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LLP - Management & Accounts

	Management
	Accounts & Audit

Management

Limited Liability Partnerships are governed by the terms and conditions of the LLP Agreement unless the Agreement specifically provides that particular partner shall be responsible for managing the affairs of the LLP, all the partners shall be deemed to have the power to manage the business. Generally partners, who are actively involved in the day to day management activities, are called as Managing Partners. Such Managing Partners have general powers to manage the business of the LLP and unless other provided in the LLP Agreement, all decision relating to the business are taken by them. In case nothing is provided in the LLP Agreement, all business decision is taken by all partners collectively.

There is no concept of meeting in LLP unless otherwise provided in the LLP Agreement and approval for all decision is taken by written or oral consent. Partners may at their discretion meet as and when they want to. In case all partners are not actively engaged in the business of the LLP, all major business decision are taken with their consent, unless otherwise provided in the LLP Agreement.

LLP Act specifically provides that Designated Partners shall be liable for the compliance of the terms and conditions of the LLP Agreement and LLP Act but Designated Partners cannot to be said to be managing partners unless they actively take part in the management of the LLP.

Partners

Section 26 defines the role of partner and states that, every partner of a Limited Liability Partnership is, for the purpose of the business of the Limited Liability Partnership, the agent of the Limited Liability Partnership, but not of other partners. It means that the relation of principal and agent is only between the LLP & its partners and not between the partners per se.

Partners regarding the rights are alike the Partners in the traditional Partnership Firm. Partners have the right to participate in the management of the LLP though they are not entitled to any remuneration for participating in the management of LLP unless otherwise provided in the LLP Agreement. The partners would be entitled to share equal profits in the LLP or as may be provided by LLP agreement.

Rights of Partners:

Subject to LLP Agreement, basic rights of partners in LLP are :

• To participate in the business
• To share profits & losses
• To inspect the books of accounts
• To enter into or negotiate contracts on behalf of the LLP.
• To borrow and invest funds of the LLP

Partners under ethical conduct are required to comply with all the provisions of LLP Act and LLP agreement and not to indulge in any fraudulent transaction with the creditors or outsiders.

Accounts & Audit

Books of Account

Limited Liability Partnerships are also required to maintain books of account in respect of their income and expenditure. These books of account are required to be kept at the registered office of the Limited Liability Partnership unless the Partners decide otherwise as per the terms of the LLP Agreement.

The books of account shall contain

• particulars of all sums of money received and expended by the limited liability partnership and the matters in respect of which the receipt and expenditure takes place;
• a record of the assets and liabilities of the limited liability partnership;
• statements of cost of goods purchased, inventories, work-in- progress, finished goods and cost of goods sold; and
• Any other particulars which the partners may decide.

Under the Income Tax, it has provided that the following category of business and profession shall maintain such books of accounts as would enable the assessing officer to compute the total income of the business in accordance with provisions of Income Tax Act

1. Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette
2. Every person carrying on business or profession (not being a profession referred to in para a above) shall,
1. if his income from business or profession exceeds one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession exceed or exceeds ten lakh rupees in any one of the three years immediately preceding the previous year; or
2. where the business or profession is newly set up in any previous year, if his income from business or profession is likely to exceed one lakh twenty thousand rupees or his total sales, turnover or gross receipts, as the case may be, in business or profession are or is likely to exceed ten lakh rupees, during such previous year;

Methods of Accounting

Limited Liability Partnerships are required to maintain their Books of Account on cash basis or accrual basis and according to the double entry system of accounting. Currently the accounting standards are not applicable to LLP.

Financial Statements

LLP is required to prepare the following statement annually:

• A Balance Sheet – to give a true and fair view of the State of affairs of the LLP as at the end of financial year.
• An Income and Expenditure Account – to give a true and fair view of the Income and Expenditure of the LLP for a particular Financial Year.
• Statement of Solvency: It is in form of declaration by the LLP, that it will be able to pay its debts in full as they become due in the normal course of business.

Statutory Audit

Limited Liability Partnership whose contribution exceed Rs. 25 Lacs or the Limited Liability Partnership whose turnover exceed Rs. 40 Lacs are required to annually get their accounts audited by any Chartered Accountant in practice.

The LLP, which are not required to get their accounts audited, are required to In furnish a statement in the Statement of Account and Solvency by the partners to the effect that the partners acknowledge their responsibilities for complying with the requirements of the Act and the Rules with respect to preparation of books of account

The Designated Partners responsible for the compliances of LLP will appoint the auditor also. However if the designated partner fails to appoint the auditor then the partners may appoint the auditor.

Tax Audit

Where the total sales, turnover or gross receipts of the business exceed Rs. 40 Lacs (Rs. 10 Lacs in case of profession) in any financial year of the company, than a the accounts shall be audited by chartered accountant and tax audit report based on the same, is required to be submitted to the tax authorities’ alongwith the Return of Income of the business.

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