Incorporation of Limited Liability Partnership (LLP)

What is a LLP?

A limited liability partnership (LLP) is a partnership in which all the partners have limited amount of liabilities and they are not responsible or liable for other partner’s misconduct or negligence. The limited liability partnership exhibits qualities of combination of both partnership and a company. Limited Liability Partnership was introduced in India under Limited Liability Partnership Act, 2008. The basic purpose of LLP is to provide a limited liability to the owner of the business against any unforeseen losses. It requires minimum compliance requirement as against under private limited company. LLP in India is most preferred by Micro, Small and Medium enterprises and various professional run by close friends or by family members. However LLP is not preferred by those business owners who want to raise seed funding and angel funding from Private Equity Funds or Venture Capitalist Firm.

Who should start a LLP :-

1) Two or more person who wants to start business with limited liability.

2) Startups or SMEs.

3) Owners who wants to minimum compliance to start the business.

4) Companies can also be partner in LLP

1. Convenient :-

It is very easy to establish a Limited liability partnership, as it's agreement are customized according to the needs of the partner concerned. There are very few formalities in the area of legal compilation, as compared to any other private limited company.

2. No minimum capital :-

In order to start a limited liability partnership, there are no minimum capital requirements, Capital may be in the form of tangible, movable asset like Land, machinery or intangible form, one can start a LLP with any amount of capital.

3. Low Registration cost :-

The cost of registration incurred by an individual while establishing a LLP is low as compared to any other private limited company.

4. Dividend Distribution Tax (DDT) not applicable :-

If partners withdraw profit from the company, there will be no DDT chargeable on the amount, where as in case of other companies a charge as defined in Income Tax Act, 1961 is imposed on profit withdrawal from the firm.

5. Separate Legal Entity :-

LLP is a separate legal entity apart from their partners or owners.

6. Never Ending Firm / Going Concern :-

A LLP has a benefit over general partnership that a LLP will continue the business being perpetual succession even after the retirement or death of one or more partners.

7. Limited Liability :-

As name suggested, every members of the firm has limited liability against any losses of the firm. This means partners’ personal assets is fully safe and will not be attached in case of any misconduct by any of the partners.

1. Public Disclosure :-

The biggest disadvantage of a limited liability partnership is that it has to submit it's financial statement for public record, there is no privacy and the partners might have to show income that they are not desiring to bring out in public.

2. Fund Raising :-

Unlike Private Limited Company, LLP can raise the funds only from its partners, Banks and NBFCs. Hence LLP cannot raise the seed capital from any other company who are not the partner of LLP.