Advantages of LLP that will help you boost your business
Published On: Apr 15, 2019 • Last Updated: Oct 14, 2023 • 3.4 min read •
The last decade witnessed a tremendous growth of start-ups in India. Out of all the available business structures, LLP registration has been a popular choice. When it comes to flexibility, ensure it is not just limited to acing your yoga poses. You will need it to run an organization efficiently and that is where LLP comes into play, giving your partnership business a better structure and required flexibility. Let us now discuss what’s a limited liability partnership & the advantages of LLP registration in India.
What is a limited
To understand what a Limited Liability Partnership is, you need to first understand whats a Partnership firm. A partnership firm is a firm in which two or more individuals mutually decide to come together and start a business with an aim to make a profit. It offers an informal structure and greater liability.
LLP is a formally structured partnership with confined liability such that one or more partners cannot be held liable for the actions of the other. We can call an LLP an ace business structure as it offers the best of both worlds. The security and limited obligation of a company and flexibility of a partnership.
Low cost of establishment: Partners have the liberty to invest in chunks making capital generation easy and reducing the cost of incorporation.
Limited compliance requirement: In comparison to a private limited company, LLP has a limited compliance requirement is less which reduces the burden on the partners. For example, there is no compulsion on LLP’s to conduct meetings or keep a record of the meetings.
Higher credibility: LLP are governed by the LLP agreement. This gives it a formal structure increasing its credibility than that of partnerships.
Fewer restrictions: The registration process of an LLP is simple. There is no minimum capital requirement, nor there any cap on the number of partners it can have.
Separate legal entity: An LLP can get into contracts and own properties in its own name. Moreover, the liability is levied as per partner contribution in the firm. It’s a separate legal entity from its partners.
Tax benefit: The issue of double taxation is not there in an LLP. As the tax liability is on the LLP and not the partners individually.
Flexibility of an LLP
Firstly, a major benefit of an LLP is that it allows each of the parties to carry on their own separate business. The remuneration is paid to all the partners according to the LLP agreement.
Additionally, every LLP has the liberty to add an additional business address to receive any communication/documents along with the address of the head office.
Partners of an LLP draft the LLP agreement according to which the LLP runs. Hence, partners in an LLP get the liberty to add specific clauses regarding how they want their firm to function. That makes the distribution of duties and responsibilities makes daily operations simple.
An LLP can be created for a specific period or for a venture. After the objective is achieved it can easily be stuck off from the registry or can be winded up. This is a huge benefit of a limited liability partnership.
No limit on the maximum number of partners.
Generally, LLPs do not have any audit requirements. An LLP is only required to get audited if it has an annual turnover of more than 40 lakh rupees or a contribution of 25 lakh rupees.
Another benefit of a limited liability partnership is that partners have full control over running the business.
Also, LLPs can easily merge with other LLPs.
LLP offers one to build an internal organization with a dynamic structure. It provides the security and discipline of a corporate structure with the flexibility of a partnership. Other than that, there are also many more advantages of a Limited Liability Partnership. If these are the qualities you were looking for, you are good to register your LLP
Frequently Asked Questions
What is an LLP, and how does it differ from other business structures?
A Limited Liability Partnership (LLP) is a business structure that combines the flexibility of a partnership with the limited liability protection of a corporation. It offers a unique advantage by limiting the personal liability of partners while retaining the simplicity of a partnership.
How does limited liability protection in an LLP benefit my business?
Limited liability means that your personal assets are protected in case of business debts or legal issues. This safeguard ensures that your personal finances are not at risk, making it an attractive choice for entrepreneurs.
Can an LLP have multiple partners, and is there a limit to the number of partners?
Yes, an LLP can have multiple partners, and there is no limit to the number of partners. This flexibility allows for easy scalability and collaboration with various stakeholders.
What are the tax advantages of choosing an LLP for my business?
LLPs enjoy the benefit of pass-through taxation, where profits are not taxed at the business level. Instead, they are passed through to individual partners who report their share of profits on their personal tax returns. This can result in tax savings for partners.
Kahini Jhaveri is an IP specialist at LegalWiz.in, with a keen interest in content creation. She holds a B.A. LLB honours from Institute of Law, Nirma University, Ahmedabad. Kahini specializes in Intellectual Properties, specifically Trademark Law.