Therefore, all LLPs registered on or before 30th September, 2012 are obliged to close their financial year on 31st March, 2013 of the following year. An LLP registered on or before 30th September, 2012 of a year is required file its annual returns with the ROC (Form 11) within 60 days of closure of its financial year. Therefore, annual returns for FY 2012-13 need to be filed on or before 31st May, 2013. If in case a LLP had not filed annual returns for FY 2011-12, it was required to be filed by 31st May, 2012 (extended later to 31st July, 2012). Therefore, if a LLP has not filed Form 11 by 31st July, 2012 for FY 2011-12 so far, the penalty for Form 11 would be Rs 28200 (computed as on the date of this content).
Now let us analyze the case of Form 8. The LLP has to file its Statement of Accounts and Solvency with the Registrar of LLPs (Form 8) within 30 days from the end of 6 months of such financial year. Therefore, annual accounts for FY 2011-12 need to be filed on or before 31st October, 2013.
There have been a number of LLPs that do not enter into any business transactions and remain inoperative since the day of the inception of their business. Meanwhile, the designated partners are not even aware of the compliances to be met with, wherein the annual filings with the ROC remain unattended. The basic reason for this, which to our experience, is because the consultant who incorporate the LLP do not provide the annual maintenance service, which essentially includes ROC annual filings. Once the LLP commences its operations and starts generating revenue its time when they approach the consultants to file their returns with the Income Tax Department as well as the ROC. This is where the situation of huge penalty for non-compliance of ROC Annual Filings arises. Non-Filing of Form 8 (Statement of Accounts & Solvency) and Form 11 (Annual Return) after the specified due dates attracts additional fee @ Rs 100 per day of default. In simple words if the LLP fails to file both Form 8 and Form 11 within the prescribed time limit, then an additional fees of Rs 100 is payable per day from the due date to the date of filing. Moreover, a LLP cannot file Form 8 unless and until form 11 is filed within the specified due date.
Said that, this is a common notion with many designated partners in an LLP that they might escape the huge penalty for not complying with the requirements of ROC if they wind up the LLP. So, the recent question, which our corporate law team is answering quite a few times runs as – Can winding up LLP save penalty on non-filing ?
But for striking off the LLP, e Form 24 with copy of detailed application, copy of authority to make application, copy of consent of all partners and creditors, copy of the undertaking/indemnity bond for striking off name, attested copy of statement of assets and liabilities, updated ROC master data and a copy of acknowledgement of latest Income Tax Return.
Thus to wind up the LLP, the entire penalty has to be paid, following which the ROC master data with MCA will get automatically updated, which needs to be attached along with a copy of acknowledgement receipt of Income Tax Return. Therefore, there is no way to get away from the penalties by way of winding up, because the entire process is strictly attached and connected.
It is, therefore very important for the designated partners to file Annual Returns even if no business is transacted. Even if the business is running in losses, it is beneficial to file income tax returns every year, so that the loss can be set off from the future profits. And only after filing e-Form 24 with the above mentioned documents partners can wind up their business. Therefore, the partners should understand that winding up of the business is not the solution to escape the imposition of penalties; rather they have to comply with all pending filings and update the ROC with the status of affairs of the LLP, may it be for continuing the business or discontinuance. Concluding therefore, the straight answer to the question – Can winding up LLP save penalty on non-filing ? is NO.
All LLPs are required to mandatorily file the annual returns, whether or not it does business or not. Therefore, all LLPs registered on or before 30th September, 2012 are obliged to close their financial year on 31st March, 2013 of the following year. An LLP registered on or before 30th September, 2012 of a year is required file its annual returns with the ROC (Form 11) within 60 days of closure of its financial year. Therefore, annual returns for FY 2012-13 need to be filed on or before 31st May, 2013. If in case a LLP had not filed annual returns for FY 2011-12, it was required to be filed by 31st May, 2012 (extended later to 31st July, 2012). Therefore, if a LLP has not filed Form 11 by 31st July, 2012 for FY 2011-12 so far, the penalty for Form 11 would be Rs 28200 (computed as on the date of this content).
Now let us analyze the case of Form 8. The LLP has to file its Statement of Accounts and Solvency with the Registrar of LLPs (Form 8) within 30 days from the end of 6 months of such financial year. Therefore, annual accounts for FY 2011-12 need to be filed on or before 31st October, 2013.
There have been a number of LLPs that do not enter into any business transactions and remain inoperative since the day of the inception of their business. Meanwhile, the designated partners are not even aware of the compliances to be met with, wherein the annual filings with the ROC remain unattended. The basic reason for this, which to our experience, is because the consultant who incorporate the LLP do not provide the annual maintenance service, which essentially includes ROC annual filings. Once the LLP commences its operations and starts generating revenue its time when they approach the consultants to file their returns with the Income Tax Department as well as the ROC. This is where the situation of huge penalty for non-compliance of ROC Annual Filings arises. Non-Filing of Form 8 (Statement of Accounts & Solvency) and Form 11 (Annual Return) after the specified due dates attracts additional fee @ Rs 100 per day of default. In simple words if the LLP fails to file both Form 8 and Form 11 within the prescribed time limit, then an additional fees of Rs 100 is payable per day from the due date to the date of filing. Moreover, a LLP cannot file Form 8 unless and until form 11 is filed within the specified due date.
Said that, this is a common notion with many designated partners in an LLP that they might escape the huge penalty for not complying with the requirements of ROC if they wind up the LLP. So, the recent question, which our corporate law team is answering quite a few times runs as – Can winding up LLP save penalty on non-filing ?
But for striking off the LLP, e Form 24 with copy of detailed application, copy of authority to make application, copy of consent of all partners and creditors, copy of the undertaking/indemnity bond for striking off name, attested copy of statement of assets and liabilities, updated ROC master data and a copy of acknowledgement of latest Income Tax Return.
Thus to wind up the LLP, the entire penalty has to be paid, following which the ROC master data with MCA will get automatically updated, which needs to be attached along with a copy of acknowledgement receipt of Income Tax Return. Therefore, there is no way to get away from the penalties by way of winding up, because the entire process is strictly attached and connected.
It is, therefore very important for the designated partners to file Annual Returns even if no business is transacted. Even if the business is running in losses, it is beneficial to file income tax returns every year, so that the loss can be set off from the future profits. And only after filing e-Form 24 with the above mentioned documents partners can wind up their business. Therefore, the partners should understand that winding up of the business is not the solution to escape the imposition of penalties; rather they have to comply with all pending filings and update the ROC with the status of affairs of the LLP, may it be for continuing the business or discontinuance. Concluding therefore, the straight answer to the question – Can winding up LLP save penalty on non-filing ? is NO.
2 comments:
Hello.. Nice blog with very useful information. Thanks for sharing this information with us. Visit our website for Annual Compliance for LLP Company
Hello.. Nice blog with very useful information. Thanks for sharing this information with us. Visit our website for Annual Compliance for LLP Company
Post a Comment