How is Limited Liability Partnerships better from any other form of business?
Following reasons can help you decide, why you should go for an LLP:
• Renowned form of business: The concept of Limited Liability Partnerships has been recently introduced in India but it is very much known in other countries of the world especially in service sector.
• Easy to Form: The process to form LLP is very simple as compared to Companies and does not involve much formality. Moreover, in terms of cost the minimum fees of incorporation is as low as Rs 800 and maximum is Rs 5,600.
• Body Corporate: LLP is a body corporate , which means it has its own existence as compared to partnership. LLP and its Partners are distinct entity in the eyes of law. LLP is known by its own name and not the name of its partners.
• Liability: A LLP is a separate legal entity i.e both LLP and person, who own it, are separate entities and functions separately. Liability for repayment of debts and lawsuits incurred by the LLP lies on it and not the owner.
• Perpetual Succession: An incorporated LLP has perpetual succession. Notwithstanding any changes in the partners of the LLP, the LLP will be a same entity with the same privileges, immunities, estates and possessions. The LLP shall continue to exist till its wound up in accordance with the provisions of the relevant law.
• Flexible to Manage: LLP Act 2008 gives LLP the at most freedom to manage its own affairs. LLP Agreement is formed by partners to decide the way they want to run and manage the LLP. The LLP Act liberalize partners to manage it as per their will.
• Easy Transferable Ownership: With The terms of LLP Agreement, it is easy to enter or discontinue as a Partner or to transfer the ownership in accordance with
• Separate Property: A LLP as legal entity is capable of owning its funds and other properties. The property of LLP is not the property of its partners. Therefore partners cannot make any claim on the property in case of any dispute among themselves.
• Taxation: Another main benefit of incorporation is the taxation of a LLP. LLP are taxed at a lower rate as compared to Company. Moreover, 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 your partners.
• Raising Money: Financing a small business like sole proprietorship or partnership can be difficult at times. A LLP being a regulated entity like company can attract finance from PE Investors, financial institutions etc.
• Capacity to sue: As a juristic legal person, a LLP can sue in its name and be sued by others. The partners are not liable to be sued for dues against the LLP.
• No Mandatory Audit Requirement: If the annual turnover/contribution of LLP (in case of business) exceeds Rs 40 Lacs/Rs 25 Lacs are required to get their account audited annually by a chartered accountant. This provides great relief to small businessmen.
• Partners are not agent of other Partners: In LLP, Partners unlike partnership are not agents of the partners and therefore they are not liable for the individual act of other partners in LLP, which protects the interest of individual partners.
• Compliances: As compared to a private company, the number of compliances are on lesser side in case of LLP.
Limited Liability Partnerships is generally suitable for:
1. Small to medium scale businesses
2. Worldwide LLP are more used in service industry
3. Businesses where different partners have different role to play
4. Businesses where investors can play a role as a silent partner while the owners are in the driver’s seat.