LIMITED LIABILITY PARTNERSHIP(LLP)

WHAT IS LIMITED LIABILITY PARTNERSHIP?

Limited Liability Partnership (LLP) is a combination of a corporate structure along with the flexibility of a partnership. LLP is governed by Limited Liability Partnership Act, 2008. Nowadays, LLP has become very popular of business as many entrepreneurs are willing to opt for it.  An LLP is a separate legal entity and the liability of its partners are limited to the agreed upon contribution in the LLP. An LLP can enter into contracts and hold property in its own name. Just like partnership deed, LLP is also operated on the basis of the LLP Agreement. Limited liability partnerships are taxed at the rate of 30%.

ADVANTAGES

• Limited Liability (from the partner’s point of view): Partners in an LLP have limited liability which implies that the partners are liable only to the extent of their contribution. Partners are not responsible for any misconduct by other partners, and they are not liable to pay off the debts of the LLP from their personal assets.
• Flexibility: Since LLP is operated by LLP Agreement, it has greater flexibility in the management of the business in comparison to a company.
• Separate Legal Entity: LLP is a separate legal entity from its members. It can hold property, and buy assets in its own name.
• Corporate Ownership: LLPs have corporate ownership without having to comply with all the compliances as in a company. It means that LLPs can appoint two companies as their members, rather than having to appoint at least one director as in the case of a company.
• Perpetual Succession: Perpetual succession in an LLP means that it is not affected by the death, insolvency, retirement or any other change of the partners.
• Easy Formation: As compared to a company, forming an LLP is less complicated and less time consuming. It has fewer legal compliances.
• Capital Requirement: There is no minimum cap as for the requirement of capital. LLP can be formed with any amount of capital.
• Audit: Audit of an LLP is not mandatory. Although, if the turnover of an LLP exceeds the certain prescribed limit, then LLP shall require to get the tax audit.

DISADVANTAGES

• Taxation: In an LLP, the rate of taxation is flat 30% irrespective of the turnover, while a company is taxable at the rate of 25% if the turnover is upto Rs.250 crores.
• Limited Liability (from point of view of LLP): Partners are the real owners of the LLP. They can operate in their own ways. And since the liability of the partners are limited, LLP would have to suffer any loss even if the fault is of the partner/member.
• Public Disclosure: Financial Accounts have to be represented as public records. Personal income of the members also has to be disclosed.
• Capital Requirements: LLPs does not have the concept of equity investments. Investors cannot fund an LLP without becoming a member. So, it would be difficult for an LLP to fulfil the capital requirements.

TRADITIONAL PARTNERSHIP V/S LLP

COMPANY V/S LLP