Limited Liability Partnerships are on the rise in the nation. The most attractive feature of an LLP is its hybrid business model. A hybrid is a mix of two. A limited Liability Partnership is derived from the features of partnership firms (the partnership model and taxes), private limited companies (body corporate, seal), etc. As a result of this, it eradicates the shortcomings of both, a private limited company and a partnership firm. With that said, the entire Limited Liability Partnership Registration process takes place online on the Ministry of Corporate Affairs (MCA) portal. This motivates more and more business owners towards opting for an LLP business structure.
For all young people wanting to start their entrepreneurial journeys, this article sorts out all the advantages and disadvantages of a limited liability partnership registration.
Advantages of Limited Liability Partnership:
It is quite evident from the name itself, that LLPs follow the concept of Limited Liabilities. This means that the liabilities of all partners involved in the business do not exceed more than what they bring in, or what they promise in their deliverables in the subscribers’ sheet.
Flexibility in Ownership and Management
There is no upper limit for the number of partners in a limited liability partnership firm. As a result, the management can have as many people working towards the growth of the business as it wants. Further, all the key terms of management are also defined in the LLP Agreement, which eradicates all doubts of any future disputes regarding the matter. Further, all major decisions of an LLP require a board resolution, hence this further establishes the democratic nature of the Limited Liability Partnership.
Easy Formation and less compliance
When compared to Private Limited Companies, LLPs do have it easier. Be it the registration process, or the compliance that needs to be followed afterward, both processes are simpler and cost-effective when it comes to LLP Registration. This is one of the major advantages of LLPs in India, which is now driving people towards registering LLPs each day!
Tax Benefit to LLP
Another major reason behind the gaining popularity of limited liability partnership formation in India is that while considering the income tax, an LLP as an entity is not taxed at all (similar to a partnership firm) all the partners are taxed individually based on their profit sharing ratio.
Separate Legal Entity
Since LLP is a hybrid model, it has certain features from a private limited company and some from a partnership firm. With that said, an LLP, too is supposed to go through the registration process on the Ministry of Corporate Affairs Portal, this gives the LLP a separate legal existence from its owners, which has its separate set of benefits and rights, such as:
- LLP gets the right to buy, hold and sell properties in its name;
- It can enter into agreements with an individual or other body;
- It can sue and be sued;
- Perpetual succession.
An LLP is one of the formal business structures available in India. As a result, it is more suitable for professionals who conduct their businesses. In India, major law firms, consultancies, etc, are registered as LLPs. This helps in building credibility in the market.
No things in life come without a drawback, similarly, even this most picture-perfect business structure has its own set of drawbacks or limitations. Now that we are aware of its advantages, let’s dive into its disadvantages:
Disadvantages of Limited Liability Partnership
All coins have two sides, similarly, LLPs have their own set of advantages and disadvantages. Let’s take a closer look at the cons of registering LLP online in India.
Liability of Personal Actions
The liability of partners in the business is limited. However, they are still liable in an unlimited manner for their actions. This means, that if any partner acts negligently or unlawfully (in the name of the firm), they will be liable completely to face the consequences.
Formal Structure: Compliances
We do know that the compliance requirements for LLP are lesser when compared to PLCs. However, they still exist. All Limited Liability Partnerships of India have to maintain annual legal compliances. For example filing of Form 8 and Form 11. LLP details are available to the public at large, through the MCA portal. As a result, you need to keep all the details up to date. Hence, there are mandatory government registration for all changes to an LLP. Be it the change of registered office, change in partners, etc. This is not as difficult to follow if you have export professionals to take care of these requirements, while you take care of the business operations.
Perpetual existence is not mandatory
Despite LLPs having a separate legal entity, the LLP might dissolve. If any partner resigns, passes away, or exits the LLP for any possible reason. However, perpetual succession is possible if the partners have provided for it in the LLP Agreement. So rather than being a con, this is an optional boon for the LLP owners.
Before you start your entrepreneurial journey, it is very important to consider your requirements and the pros and cons of the various structures. LLP registration Online in India takes around 8 to 10 days to complete. Get expert guidance to help you out!