LLP refers to Limited liability partnership and is governed by the Limited Liability Partnership Act 2008. Limited Liability partnership provides the advantage of limited liability to its owners and at the same time requires minimal maintenance. The directors of any private limited company have limited liability to creditors. In case of default, banks/creditors can only sell the company’s assets and not the personal assets of directors.
It is very easy to form LLP, as the process is very simple as compared to Companies and does not involve much formalities. Moreover, in terms of cost, the minimum fees of incorporation are as low as Rs 4000 and maximum is Rs 5000.
A LLP exists as a separate legal entity from its partners. Both LLP and its partners are separate entities and both functions separately. Liability for repayment of debts and lawsuits incurred by the LLP lies on it and not on the partner. Any business with potential for lawsuits should consider incorporation, it will offer an added layer of protection.
An incorporated LLP has perpetual succession. Notwithstanding any changes in the partners of the LLP, the LLP will be a same entity with the same privileges, immunities, estates and possessions. The LLP shall continue to exist till its wound up in accordance with the provisions of the relevant law.
LLP Act 2008 gives LLP the almost freedom to manage its own affairs. Partner can decide the way they want to run and manage and put the same in form of terms and conditions in the LLP Agreement . The LLP Act also in most cases provides that the said provision will applicable, only in case nothing is provided in the LLP Agreement.
It is easier to become or leave the partnership of the LLP or otherwise it is easier to transfer the ownership in accordance with the terms of the LLP Agreement. Ceasing of old partners and coming of newpartners , will automatically leads to change in ownership of LLP.
A LLP as legal entity is capable of owning its funds and other properties. The LLP is the real person in which all the property is vested and by which it is controlled, managed and disposed off. The property of LLP is not the property of its partners.
LLP is not required to pay surcharge on income tax. Moreover , it is also not required to pay tax on profits distributed to partners whereas Company is required to pay tax on dividend distributed to its shareholders.
Financing a small business like sole proprietorship or partnership can be difficult at times. A LLP being a regulated entity like company can attract finance from PE Investors, financial institutions etc.
As a juristic legal person, a LLP can sue in its name and be sued by others. The partners are not liable to be sued for dues against the LLP.
In LLP, only in case of business, where the annual turnover/contribution exceeds Rs 40 Lacs/Rs 25 Lacs are required to get their account audited annually by a chartered accountant. This provides great relief to small businessmen.
In LLP, Partners unlike partnership are not agents of the partners and therefore they are not liable for the individual act of other partners.
After incorporation of the LLP firm, one has to comply with the rules and regulation of Ministry of Corporate affairs and all compliances should be done within time period because in case failure of compliances you may have to pay a huge fine for this so be aware. Also, after the incorporation of your LLP, you have to file your Annual statement to the MCA because it is compulsory and also you have to file your Profit and Loss statement to the MCA. After incorporation of LLP, you need to comply with the rules and regulation of the Income-tax department also because it is compulsory. You mandatorily have to file Income tax of your LLP and also you have to make a PAN card for your LLP because without PAN you cannot file your income tax return. For more info visit here on LLP Annual Filing Details.