In India, the options for conducting business were always a company, a sole proprietorship, or a partnership. A new corporate form that would serve as an alternative to these was deemed to be necessary given the expansion of the Indian economy. We looked at a new type of business organisation called a “Limited Liability Partnership” because of the limitations of partnerships and the rigidity of company forms of business.

It is a hybrid form of business organisation that offers the benefits of both a corporation and a partnership structure. For small and medium-sized businesses as well as service providers, this structure has proven to be quite beneficial.

ADVATAGES OF LLP

1. It is regulated by Limited Liability Partnership act, 2000

2. In LLP liability on individual members are limited to the amount they have put into the business.

3. There is no limit on maximum numbers of partners (owners of the business) in LLP.

4. In LLP partners can decide together on how the business runs and how profit will be divided. It is more flexible than partnership firm.

5. Most of the times LLP forms by professionals of same field. So, it provide better working culture, and chances of fast growth is more.

6. Registration process of LLP is more easy and less expensive.

7. There is no minimum capital required to from a LLP. An LLP can be formed with the least possible capital.

8. In LLP there is no compulsion to get accounts audited. But if the turnover of the LLP exceeds INR 40 lakhs or Contribution in the LLP exceeds INR 25 lakhs, then audit is required.

9. Dividend Distribution Tax is not applicable in case of LLP and partners can withdraw their profits easily.

DISADVANTAGES OF LLP

1. Even if an LLP does not have any activity, it is required to file an income tax return and MCA annual return each year. In case an LLP fails to file Form 8 or Form 11 (LLP Annual Filing), a penalty of Rs.100 per day, per form is applicable. There is no cap on the penalty and it could run into lakhs if an LLP has not filed its annual return for a few years.

2. An LLP does not have the concept of equity or shareholding like a company. Hence, investors, ventures and private equity funds cannot invest in an LLP as shareholder.

3. LLPs are taxed at a 30% rate irrespective of their turnover.

4. As an LLP is mandated to submit all of its financial records to the Companies House, the income details of every Partner are available in Public. This can be a major concern for some individuals who do not prefer to disclose their financials in the public domain.

5. As required by the law, it is mandatory to have an Indian Partner for establishing an LLP.

6. An LLP must have at least two members. If any member choose to leave the LLP, it will be dissolved automatically.

7. Transferring the ownership right to someone else is a challenging task. The Partners wishing to transfer his rights will need written consent from all the partners. In case if some Partner raises an objection, the transfer process cannot proceed further.

How “Best legal services” can help you to form an LLP

Best legal services (www.bestlegalservices.in)  is a renounce legal service website which provides legal solutions to its clients. We will help you in generating DPIN, DSC and DIN and will help you in registering a Limited Liability Partnership (LLP).