What are the advantages of LLP?

INTRODUCTION:

We understand Partnerships as an association where two or more persons come together to do business. The members in a Partnership are known as partners or co-owners. The minimum number of Partners is two and there is maximum 100 members can be admitted as partners in a partnership firm. These maximum 100 numbers has been capped by the Companies Act, 2013. The most interesting point is that this maximum limitation has been capped by the Companies Act, 2013 and not by the Indian Partnership Act, 1932.

However, the concept of Limited Liability Partnership is far different than the Partnership firm under the Indian Partnership Act, 1932. The Limited Liability Partnership is guided under Limited Liability Partnership Act, 2008 (LLP Act). Unlike Companies Act, 2013, this LLP Act does not cap any maximum limits on the admittance of Partners in a LLP Firm. The minimum number requirement partners are two under LLP Act.

FEATURES OF LLP:

  1. Limited liability partnership is a newer form of partnership where all the Partners have limited liability for their financial obligations. In other words they are personally liable only to the extent as mutually agreed in the LLP Agreement.
  2. But no Partners will be liable on account of personal misconduct in regards to the firm or any unauthorized action as against the LLP Agreement.
  3. The rights and duties of the Partners are governed by a LLP Agreement.
  4. The LLP has a separate legal entity.
  5. The LLP has two ‘Designated Partner’ who are responsible for Compliances under the LLP Act.
  6. A firm, private company or an unlisted public company is allowed to convert itself into LLP in accordance with the provisions of the Act.
  7. The Central Government has authority to investigate into the affairs of the LLP.
  8. The winding up of LLP may be voluntary or a petition may be filed before the NCLT.
  9. Another distinct feature is that LLP Act confers Central Government a power to apply provisions of the Companies Act, 1956 as deemed necessary, by way of notification.
  10. The provisions of Indian Partnership Act, 1932 are not applicable over the LLP firms.

ADVANTAGES OF LLP:

1. Comparatively LLP is considered to be easier to set up than a Private Limited Company.

2. It is also hassle-free in day to day operation consequently has significantly lower worrisome compliance maintainability and cost effective

3. For setting up a LLP there is no requirement of minimum contribution. An LLP can be formed with any capital amount.

4. There is no limit on admittance of co-owners or partners in LLP.

5. The registration cost of LLP is comparatively lower than any Private Limited Company or Limited Company.

6. Unlike any Private Limited Company there is no particular requirement of compulsory Audit in LLP. A Limited Liability Partnership is required to get the audit done only in the following cases: -

i. The contributions of the LLP exceeds Rs. 25 Lakhs, or

ii. The annual turnover of the LLP exceeds Rs. 40 Lakhs

7. The lower burdensome compliance of LLP is an added advantage too, like a LLP is required to file only two compliance returns, namely the Annual Return and Statement of Accounts & Solvency.

8. The LLP is liable for payment of income tax. The partners’ share in LLP is not liable to tax. Thus, no dividend distribution tax is payable. Provision of ‘deemed dividend’ under income tax law, is not applicable in LLP. Under Section 40(b) of the Income Tax Act, 1961 interest to partners, any payment of salary, bonus, commission or remuneration allowed as deduction.

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

CONCLUSION:

It has been found that new entrepreneurs tend to choose LLP business structure over other forms of business. The legislatures should make provisions in a way that it encourage new entrepreneurs and there is no scope of ‘Inspector Raj’.

 

Published in Corporate Law
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