Accounting for Limited Liability Partnership

T. Y. B.Com. Semester VI
(As per Syllabus prescribed by University of Mumbai)

Nikhil Dilip Karkhanis

Assistant Professor
Mulund College of Commerce
Features of LLP

Body Perpetual Separate Artificial

Corporate Succession Legal Legal
Entity Person

Business
Common Limited for
Seal Liability Profit
Only

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Advantages - LLP
Perpetual Easy
Easy to Succession Audit
Transfer
form
Liability

02 03 04
01 05

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Disadvantages - LLP

LACK OF UNIFORMITY

NO RAISING OF
MONEY / IPO

LESS POPULAR

LESS CREDIBLE

TRANSFER OF
INTEREST

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LLP Vs Partnership Firm
Vs Company

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Basis LLP Partnership
Regulating Act The Limited Liability Partnership Act, The Indian Partnership Act, 1932.
2008
Body corporate It is a body corporate. It is not a body corporate
Separate legal entity It is a legal entity separate from its It has no separate legal identity
members.
Creation It is created by a legal process of It is created by an agreement
registration under the LLP Act, 2008. registration between the partners.

Registration Registration is mandatory. LLP can sue Registration is voluntary. Only the
and be sued in its own name. registered partnership firm can sue
the third parties.
Perpetual succession The death, insanity, retirement or the The death, insanity, Retirement or
death, insolvency of the partner(s) does insolvency of the partner(s) may
not affect its existence of LLP. Members affect its existence. It has no
may join or leave but its existence perpetual succession.
continues forever.

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Basis LLP Partnership
Liability Liability of each partner limited to the Liability of each partner is
extent to agreed contribution except unlimited. It can be extended up to
in case of wilful fraud. the personal assets of the partners.
Designated partners At least two designated partners. At There is no provision for such under
least one of them shall be resident in the Indian partnership Act, 1932.
India.

Responsibility of Legal Only designated partners are
Compliance responsible for all the compliances
and penalties under this Act.
Minor as partner Minor cannot be admitted to the
benefits of LLP.
All partners are responsible for all
the compliances and penalties
under the Act.
Minor can be admitted to the
benefits of the partnership with
the prior consent of the existing
partners.

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Basis LLP Company
Regulating Act The Limited Liability Partnership The Companies Act, 2013.
Act, 2008
Members/Partners The persons who contribute to The persons who invest the money
LLP are known as partners of the in the shares are known as
LLP. members of the company.
Name Name of the LLP to contain the Name of the public company to
word “Limited Liability
contain the word “limited” and
partnership” or “LLP” as suffix. Private company to contain the
word “Private limited” as suffix.
Number of Minimum – 2 members Private company:
members/ Maximum – No such limit on the Minimum – 2 members
partners members in the Act. Maximum – 200 members

Public company:
Minimum – 7 members
Maximum – No such limit on the
members.

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Basis LLP Company
Conditions of The members of the LLP can be Members can be organizations,
Membership individuals/or body corporate trusts, another business form or
through the nominees. individuals.
Liability of Liability of a partners is limited to
Liability of a member is limited to
members/ the extent of agreed contributionthe amount unpaid on the shares
partners except in case of wilful fraud. held by them.
Profit Sharing As per Profit Sharing Ratio The profits (dividends) will be
decided as per LLP agreement distributed according to the shares
held.
Appointment of Only if threshold limits of Mandatory after 30 days of
Auditor contribution/turnover exceed the incorporation
prescribed limits

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LLP Agreement

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LLP Agreement
• The mutual rights and duties of partners inter se and those of the LLP
and its partners shall be governed by the agreement between
partners or between the LLP and the partners.
• This Agreement would be known as “LLP Agreement”.
• As per provisions of the LLP Act, in the absence of agreement as to
any matter, the mutual rights and liabilities shall be as provided for
under Schedule I to the Act.

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Contents of LLP Agreement
 Interpretation clause  Admission of a new  Acts requiring the  Assignment of
 Names of designated partner consent of a requisite monetary interest of
partners  Retirement of a number of percentage partners
 Lawful business clause partner of the partners  Rights of the legal
 Registered Office  Cessation of partner  Indemnity representative
clause  Resignation of  Interest &  Duration of the LLP
 Capital & contribution partner remuneration  Voluntary winding up
clause  Expulsion of partner  Appointment of  Meeting, recording in
 In case of conversion of  Sharing of profit auditors the meeting, etc.
partnership/Company  Sharing of loss  Removal of auditors  Changes/amendment
into LLP appropriate  Meetings of partners  Signatory to bank in agreement
clauses for such  Voting rights and its accounts  Arbitration clause
takeover determination  Signatory to  Legal Clause for
 General terms  Restriction on Agreements settlement
amongst the partners partners’ authority  Share in goodwill  Changes in future and
the procedure for it.

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Provisions Related
to Partners

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 Partners in LLP
A minimum of two partners will be required for formation of an LLP.
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There will not be any limit to the maximum number of partners.

Partners are agents of LLP but not the agents of other partners.
Liability of partners is limited to the contribution made by them
except where an Act is carried out for any fraudulent purpose.

When does the partner cease to be a partner?

