When a legal entity offers business features along with flexibility then you should opt for this. An LLP is a partnership with a feature of a company like limited liability. Here a term, “limited liability” refers that In the event of loss, one partner is not liable or responsible for other partners’ misconduct. This is an important feature that encourages partners to opt for an LLP.
Need for LLP:
An Limited Liability Partnership is a corporate body or legal entity separate from the partners. Every LLP should have at least two partners, at least one of them is the residence of India. For a long time, a need has been felt to provide for a business format that comes with flexibility and limited partnership. The limited liability partnership is an alternative corporate business vehicle that provides the benefits of limited liability to the businesses but allows its members the flexibility of organizing the internal management on the basis of mutually arrived agreement. This format is quite useful for small and medium enterprises.
Currently, many investors still remain wary to accept this business structure and prefer to deal with public or private limited companies. In this context, we are going to discuss some reasons why your start-p should be an LLP.
•The Flexibility of Operation: The flexibility of the Limited Liability Partnership encourage entrepreneurs and small businessmen to take the advantages of its inherent positivity and make it the first choice for their start-ups. An LLP enables partners to adopt an internal organization similar to the conventional company while limiting their liabilities. This legal entity is possessed to fill the gap between sole proprietorships and partnership firm under the Indian Partnership Act, 1932.
•No Minimum Capital Contribution: Entrepreneurs can form LLP without any minimum capital. Whereas to form Private Limited companies they have to pay 1 Lakh. Even the contribution to form LLP could be made in installments. For example, partners can bring capitals 5,000/-, 10,000/- and 20,000 respectively because there is no restriction provided under the LPP Act to bring the capital at the time of incorporation.
•Separate Legal Entity: A Limited Liability Partnership has a separate legal existence from its partners. Due to this feature, entry, and the existence of partners from the company doesn’t affect the status of LLP. As it deals with various shareholders like customers and suppliers. It offers flexibility while dealing and signing legal contracts.
•Easiest for business- Easy to Operate: An Limited Liability Partnership is very sorted and easy to operate business entity. It is one of the easiest forms of business as there is no obligation on the partners and duties and responsibilities of partners are mentioned in the partnership agreement. In private limited company, you require board resolutions to be passed for taking any action, there is no such requirement in LLP.
•Protection from debt: In LLP, partners will not responsible personally for the debt of the business. If your business is under debt has to be returned then you being a partner will not be held responsible for it personally. Furthermore, if any of the partners was conduct loss or negligent, the particular partner has to bear that loss.
•Loan to Partners: Many companies don’t provide loan to their directors as it is restricted by the law. Where in Limited Liability Partnership they can. Under LLP, the business can provide a loan to its partners. It is one of the sensible and remarkable features of LLP.
•No limits on maximum numbers of partners: LLP may introduce any numbers of partners. Which enhances the possibilities of getting maximum numbers of investors for the business.
- A corporate body can be a partner of LLP.
- Foreign National can be a partner of LLP.
- No restriction on entering into contracts with other partners and vendors.
- Less government intervention.
- LLP can invest in the private limited/ public company and become a shareholder of that company.
•Tax Benefits: For income tax purpose, Limited Liability Partnership is treated on a par with partnerships firm. Thus, LLP is not liable for payment of income tax and share of its partners in LLP is not liable to tax. The profit will be taxed to the LLP separately and not to the partners which avoid double taxation issues. Provision of “deemed dividend” under the income tax law, is not applicable to LLP. Deemed divided means, in the case of a company, if the owners to withdraw profit form company, additional tax liability which 15% is payable by the company. Section 40 (b); Interest to partners, payment of salary, bonus commission or remuneration are allowed as deduction.
•Easy to wind up: In the event, if your business does not run on the track, you face huge losses, or anything goes wrong in your business and you make your mind to wind up. Winding up Limited Liability Partnership is easy and requires a less legal procedure.
•Right to manage the business: Unlike corporate shareholders (public/private limited). An LLP enables its partners to manage the business directly and give authority to control all activities.
There are numbers of reasons for the entrepreneurs to opt for a Limited Liability Partnership. It is considered easy to set up, comparatively, hassle-free registration process, come with many flexible options and has significantly lower burdensome compliance requirements and costs. Starting a business is a tough and huge step. Let make it simple to go for Limited Liability Partnership. Feel free to contact us, for the Limited Liability Partnership Registration at Unilex Business Consultants.
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