Why you should choose an LLP (Limited Liability Partnership)

Last Updated at: February 11, 2020
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Why you should choose an LLP_

LLP is an abbreviated version of a Limited Liability Partnership. It is an alternative business structure which besides giving the benefits of limited liability of any company, has the flexibility of partnership in it. This form of business structure is independent of the changes in the partners of the company. This growing structure has been emerging as a popular form of business organization for many licensed professionals like lawyers, doctors, accountants, etc. This concept of business has been accepted in countries like U.S.A., U.K., Australia, and Germany. In the United Kingdom, LLP Act was enacted in 2000, in India, the LLP act was passed in 2008 for smooth conduction of LLPs, and in the United States of America, LLPs became part of the Uniform Partnership Act in 1996.

A significant benefit of an LLP is that it allows the individual partners to be restricted from the joint liability of partners in a partnership firm. Where there are other business structures to choose from, it is necessary to discuss the advantages of choosing LLP as your business structure. Some of the key points to keep in mind as to why you should select LLP as your business entity.

Why choose an LLP

There are several aspects of preferring LLP as your business structure. Let us discuss them in detail-

  • Convenient Formation With Minimum Contribution

With no minimum capital required for formation, Limited Liability Partnership makes it easy for the partners to join hands even with the least capital they have in hand. Also, the capital required can be either in any tangible form like land, machinery, or intangible properties.

  • No Limit On The Number Of Business Owners

LLPs may have any number of partners starting from two. There is no limit on the maximum number of partners in LLP can have.

  • Liability 

LLPs exist as distinct legal structures from the owners. All the obligations either for repayment of debts or lawsuits incurred by LLP, lie on the firm and not on the owners. 

Register for Your Pvt. Ltd. company

  • Flexibility Of Management

The LLP Act 2008 gives the LLP complete freedom to manage its affairs. It entirely depends on the owners how they want their business to run and succeed in the form of an LLP Agreement. Point to note here is that the partners or the owners have no right to claim any property in the LLP in case of dispute amongst each other. The LLP partners can agree to delegate daily business operations to a managing partner or a committee consisting of partners. The partners can decide to divide up duties based on their expertise and roles. 

  • Capacity to Sue

An LLP, as a juristic legal entity, can sue its name and is also vulnerable to be sued by others. The partners are not liable to be sued for dues against the LLP.

  • Low cost of registration

The registration cost of an LLP is low as compared to any other company (Public or Private). Also, the registration process is quite simple, and the average time required for the registration process to be completed around 15- 20 days. 

  • Group resourcing and pooling of efforts increases productivity

Most LLPs are created by an expert and experienced group of professionals, each having their resources. They pool their resources and lower the costs of doing business besides increasing the company’s capacity for growth. 

  • Audit not Mandatory 

Limited liability partnership firms have got this compliance benefit that Audits are not compulsory. This is a significant benefit for those who are going to start an LLP. Tax audits are done in LLPs where-

  • The annual contributions exceed Rs. 25 lakhs
  • The annual turnover exceeds Rs. 40 lakhs
  • Mid-Way Entry or Exit of Partners 

In an LLP, the agreement outlines one more basic feature that the existing partners can exit the company, and new partners with their businesses can be added as well. Usually, the decision to add a new partner requires approval from the existing partners.

  • Taxation Outlook

Limited liability companies are liable to pay tax at the flat rate of 30% of its total income. In case the total income exceeds Rs 1 Crore, an LLP is also liable to pay surcharge @12% on the income tax.  Additionally, health and education cess of 4% is payable on the income tax plus surcharge.

Bottom Line

LLPs are the growing need of the expanding market scenario. Such a framework works best for the companies engaged in providing services or in knowledge or technology-related fields. It can also be used for entities such as venture capital funds. By knowing all the facts and figures associated with an LLP, one can choose for the most convenient to handle and the right option for any Startup. 

Why you should choose an LLP (Limited Liability Partnership)

125

LLP is an abbreviated version of a Limited Liability Partnership. It is an alternative business structure which besides giving the benefits of limited liability of any company, has the flexibility of partnership in it. This form of business structure is independent of the changes in the partners of the company. This growing structure has been emerging as a popular form of business organization for many licensed professionals like lawyers, doctors, accountants, etc. This concept of business has been accepted in countries like U.S.A., U.K., Australia, and Germany. In the United Kingdom, LLP Act was enacted in 2000, in India, the LLP act was passed in 2008 for smooth conduction of LLPs, and in the United States of America, LLPs became part of the Uniform Partnership Act in 1996.

A significant benefit of an LLP is that it allows the individual partners to be restricted from the joint liability of partners in a partnership firm. Where there are other business structures to choose from, it is necessary to discuss the advantages of choosing LLP as your business structure. Some of the key points to keep in mind as to why you should select LLP as your business entity.

Why choose an LLP

There are several aspects of preferring LLP as your business structure. Let us discuss them in detail-

  • Convenient Formation With Minimum Contribution

With no minimum capital required for formation, Limited Liability Partnership makes it easy for the partners to join hands even with the least capital they have in hand. Also, the capital required can be either in any tangible form like land, machinery, or intangible properties.

  • No Limit On The Number Of Business Owners

LLPs may have any number of partners starting from two. There is no limit on the maximum number of partners in LLP can have.

  • Liability 

LLPs exist as distinct legal structures from the owners. All the obligations either for repayment of debts or lawsuits incurred by LLP, lie on the firm and not on the owners. 

Register for Your Pvt. Ltd. company

  • Flexibility Of Management

The LLP Act 2008 gives the LLP complete freedom to manage its affairs. It entirely depends on the owners how they want their business to run and succeed in the form of an LLP Agreement. Point to note here is that the partners or the owners have no right to claim any property in the LLP in case of dispute amongst each other. The LLP partners can agree to delegate daily business operations to a managing partner or a committee consisting of partners. The partners can decide to divide up duties based on their expertise and roles. 

  • Capacity to Sue

An LLP, as a juristic legal entity, can sue its name and is also vulnerable to be sued by others. The partners are not liable to be sued for dues against the LLP.

  • Low cost of registration

The registration cost of an LLP is low as compared to any other company (Public or Private). Also, the registration process is quite simple, and the average time required for the registration process to be completed around 15- 20 days. 

  • Group resourcing and pooling of efforts increases productivity

Most LLPs are created by an expert and experienced group of professionals, each having their resources. They pool their resources and lower the costs of doing business besides increasing the company’s capacity for growth. 

  • Audit not Mandatory 

Limited liability partnership firms have got this compliance benefit that Audits are not compulsory. This is a significant benefit for those who are going to start an LLP. Tax audits are done in LLPs where-

  • The annual contributions exceed Rs. 25 lakhs
  • The annual turnover exceeds Rs. 40 lakhs
  • Mid-Way Entry or Exit of Partners 

In an LLP, the agreement outlines one more basic feature that the existing partners can exit the company, and new partners with their businesses can be added as well. Usually, the decision to add a new partner requires approval from the existing partners.

  • Taxation Outlook

Limited liability companies are liable to pay tax at the flat rate of 30% of its total income. In case the total income exceeds Rs 1 Crore, an LLP is also liable to pay surcharge @12% on the income tax.  Additionally, health and education cess of 4% is payable on the income tax plus surcharge.

Bottom Line

LLPs are the growing need of the expanding market scenario. Such a framework works best for the companies engaged in providing services or in knowledge or technology-related fields. It can also be used for entities such as venture capital funds. By knowing all the facts and figures associated with an LLP, one can choose for the most convenient to handle and the right option for any Startup. 

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