Limited Liability Partnership (LLP) was introduced in India by way of the Limited Liability Partnership Act, 2008. LLP is one of the easiest types of business to incorporate and manage in India. With an easy incorporation process and simple compliance formalities, LLPs are preferred by Professionals, Micro and Small businesses that are family-owned or closely held.
Limited Liability Partnership (LLP) has become a preferred form of organization among entrepreneurs as it incorporates the benefits of both partnership firm and company into a single form of organization.
The LLP form of business is as much as convenient as compared to other types of business structures. Limited liability partnership provides both benefits of a company and flexibility of a partnership firm.
LLP allows partners to organize their internal structure as a partnership based on a mutual agreement. LLP has now been introduced in India by way of the Limited Liability Partnership Act,2008. Now LLP has worldwide recognized as a form of business organization.
As compared to traditional partnership and Private ltd. The company, LLP has its own advantages. It Picks the better of these two structures in one solid viable package. Using a traditional partnership structure entrepreneurs face many challenges, LLP tackled it very well.
ADVANTAGES OF LIMITED LIABILITY PARTNERSHIP
1. Easy Formation: Formation of LLP is an Easy Process. It is less complicated and time-consuming unlike other forms of business organizations.
2. Limited Liability: In LLP the liability of each partner is limited to the extent of his/her contribution/share as compared to sole proprietorship or traditional partnership firm. In a sole proprietorship or traditional partnership firm where personal assets of the proprietors or partners could be at risk of failure of the business.
Thus, the LLP model helps the partners to be free from personal liabilities. If the LLP becomes insolvent and wound up, assets of the LLP will clear off the debt.
No Partner is responsible for any other Partner’s misconduct.
3. Capital requirement is very low: without any minimum capital contribution, LLP could be formed. As in private Limited companies’ requirement is min Rs.1,00,000.
In LLP contribution could be made in installments which gives benefits to entrepreneurs/start-ups.
There is no minimum capital requirement in LLP. An LLP can be formed with the least possible capital. Moreover, the contribution of a partner can consist of tangible, movable or immovable, or intangible property, or other benefits to the LLP.
4. Perpetual Succession: The Life of the Limited Liability Partnership is not affected by the death, retirement, or insolvency of the Partner. The LLP will get wound up only as per the provisions of the LLP Act.
5. Board Meetings: In LLP form of business partners can meet as per their convenience or need. They may specify the details and schedule of the meeting in the LLP agreement.
6. Unlimited owners of business: Minimum of 2 partners are required and no limit on the maximum number of partners.
7. No compulsory audit required: Every business has to appoint an auditor for checking the internal management of the company and its accounts. However, in the case of LLP, there is no mandatory audit required. The audit is required only in those cases where the turnover of the company exceeds Rs 40 lakhs and where the contribution exceeds Rs 25 lakhs.
8. Cost of formation is low: The cost of registration of LLP is low as compared to the cost of incorporating a private limited or a public limited company.
9. Dividend Distribution Tax not applicable: In the case of a Public or Private ltd company if the owner withdraws profit from the company, additional tax liability in the form of DDT @15% (plus surcharge and education cess) is payable by the company. As in LLP, no such tax is payable. Profit of LLP can be easily withdrawn by the partners.)
10. Lower burden of Annual compliance saves time and money: LLP is required to file only the Annual Return and a statement of Accounts and solvency.
a. Form 8 – Statement of Account and Solvency
b. Form 11 – Annual Return of Limited Liability Partnership (LLP).
11. Flexible to manage: The Partners are free to draft the agreement as they please, with regard to their rights and duties.
12. Taxation: LLP is taxed at a lower rate as compared to the company. LLP are also not subject to Dividend Distribution Tax as compared to company, so there will not be any tax while you distribute profit to partners. For Income Tax purposes, LLP is treated on par with partnership firms.
13. Easy to wind up: Not only is it easy to start, it is also easier to wind up an LLP, as compared to a private limited company.