An LLP, as a type of business structure, has been gaining popularity in recent times, and many entrepreneurs are readily opting for it. This organisational form is a distinct legal entity, separate from the owners. It means that an LLP can enter into a legal contract and acquire property in its name.
What are the advantages of LLP?In India, Limited Liability Partnership was introduced under the LLP Act, 2008. The critical premise was to offer an organisational form that is not only simple to maintain but also imposes limited liability on the partners.
Some of the advantages are stated below:
- Convenient organisational form LLP contracts can be tailored to fit the partners’ needs. As opposed to a Private Limited Company, an LLP involves more straightforward regulations and fewer compliances.
- No minimum requirement There is no minimum requirement when it comes to the capital required to start an LLP. Capital may be both tangible (movable assets like land, machinery) and intangible.
- No cap on the number of partners While the minimum number of members required to incorporate an LLP is 2, there is no limit on the maximum count. This is unlike a private company where the maximum limit on partners is 200 as of date.
- Perpetual succession Death, retirement or insolvency of any involved partner has no binding on an LLP, meaning that it will not affect its continuity. An LLP can only wind up as per provisions of the LLP Act, 2008.
- Taxation benefits An LLP is exempted from taxes on the share and income of its partners. Therefore, dividend distribution tax or alternative minimum tax, for that matter, isn’t applicable. Also, the provision of ‘deemed dividend’ doesn’t apply to an LLP.
- No compulsory audit Businesses appoint an auditor to track internal records and check the overall management of the company. However, in case of an LLP, an audit isn’t mandatory, except in cases where company turnover exceeds Rs.40 lakhs.
Minimum requirements for LLP
- A minimum of two designated partners
- Minimum one designated partner has to be a resident of India
- If one of the designated partners is a corporate entity, it has to appoint an individual
- Two partners have to obtain a Director Identification Number (DIN)
- Either of the designated partners has to furnish a Digital Signature Certificate
LLP vs. PartnershipSome of the key differences are presented in the following table
|Registered under||The Limited Liability Partnership Act, 2008||The Indian Partnership Act, 1932|
|Registered to||Ministry of Corporate Affairs||Registrar of firms|
|Liability||Individual partners’ liability limited to capital invested||Partners are liable for the partnership’s liabilities|
|Governed by||LLP Agreement||Partnership Deed|
|Compliance||Filing annual returns to the MCA is mandatory||Annual filing of returns not required|
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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