In this article, Varun Sharma does a comparative study of the Compliance requirements for Directors.
A Limited Liability Partnership (or LLP) is a form of business structure in which the liabilities of each partner is limited to their agreed contribution in the LLP. This allows the partners to run the business based on an agreement while giving them protection from the unnecessary financial exposure. A Company, on the other hand, is a company that is incorporated under the Companies Act, 2013.
It is mandatory for an LLP as well as a Company to adhere to the compliance requirements prescribed by the law (LLP Act of 2008 and Companies Act of 2013). While some of these requirements are left to the will of the Partners or Directors, others have been made compulsory by the law, not following which can result in heavy penalties. In this article, we’ll discuss about the various compliances that are mandatory for an LLP to file without fail and compare them vis-a-vis to the compliance requirements of a Private Limited Company.
1. Compliance of Obtaining Digital Signature Certificate
A Digital Signature Certificate or DSC is the digital equivalent of the physical or paper certificate to serve as proof of the identity of an individual for a particular purpose. It is presented digitally to prove one’s identity or sign on the documents digitally.
Before registering an LLP, a designated Partner is required to apply for DSC from a certifying authority (CA). It is required for signing the e-Forms that are required for the registration of the LLP. There are two types of DSC that are issued by the CAs, the Class 2 DSC and the Class 3 DSC. Either can be obtained for signing the e-Forms for the registration. The fee for acquiring a digital certificate vary according to different CAs.
In case of a company, no DSC is required for filing the RUN (Reservation of Name) form. The only requirement is the creation of an account with the MCA portal. But since e-Forms are required to be signed at the time of incorporating a company, it will also require to obtain DSC from CA.
The cost involved in obtaining a DSC varies according to the different CAs.
2. Compliance of Obtaining the Designated Partner Identification Number
Designated Partner Identification Number or DPIN has to be acquired by the Designated Partner or all those persons who want to be, and/or will be, Designated Partner in the LLP.
A DPIN is allotted by the Central government to all those persons who are intending to be a Designated Partners in a new or existing LLP. A fee of INR 100 is required to be paid for obtaining a DPIN.
On the other hand, a Company doesn’t appoint Designated Partners. Hence, a Director Identification Number, or DIN, is required to be obtained in case of a Company. A DIN, since it is person specific, is required to be obtained only once in the lifetime. If a Director wants to join another business as a Director, he need not obtain a new DIN number. A flat fee of INR 500 is charged for filing the DIN application.
If a person has both, a DPIN and a DIN, his DIN will only be required and his DPIN will automatically stand cancelled.
3. LLP Incorporation Compliance
After obtaining the DSC, DPIN and reserving the LLP name with the Registrar of Company (RoC), the Designated Partners of the LLP will be required to get their business registered with the RoC. All the details such as total number of Designated Partners, each partner’s contribution, Total contribution etc. have to be filled correctly while registering the LLP. The fee for registration of LLP depends on the total contribution of the LLP. It is as follows:
|Serial No.||Capital Contribution||Fees Payable|
|1.||Less than 1 lakh (<1,00,000)||INR 500|
|2.||Between 1 lakh and 5 lakh (1,00,000-5,00,000)||INR 2,000|
|3.||Between 5 lakh and 10 lakh (5,00,000-10,00,000)||INR 4,000|
|4.||10 lakh and above (10,00,000 <)||INR 5,000|
A Company, on the other hand, requires a Certificate of Incorporation for incorporating its business. An application for the same is required by filing the SPICe forms online. The fee required for registration of a company depends upon its nominal Share Capital. The fees payable by the Small Company and Other Private Companies (OPCs) are INR 2,000 for those companies whose nominal Share Capital does not exceed INR 10,00,000. This increases as the nominal Share Capital of the company increases.
For companies other than Small Company and OPCs, the fees payable where nominal Share Capital does not exceed INR 1,00,000 is INR 5,000. It also increases with the increase in the nominal Share Capital.
4. Compliance with Registering the LLP Agreement
As per the Section 2(O) of the LLP Act 2008, an LLP agreement is defined as “any written agreement between the partners of the limited liability partnership or between the limited liability partnership and its partners which determines the mutual rights and duties of the partners and their rights and duties in relation to that limited liability partnership.” As per Section 23 of the Act, it is mandatory to register the LLP agreement within 30 days of incorporation of the LLP. The Schedule I of the LLP Act provides for mutual rights and liabilities that will be applicable to all the LLPs in the absence of an agreement.
