Why LLP Registration is the Best Option for You

A Limited Liability Partnership (LLP registration), as the name proposes, is a corporate business entity that enables a partnership between the business partners wherein their liabilities are proportional to the amount with which they venture into the business respectively. While partnership firms have been in practice for ages, LLP firms are relatively new players in the corporate sphere. 

In an LLP, the partners fundamentally divide the risks proportionately while offering their shared skill set to leverage the business. Another notable difference in the LLP is that, if the business doesn’t take off as planned and if the partnership fails in dire circumstances, the creditors cannot claim the personal property of the partners. Here, it can be stated that the LLP by itself is responsible for the debts incurred during the course of the business rather than the respective partners of the firm.

In other words, it’s a body corporate and is an individual legal personality and is separate from its partners. Also, an LLP is of perpetual succession. It would live on forever even after the partners cease to exist. Partners may come and go, but the LLP will stay on for eternity. An LLP is a corporate culmination of the advantages of a partnership firm and that of a limited liability company. 

The minimum requirements for incorporating an LLP would be:

  • The LLP should be working with a minimum of two partners
  • At least one of the partners must be an Indian citizen and should be living in India
  • The registered office of the LLP firm must be located in India. 

Like any other company, it would mandate that the LLP possesses a unique name and the same should have the words ‘LLP’ appended to the name in order to show that the firm operates as one. 

Operating as an LLP possesses quite a number of advantages as stated herewith:

Ease of Incorporation:

The fact that formulating an LLP has fewer guidelines and simpler protocols make it the most sought out corporate entity. The procedures with respect to annual meetings, board meetings, legal compilation, etc are quite minimal. Further, even the cost of incorporating an LLP is comparatively economical as against incorporating a public or a private limited company.

The responsibility of an LLP when it comes to compliance is much simpler. For instance, one needs to submit only two statements of accounts yearly i.e., the annual return and a statement of accounts and solvency. While a public or private company has to pay heed to its board of directors, an LLP is merely dependent on its partners for major decisions and votes. Additionally, the ownership in the case of an LLP is also easily transferable from one person to another. However, the person to whom the ownership is being transferred must be imbibed in the LLP as a partner.  

Absence of Minimum Capital Requirement:

A large category of entrepreneurs romanticizes the idea of an LLP as it does not obligate a minimum capital requirement to incorporate the same. Here, capital can be either a tangible or an intangible asset. Therefore, an LLP can be accomplished with the least required capital as per the wish of the partners.

No Limit of Business Owners:

But for the minimum requirement of at least two partners, there is no limit to the maximum number of partners the LLP can comprise of. On the other hand, in the case of a private limited company, there lies a limitation that it should not have more than 200 members. 

Tax Benefits:

The major advantage when it comes to an LLP is that while being treated on par with partnership firms, the LLP is liable to pay the tax while the partners of the LLP are not liable to pay the same. Dividend distribution tax is thus not payable in the case of an LLP. ‘Deemed dividend’ is therefore not relevant with respect to LLP firms. Various expenditures incurred during the course of the business such as payment of salary to the partners, other remuneration like a bonus, etc are sanctioned as deductions. Also, the dividend distribution tax which is levied for companies when the partners withdraw the profit from the company is not applicable in the case of an LLP.

Do Not Require a Compulsory Audit:

Companies that are incorporated, whether they are public or private, regardless of the share capital have to submit their accounts for auditing. Here, LLP is an exception, as there are no such hard and fast rules that mandate an LLP to get their accounts to be audited. However, an LLP is required to undergo auditing when:

  • The contributions of the LLP exceed ₹25 Lakhs
  • The annual turnover of the LLP exceeds ₹40 Lakhs. 

Given the wide ambit of perks an LLP has to offer as compared to private partnership firms, this has become the most fitting option for budding entrepreneurs and venture capitalists. Yet, it has to be accepted that not all businesses find LLPs to be accommodative. A few of them opine that the lack of a single business head and engaging all the partners to make decisions can be a challenge in running an LLP efficiently. However, this has been the most preferred corporate body as per many professionals like accountants, auditors, lawyers etc.

When it comes to LLP incorporation, however, there’s only one choice for you. Reach out to the experts at Vakilsearch and get going today!

Recent Posts

Related Posts

Leave A Comment

Your email address will not be published. Required fields are marked *