Audit, disclosure and filing requirements of Limited Liability Partnership

[2021] 132 taxmann.com 62 (Article)

Limited liability Partnership (LLP)

1. As we are all aware that a limited liability partnership is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership and the limited liability partnership can continue its existence irrespective of changes in partners.

Limited liability partnership is capable of entering into contracts and holding property in its own name since the limited liability partnership is a separate legal entity and is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the limited liability partnership. Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

Governing regulations of limited liability partnership

2. The governing regulation of limited liability partnership is as per Limited Liability Partnership Act 2008 read with Limited Liability Partnership Rules, 2009.

Maintenance of books of account/other records

3. As per section 34 of the Limited Liability Partnership Act 2008 every limited liability partnership:-

(a) Limited liability partnership is required to maintain books of account for each year as prescribed by Rule 24. (Sec.34).

(b) The accounts are to be prepared either on cash basis or on accrual basis under double entry system of accounting.

(c) The limited liability partnership is required to keep books of account which are sufficient to show and explain the transactions of limited liability partnership and are such as to;

(i) Disclose with reasonable accuracy in the financial position of the LLP

(ii) Designated partner to ensure that any Statement of Account and solvency shall complied with the requirement of Liability Partnership Act 2008.

(iii) Every designated partner shall have deemed to approve the accounts unless one takes all reasonable steps to prevent their being approved & signed.

3.1. The books of account contain the particulars of sums of money received and expanded by the limited liability partnership and their purposes and also would contain the record of assets and liabilities of the limited liability partnership. The books of account would have a statement of cost of goods purchased. Statement of inventories, Statement of work-in-progress & finished goods, statement of cost of goods sold and any other as may be decided between the partners.

Preservation period of books of account

3.2. The books of account are required to be preserved for 8 years – i.e., current year plus last eight years.

Audit

4. Rule 24 of Limited Liability Partnership Rules, 2009 is the governing regulation for limited liability partnership. The account of every limited liability partnership is required to be audited in accordance with Rule 24 of Limited Liability Partnership Rules, 2009. Audit is compulsory under Limited Liability Partnership Act 2008, if the turnover exceeds Rs. 40 lakh and contribution by partners exceed Rs. 25 lakh

Auditor

5. Auditor is the one who is appointed by the limited liability partnership to conduct the audit. As seen above, limited liability partnership whose turnover in any financial year is in excess of rupees forty lakh or whose contribution is in excess of twenty five lakh is required to urge their books of accounts audited. The accounts of every limited liability partnership are audited according to Rule 24 of Limited Liability Partnership Rules 2009.

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