The most popular business entity for small and micro businesses. Also perfect for professional service firms like financial advisories and ad agencies.
Limited Liability Partnership, or LLP, was introduced in India under the Limited Liability Partnership Act, 2008 and is governed by the same. Since its introduction in 2008, it has quickly become a popular legal structure for businesses. As the name indicates, LLP provides the advantage of limited liability to its owners and at the same time only requires minimal maintenance. It also offers each partner protection from the other partners’ misconduct or negligence. Thus, all partners in an LLP enjoy a limited liability protection for each individual’s protection within the partnership. Also, the partners of an LLP have the right to manage the business directly.
Being one of the easiest forms of business to incorporate and manage in India, LLP is preferred by micro and small businesses as well, that are family owned or closely-held. LLPs are also popular with professional services firms like architects, web designers, etc. since they don’t require equity funding and LLPs do not afford that.
Businesses often need to borrow money. In a General Partnership, partners are personally liable for all this debt. So if it cannot be repaid by the business, the partners would have to sell their personal possessions to do so. In an LLP, only the amount invested in starting the business would be lost; all personal property would be safe.
An LLP only requires audited annual returns to be filed if it has a turnover of greater than Rs. 40 lakh or capital contribution of over Rs. 25 lakh. It also needs to communicate fewer business transactions and structural changes than a private limited company.
There are some important advantages over the private limited company. For example, Dividend Distribution Tax and tax surcharge don’t apply. Loans to partners are also not taxable as income