Limited Liability Partnership (LLP)

A limited liability partnership is a partnership in which some or all partners have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner’s misconduct or negligence.

Advantages

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.

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.

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.

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.

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.

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.

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

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.

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.

Partners not consulting

Partners of the Limited Liability Partnership don’t consult each other in case of decisions and agreement.

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.

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.

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