Limited Liability Partnership was originated in India by way of the Limited Liability Partnership Act, 2008. The proliferation of businesses required a hybrid form of two organisation i.e. partnerships and corporations. That was the reason behind the emergence of LLP.
LLP is the worldwide recognised form of business organisation possess the flexibility of partnership for the internal structure and benefits of limited liability. As the name suggests, limited liability partnership limits the liability of partners.
Though a Limited Liability Partnership possesses the flexibility of a Partnership and enjoys the benefits as of a Company, its major advantages and disadvantages are to be noted before opting your business as LLP.
LLP is easy to form and operate for the start-ups. LLP is to provide a form of business that is simple to maintain while providing limited liability.
Compared to the incorporation of other business entities, the incorporation of LLP involves low cost.
The only requirement for an LLP is a minimum number of 2 partners, no restrictions as to a maximum number of partners. Unlike in unlimited partnership and company, it is limited to 10 and 200.
Personal assets of the partners are secured, as LLP have the feature of limited liability. As compared to the traditional partnership, liability of each partner is limited to his share as mentioned in the agreement.
An audit is not mandatory for LLP, as in other registered companies it is mandatory. If LLP has a turnover less than Rs.40 lakhs and capital contribution less than Rs. 25 lakhs then only LLP required to audit its account.
LLP is not required to file taxes; only partners individually have to file their taxes that means no dividend distribution tax and no minimum alternate tax have to be paid by LLP.
The Partners are not accountable for any error or negligence or any misconduct act of any other partner. This is a key difference from that of an unlimited partnership.
There is no need to maintain any statutory records except books of accounts. Less government intervention and less compliance level are enforced on an LLP as compared to the restrictions enforced on other business entities.
Professionals can form Multi-disciplinary Professional LLP. Unlike in unlimited partnership, there is no restriction on entering into a partnership with professionals of another discipline.
LLP have no liability to the creditors for the debts, as LLP is a separate legal entity and a juristic person who has the wide legal capacity.
Partners are not liable to be sued in the name of LLP, as a juristic legal person LLP can sue in its own name.
Similar to those of a company, the LLP have the facility of nominating the successor. However, it is restricted that a partner cannot be a minor. It has an uninterrupted existence i.e. perpetual succession until its legally dead.
Being a separate legal entity, it’s easy to transfer the ownership of the LLP to another person by admitting them as a partner of the LLP.