A person may cease to be a partner in accordance with the agreement or in the
absence of agreement, by giving 30 days’ notice to the other partners.
A person shall also cease to be a partner of a limited liability partnership-
(a) on his death or dissolution of the limited liability partnership; or
(b) if he is declared to be of unsound mind by a competent court; or
(c) if he has applied to be adjudged as an insolvent or declared as an insolvent.
Eligibility for Partners
Who can become a partner in a
LLP?
 An individual unless otherwise
disqualified
 A company incorporated
under the Companies Act 1956
or Companies Act 2013
 A LLP incorporated under LLP
Act 2008
 A LLP incorporated outside
India
 A company incorporated
outside India
Nikhil Dilip Karkhanis, Mulund College of Commerce
Who cannot become a partner in
LLP?
 An individual, if:
- he has been found to be of
unsound mind by a Court of
competent jurisdiction and the
finding is in force;
- he is an undischarged insolvent;
or
- he has applied to be adjudicated
as an insolvent and his application
is pending.
Following persons are not
allowed to become a Partner:
 A minor
 A HUF
 A Partnership Firm
 An Association of Persons
(AOP) or Body of Individuals
(BOI)
 An Artificial Juridical Person
 A Co-operative Society
registered under any law for
the time being in force
 A body corporate which the
Central Government may, by
notification in the Official
Gazette, specify in this behalf.
Designated Partner
 Every LLP must have at least two individuals as the
designated partners.
 At least one of the designated partners must be resident in
India
 A body corporate may appoint an individual to act as
a designated partner.
 The incorporation document may specify who will be the
designated partners.
 Any partner may become a designated partner or cease to
be a designated partner as per the LLP Agreement.
 If there is no designated partner, or if at any time there is
only one designated partner, each partner is deemed to be
a designated partner.
 Designated partners are responsible for doing all acts,
Designated Partner Identification Number
matters and things that are required to be done for
(DPIN) is a registration required for any
complying with the provisions of the LLP Act.
person who wishes to be appointed as a
 A designated partner that ceases to be a partner is
Designated Partners of a Limited Liability
automatically no longer a designated partner.
Partnership (LLP)
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Contribution
 Contribution and nature of contribution as per
the LLP Agreement.
 Contribution may consist of tangible or intangible,
promissory notes, contracts for services
performed
 The monetary value of the non-monetary
contribution is to be valued by a Chartered
Accountant or a Cost Accountant or an Approved
Valuer.
 A creditor of an LLP may enforce such obligation
against the partner.

Share Capital Contribution

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Procedure of
Formation

Nikhil Dilip Karkhanis, Mulund College of Commerce

Procedure of Formation

Nikhil Dilip Karkhanis, Mulund College of Commerce

Procedure of Formation

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Audit
 Legal Provision
Accounts of LLP are required to be audited. An LLP liable for audit if

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turnover in any FY exceeds ₹40 lakhs or the contribution (capital)
exceeds ₹25 lakhs.
 Appointment of Auditors
First Auditors
For the first year, the auditor may be appointed any time before
the end of the F.Y.
Subsequent Years
Thereafter, the auditor is to be appointed at least 30 days prior to
the end of the F.Y.
 Who will appoint
The designated partners shall appoint the auditors. If they fail to do so,
the partners may appoint the auditors.
 Resignation/Non-continuation
An auditor may resign or may express his unwillingness to be
reappointed by a notice in writing along with statement of explanation
for the same.
 Accounts
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Basis of Accounting
Double Entry System Cash or Credit

• Necessary disclosures in Books of Accounts

• all sums of money received/expended
• record of the assets and liabilities
• Statement of COGS/Inventory Records
Place of Maintenance Period of Preservation Certification of Annual Return
Registered Office 8 Years
By Designated Partners
Annual Return
Turnover up to ₹ 5 Crores
Form 11 60 Days from End of F.Y. Contribution up to ₹ 50 Lakhs
By Company Secretary
Turnover more than ₹ 5 Crores
Contribution more than ₹ 50 Lakhs
 Income Tax Provisions of LLP
 Applicability
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Partnership Firm = LLP

 Foreign LLP
Foreign LLP = Company
 Income Tax Rate
30% plus 4% cess.
 Taxability of Remuneration and Interest
Allowable Interest and Remuneration as per Income Tax Act, 1961
Interest Up to 12% P.A.
Remuneration
On first Rs. 3 Lakhs of book profit or in case Rs. 1,50,000 or 90% of book
of loss profit, whichever is more
On the balance of the book profit On the balance of the book
profit
 Capital Gain on Conversion
No CG on conversion of partnership firms into LLP u/s 47 (xiii)
 MAT and Deemed Dividend
MAT provisions as applicable and Deemed Dividend provisions not  Signing of Income Tax Return
applicable to LLP  The Designated Partners
 If not available, then other Partners
Forms and Format
• LLP Form No. 8 : Statement of Account and Solvency
https://bit.ly/3tQrwmd
• Format of Balance Sheet
https://bit.ly/3tRyl7e
• Format of Income & Expenditure
https://bit.ly/3xlTzfF
• First Schedule of LLP
https://bit.ly/32JWyjZ
 READY FOR
QUIZ
Click on the following links to test your knowledge on this Module:

https://forms.gle/AGDcE1zBsKNSc78B7

https://forms.gle/dirPsMqNtoQbkUo1A

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Thank You!
Nikhil Dilip Karkhanis
nikhil.karkhanis@mccmulund.ac.in
 Acknowledgements

Dr. Sonali Pednekar, Principal, Mulund College of Commerce

Dr. Arvind Luhar, Chairman, BOS (Accountancy), University of Mumbai

Dr. Sanjay V. Rane, M.Com Coordinator, Mulund College of Commerce

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