All about Limited Liability Partnership (LLP)- A complete guide

All about Limited Liability Partnership (LLP)

Introduction

Limited liability partnership is a combination of both partnership and corporation. It has the feature of both these forms. As the name suggests partners have limited liability in the company which means that personal assets of the partners are not used for paying off the debts of the company. Nowadays it has become very popular form of business as many entrepreneurs are opting this. There are a number of partners in the firm and hence they are not liable or responsible for others misconduct. Every one is liable for their own acts. All limited liability partnership is governed under the limited liability partnership act of 2008. However in India LLP was introduced in April 2009.

It is a separate legal entity distinct from its owners. It can enter into a contract and acquire property in its name. LLP form is not just prevailing in India. It is also seen in countries like the United Kingdom, Australia etc.

Advantages of Limited liability partnership

  1. Easy to form- Forming an LLP is an easy process. It is not complicated and time consuming like the process of a company. The minimum amount of fees for incorporating an LLP is Rs 500 and the maximum amount which can be spent is Rs 5600.
  2. Liability- The partners of the LLP is having limited liability which means partners are not liable to pay the debts of the company from their personal assets. No partner is responsible for any other partner misbehaves or misconduct.
  3. Perpetual succession- The life of the Limited Liability Partnership is not affected by death, retirement or insolvency of the partner. The LLP will get winded up only as per provisions of the act of 2008.
  4. Management of the company- All the decisions and various management activities are seen and done by the directors of the company. Shareholders receive very less power as compared to the board of directors.
  5. Easy transferability of ownership- There is no restriction upon joining and leaving the LLP. It is easy to admit as a partner and to leave the firm or to easily transfer the ownership on others.
  6. Taxation- Yes, it is the benefit of LLP. Limited liability partnership is exempted from various taxes such as dividend distribution tax and minimum alternative tax. The rate of tax on Limited Liability Partnership is less than as compared to the company.
  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.

Disadvantages

  1. Not covered all states- Due to various tax benefits and provisions many states restricts the formation of LLP in their states. This leads to a disadvantage as many states don’t allow their entrepreneurs to form this.
  2. Less credibility- One of the major demerits of Limited Liability Partnership is that many people do not consider this as a credible business. People still trust more on company or partnerships.
  3. Partners not consulting- Partners of the Limited Liability Partnership don’t consult each other in case of decisions and agreement.
  4. Transfer of interest- Though interest and ownership can be transferred but it usually takes long procedure. Various formalities are required to comply with the provisions of the act.
  5. Lack of recognition- As LLP is introduced in India in 2009 only it is not recognized by all. Due to its less recognition, it leads to hindrance in smooth functioning of the firm. People are not likely to form LLP.

LLP Registration in India involves the process and documentation which can be easily handled by legalraasta.

By |2018-10-27T05:49:20+00:00July 21st, 2017|Limited Liability Partnership (LLP)|8 Comments

About the Author:

Himanshu Jain is the founder of LegalRaasta – India's top portal for registration, trademark, return filing and loans. Himanshu is a CFA (US) & MBA (ISB). He has over 8+ years of corporate / consulting experience with top firms like McKinsey

8 Comments

  1. […] Agreement means a written agreement between the partners of the Limited Liability Partnership (LLP) or between the LLP and its partners which establish the rights and duties of the partners toward […]

  2. […] Minimum 2 and no upper limit for maximum number of partners in LLP. […]

  3. […] LLP is newly growing concept/ business structure among partners of the business. In this article, we have thrown some light on the “Advantages of Limited Liability Partnership” which are as follow: […]

  4. […] LLP or Limited Liability Partnership is a partnership (generally in a business) in which all the members (partners) have some kind of liabilities. Generally, a LLP is set up under legal terms and documents. There is a defined procedure as to how you can register your LLP. There are certain benefits to be in a LLP but like everything, it has its own disadvantages too. Sometimes, it so happens that people are confused as to how get your LLP registered, however most of them don’t even know that there is a defined procedure as to how you can close a LLP. Described below, to remove such misconceptions, is a procedure with which you can close LLP in India. […]

  5. […] Limited Liability Partnership more commonly known as LLP came in India in 2009 and works according to LLP Act 2008. Limited Liability Partnership refers to a form of business set up in a partnership but with limited liabilities given to the members, so as to decrease the vulnerability faced by the members in terms of their personal assets and income. It is considered a separate legal entity and is quite famous among today’s Entrepreneurs. At least two directors are required to incorporate an LLP. A certain registration procedure follows the incorporation of an LLP and it includes name approval. Name selection and approval is considered to be one of the hardest jobs since a whole set of rules is defined by Ministry of Corporate Affairs for this particular step. Discussed below is how you can select name for your Limited Liability Partnership. […]

  6. IS LLP right choice for your business | Legalraasta February 9, 2016 at 2:01 pm

    […] LLP or Limited Liability Partnership was first introduced in India in2009 as per the LLP Act 2008. As the name suggests, it’s a business set up in a partnership, though confusion between Partnership firm and an LLP is quite common, there are many differences between the two forms of business and their incorporation, main being the liabilities given in both since in a partnership firm the partners and the business are considered to be same and hence liability of business extends up to the partners making them and their personal assets vulnerable to any kind of financial crisis, however in an LLP there is a limited liability provided to the partners. Discussed below are certain parameters regarding LLP, on the basis of which you can choose whether an LLP is a right choice for your business or not. […]

  7. […] Limited Liability Partnership or LLP is a partnership firm but with a limited liability given to its partners. It is considered to be one of the safest forms of company and is also easy to form. It is a separate legal entity. However, you have to register an LLP. There is a particular set of rules and regulations, a procedure to register an LLP. LLP Act 2008 defines the whole procedure. Also, a partnership firm and LLP should not be confused to be one and the same thing. They are different, from Limited Liability to other benefits like tax exemptions and audits. Described below is which documents you will be requiring in order to register your LLP legally. […]

  8. […] So what should you select? Should your business be a private or public company? Or should it be a Limited Liability Partnership or a traditional partnership? Should you go for a One Person company or should you go for a sole […]

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