The limited liability partnership is a combination of partnerships and companies. It has the property of these two forms. As the name suggests, the partners in the company are only liable to a limited extent, which means that the personal assets of the partners are not used to repay the company’s debts. Nowadays, it has become a very popular form of business because many entrepreneurs choose it. There are many partners in the company and therefore they are not liable or responsible for the misconduct of others. Everyone is liable for their actions. All limited partnerships are subject to the Limited Liability Partnership Act of 2008. However, LLP was introduced in India in April 2009.
- Business Name Approval
- 2 DIN & DSC
- Incorporation Certificate
- LLP Deed
- PAN & TAN
- Udaym – MSME Certificate
It is a separate legal entity that differs from its owners. It can enter into a contract and acquire property on its behalf. The LLP form is not only prevalent in India. It can also be seen in countries like the UK, Australia, etc.
Why set up an Limited Liability Partnership?
Professionals who use LLPs tend to rely heavily on their reputation. Most LLPs are created and managed by a group of professionals who have a lot of experience and customers. By pooling resources, the partners reduce business costs while increasing the LLP’s growth capacity. You can share office space, employees, etc. Most importantly, reducing costs enables partners to make more profits from their activities than they could individually.
The partners in an LLP may also have some junior partners in the company who work for them, hoping to become full partners someday. These junior partners receive a salary and are often not involved or liable for the partnership. The important point is that they are referred to as professionals who are qualified for the work performed by the partners.
This is another way that LLPs help partners scale their operations. Young partners and employees take away the detailed work and allow the partners to concentrate on new business areas.
Another advantage of an LLP is the ability to involve partners and let partners out. As a partnership agreement exists for an LLP, partners can be added or retired per the agreement. This is handy because the LLP can add partners who bring the existing business with them at any time. As a rule, the decision to add all existing partners must be approved.
Overall, the flexibility of an LLP for a particular type of professional makes it a superior option over an LLC or other business entity. As an LLC, the LLP is a tax flow-through company. This means that the partners gain untaxed profits and have to pay off the taxes themselves. Both an LLC and an LLP are preferable to a company that is taxed as a company and whose shareholders are then taxed again on distributions.
Key features of an LLP
An LLP is a distinct legal entity, i. e. The LLP and the partners differ from each other.
At least 2 partners are required to form an LLP. However, the maximum number of partners is unlimited.
No minimum capital contribution required.
The LLP law does not limit an LLP structure to only certain classes of experts and is available to every company.
Advantages of the limited liability partnership
Simply forming an LLP is an easy process. It’s not complicated and time-consuming like a company’s process. The minimum amount to take up an LLP is Rs 500. The maximum amount that can be spent is Rs 5600.
Liability – The partners of the LLP have only limited liability, which means that the partners are not obliged to pay the company’s debts out of their assets. No partner is responsible for misconduct or misconduct by other partners.
Permanent succession – The life of the limited partnership is not influenced by death, retirement or bankruptcy of the partner. The LLP will only be processed following the provisions of the 2008 Act.
Management of the company – All decisions and various management activities are seen and carried out by the directors of the company. The shareholders receive very little power compared to the board of directors.
Ease of transferability of property – There is no restriction on joining and leaving the LLP. It is easy to admit as a partner and leave the company or easily transfer ownership to others.
Taxation – The limited partnership is exempt from various taxes such as dividend distribution tax and alternative minimum tax. The tax rate for a limited partnership is lower than that of the company.
No mandatory audit required – Each company must appoint an auditor to review the internal management of the company and its accounts. In the case of LLP, however, no mandatory examination is required. The audit is only required in cases where the company’s turnover exceeds Rs 40 lakhs and the contribution exceeds Rs 25 Lakhs.
Difference between an LLP, a Traditional Partnership and a Company
The fundamental difference between LLP and traditional partnership is the liability of the partners.
In a partnership company, each partner is liable together with all other partners and also for all actions of the company while he is a partner.
Within the framework of the LLP structure, a partner’s liability is, however, only limited to his agreed contribution. Also, no partner is liable for the unauthorized actions or independent of other partners, so that individual partner can be protected against joint liability caused by illegal actions or misconduct by other partners.
The main difference between an LLP and a company is that LLP has fewer legal and other compliance requirements, making administration simple and inexpensive.
Taxation of LLP
In India, the government has announced that LLPs are taxed in the same way as partnerships, i. e. Taxes would be levied on LLP and the partners would be exempt from paying taxes.
Besides, no tax would be levied on the conversion of partnership companies into an LLP.
The IT return must be signed and verified by the designated partner. If the designated partner cannot sign it for inevitable reasons or if there is no designated partner, any partner can sign it.
Disadvantages of an LLP
The only downside to founding an LLP is that it cannot go public with its IPO and raise money from the public, which a company form of organization can easily do.
LLPs around the world
Limited partnerships exist in many countries with different deviations from the US model. In most countries, an LLP is a tax flow-through unit for professionals who all play an active role in managing the partnership.
There is often a list of recognized professions for LLPs, such as lawyers, accountants, consultants, and architects. Liability protection also varies, but LLPs in most countries protect the partner from another partner’s negligence.
Things to know about an LLP
The rights and obligations of all partners are regulated by an agreement between them. This enables the partners to work out the agreement of their choice. If no such agreement is made, the law regulates the mutual rights and obligations of all partners.
Designated legal person
For all legal purposes, in an LLP there is a designated legal person. It is created through a legal process and has all the rights of an individual. It is invisible, immaterial and immortal, but not fictional as it exists.
The LLP can have a common seal under Section 14 (c) if all the partners decide to have one. However, it is not mandatory. However, if it chooses a seal, the seal must remain under the care of a responsible official. Furthermore, the joint seal can only be applied in the presence of at least two named partners of the LLP.
Limited Liability Partnership partners can run their businesses. However, only the named partners are responsible for compliance with the statutory provisions.
Business for profit only
A limited partnership cannot be established for charitable or non-profit purposes. The company must be established to do a legitimate business to make a profit.
The authority to investigate the affairs of a limited partnership lies with the central government. They can also appoint a competent authority for this.
Compromise or agreement
Any compromise or agreement, such as a merger or merger, must be per the law.
Conversion to LLP
A private company, company or unlisted public company can be converted into an LLP by the law.
E-submission of documents
If the company is required to submit a form/application/document, it must be submitted electronically on the www.mca.gov.in website. Furthermore, a partner or a named partner must authenticate the same using an electronic or digital signature.
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