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{ The article discusses about the importance/advantages of limited liability partnership (LLP) }

Importance/Advantages of Limited Liability Partnership (LLP)

First, understand the difference between Private Limited Vs. Limited Liability Vs. One Person Company Or search for Business Registration Lawyers.

Limited Liability Partnership (LLP) is a corporate business vehicle that provides both the benefits of a company and flexibility of a partnership firm i.e. limited liability and allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. Limited Liability Partnership entities, the world wide recognized form of business organization has now been introduced in India by way of Limited Liability Partnership Act, 2008.

In this article we are going to discuss What are the advantages of LLP (Limited Liability Partnership) or Merits of Limited Liability Partnership, Importance of LLP, and LLP registration advantages of LLP (Limited Liability Partnership)

There are several Advantages of LLP when compared to the traditional partnership and the Private Limited, as it picks the better of these two structures in one solid viable package. It tackles various challenges that an entrepreneur faces when using a traditional partnership structure. The differences between Private Limited and Limited Liability are many, here we are only covering the advantages of LLP:-

1. Limited Liability: - The biggest advantage of LLP is that the liability of each partner is limited to the extent of his/her contribution/share as opposed to the sole proprietorship or the traditional partnership firm where the personal assets of the proprietor or partners could be at risk in the event of a failure of the business. Thus this mode helps the partners to be free from personal liabilities. Unlike proprietorship and partnership, if an LLP becomes insolvent and is wound up, only the assets of the LLP are used to clear its debts. The partners of LLP have no personal liabilities and are not made bankrupt and are free to operate as credible businessmen.

2. No minimum capital contribution required: - LLP could be formed without any minimum capital contribution as opposed to the Private Limited companies’ requirement of Rs. 1 Lac. Even the contributions could be made in installments which makes the small entrepreneurs/startups avail these benefits.

3. Separate legal entity: - LLP has its separate existence from its partners. LLP can sue and be sued in its own existence. Due to its status, the entry and exit of the partners don’t affect the LLP. As it incorporates various stakeholders (i.e. Suppliers, Customers etc.), it offers flexibility of partnership while dealing & signing legal contracts. Also, operating as a corporate entity/LLP often gives suppliers and customers a sense of confidence in a business. Larger organizations in particular will prefer dealing with corporate entities than proprietorship/partnership organizations, consult a corporate lawyer to make sure you structure your entity as per your business requirements.

4. Board Meetings: - Partners are not subjected to hold 4 mandatory board meetings as required once in a year by Companies Act. The partners can meet as per their convenience or need basis. Partners can specify about the meeting details & schedule in the LLP agreement.

5. No limit on owners of business: - An LLP requires a minimum of 2 partners while there is no limit on the maximum number of partners. This is in contrast to a private limited company wherein there is a restriction of not having more than 200 members.

6. No requirement of compulsory Audit: - all limited companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in the case of LLP, there is no such mandatory requirement. This is perceived to be a significant compliance benefit. A limited liability partnership is required to get the audit done only in the case that:
   i. The contribution of the LLP exceeds Rs. 25 lakhs, or
   ii. The annual turnover of the LLP exceeds Rs. 40 lakhs.

7. Lower cost of Formation:- The cost of registering an LLP is low as compared to the cost of incorporating a private limited or a public limited company.

8. Dividend Distribution Tax (DDT) not applicable: - In the case of a company, if the owners withdraw profits from the company, an additional tax liability in the form of DDT @ 15% (plus surcharge & education cess) is payable by the company. However, no such tax is payable in the case of LLP and profits of a LLP can be easily withdrawn by the partners.

9. Lower compliance burden resulting in savings:- Approximately at least 8 to10 compliances per annum are required to be made by a private limited company whereas a Limited Liability Partnership is required to file only the Annual Return & a Statement of Accounts & Solvency.

10. Flexible to Manage:- LLP Act 2008 gives LLP the at most freedom to manage its own affairs. Partners can decide the way they want to run and manage the LLP, in the form of an LLP Agreement. This freedom brings flexibility in partnership. The LLP Act does not regulate the LLP to large extent rather than allows partners the liberty to manage it as per their will and fancies.

11. Taxation:- Another main advantage of LLP is taxation. LLP are taxed at a lower rate as compared to companies. Moreover, LLPs are also not subject to Dividend Distribution Tax as compared to companies, so there will not be any tax while you distribute profit to your partners. 

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