If one has to exclude some or all of the provisions mentioned in Schedule I of the act, then it is absolutely necessary for the Designated Partners of that LLP to get the agreement registered with the RoC. They will need to specifically exclude those provisions that they do not want applying to their LLP. The fees payable for registering the LLP agreement depends on the amount of capital contributed by the partners. Below are the details of fees payable for registering an LLP:-
|Serial No.||Capital Contribution||Fees Payable|
|1.||Less than 1 lakh (<1,00,000)||INR 50|
|2.||Between 1 lakh and 5 lakh (1,00,000-5,00,000)||INR 100|
|3.||Between 5 lakh and 10 lakh (5,00,000-10,00,000)||INR 150|
|4.||10 lakh and above (10,00,000 <)||INR 200|
A Private Limited Company does not require registration of any agreement as it is governed by the provisions of the Articles of Associations and Memorandum of Association, which it is required to get registered while obtaining the Certificate of Incorporation as the per the Companies Act, 2013.
5. Compliance of Filing Statement of Account and Solvency
Statement of Account and Solvency or Form-8 is a declaration by all the designated Partners of an LLP that they have sufficient solvency to pay off all of their debts that will become due in the normal course of business. Form 8 has two part
- Part A- Statement of Solvency
- Part B- Statement of Accounts, Income and Expenditure Statement.
This form has to be filed by the LLP on annual basis. It must be filed within 30 days from the end of 6 months of a financial year with the Registrar of Companies (RoC). This also required digital signatures of two Designated Partners and also needs to be certified by a CA/CS/Cost Accountant. The fee prescribed for filing Form-8 is the same as that required for registering the LLP agreement. (Table 2).
Private Limited Company is not required to file Statement of Account and Solvency. It is required to annually file the statement of Profit and Loss, Balance Sheet and Annual returns with the Registrar of Companies along with the Auditor’s Report. The fee prescribed for a company to file documents with RoC u/s 385 of Companies Act is INR 6,000 for each document registered.
6. Compliance of Filing Annual Returns
An LLP is required to file Annual Returns or Form-11 with the Registrar of Companies (RoC). This is to be filed annually by the LLP just like in the case of Form-8. Form-11 contains information such as total number of Partners, contributions received by each partner as well as the summary of all the Partners, among other information. This is required to be filed within 60 days from the closure of the financial year.
The fees prescribed for filing of Form-11 is same as that of the Form-8. It can be checked by referring to Table-2 in the article. It is to be noted that an LLP is required to file Form-8 and Form-11 even when there has been no business in the LLP. The Form-11 required to be filed before winding-up the business of the LLP. An LLP is not allowed to close without filing its Annual Returns.
As mentioned above, although a private limited company is not required to file Form-11 in its annual return, it still has to file Profit and Loss, Balance Sheet and Annual returns with the RoC.
7. Compliance of Filing the Income Tax Returns
Income Tax Return is mandatory to be filed by every LLP annually. It contains all the information regarding the earning of the LLP from all sources, tax liabilities it has, taxes that have been paid for the financial year and any rebates that it receives from the government. It is mandatory for these LLPs to close their financial year on 31st March every year.
The Income Tax to be filed by an LLP has been divided into two categories:
1. LLPs whose turnover is less than INR 60 lakh
Those LLPs whose annual turnover does not exceed INR 60 lakh are required to file their Income Tax by 31st of July every year. They are not required to get their accounts audited by Chartered Accountants.
2. LLPs whose turnover is in excess of INR 60 lakh
Those LLPs whose annual turnover is in excess of INR 60 lakh are required to file their Income Tax by 30th of September every year or on the dates notified by the Income Tax Department for that year. They are required to get their books audited under the Income Tax Act.
The Income Tax rate for LLPs in India is a flat 30% for all LLPs. A surcharge of 10% is applicable on LLPs whose income exceeds INR 1 crore. Apart from this, a 2% of the Income Tax and Surcharge is levied as Education Cess and 1% of the Income Tax and Surcharge is levied as Higher and Secondary Education Tax on the LLPs.
For a Company also, the filing of annual Income Tax is mandatory. The main difference is the bracket to which the company belongs. Income tax levied on various companies is shown below:
|Serial No.||Gross Turnover of the Company||Tax Bracket (%)|
|1.||Less than INR 250 Crore||25%|
|2.||More than INR 250 Crore||30%|
Apart from this, a surcharge of 7% is levied on Companies whose taxable income exceeds INR 1 Crore and 12% on Companies whose taxable income exceeds INR 10 Crore. Health and Education Cess of 4% is levied on the Income and Surcharge.
Apart from these compliances, a Company, under the Companies Act 2013, has to follow other compliances as well. Other Compliances that a Company has to follow are:
- Conduct Board Meeting 30 days after Incorporation
- Appoint Auditors in the first Board Meeting
- Have a Registered Office
- Have a Name Board outside its Office
- Have PAN (Permanent Account Number) and TAN (Temporary Account Number)
- Maintain Statutory Registers u/s 85
These are some of the compliances that a company has to follow. An LLP, in comparison to a Company, has way fewer compliance requirements and ever lesser where the direct involvement of a Director or Designated Partner is concerned. The cost involved in following these compliances are clearly more for a company.