A limited liability partnership is a globally recognised form of business entity because it possesses the flexibility of a partnership and enjoys the benefits of a company.
Limited Liability Partnerships ensure that the personal assets of the partners are protected by limiting their financial liability to their agreed contributions, while also providing a number of benefits to businesses operating as an LLP.
In this article, we discuss what are the benefits of LLP and why you should register a business or startup idea as a limited liability partnership (LLP) and the various advantages of a limited liability partnership.
What is a Limited Liability Partnership (LLP)?
An LLP is a separate legal entity registered under the Limited Liability Partnership Act, 2008. It combines the pass-through taxation benefits of a partnership with the limited liability protection of a corporation.
In LLP, the liability of each partner is limited to the amount invested by them. This ensures personal asset protection while allowing partners to jointly manage operations with great flexibility. The concept is popular among service-based firms, startups, and consultants who want legal protection without the heavy burden of corporate compliance.
Why Should You Register A Business Or Startup Idea As An LLP Company?
If you’re planning to launch a startup, LLP registration is a smart and cost-effective choice. The incorporation process is simple and can be completed online through JustStart, ensuring a smooth and hassle-free experience.
Here’s why LLP registration is ideal:
- Simple Formation: The process of incorporating an LLP is less complex compared to a private limited company.
- Minimal Compliance: Annual requirements are low, saving both time and operational costs.
- No Minimum Capital Requirement: You can start your LLP with any amount of capital.
By choosing LLP registration with JustStart, you get expert support at every step, from documentation to approval..
Major Benefits Of LLP Registration
If you register as an LLP, there are numerous benefits:
Limited Liability
Limited liability is one of the major benefits of LLP registration. Limited liability, meaning that partners are not liable for business debts that exceed their initial investment in the business.
In other words, the personal assets of the partners are secured as it has the features of a limited liability partnership. When two or more partners enter into the business together, the limited partners are only liable for the amount of their investment.
If an LLP becomes insolvent at the time of winding up, only its assets are liable for clearing its debts. The partners have no personal liabilities, and thus they are free to operate as businessmen.
Legal Recognition
There is legal recognition of Limited liability partnership registration online, as the legal recognition certificate will be received from the MCA upon registering it with the MCA.
The law recognises LLPs as artificial legal persons; therefore, they can have the rights that a person is supposed to have.
LLPs must file annual compliance reports every year. The roles and responsibilities of designated partners are defined and regulated by the provisions of the partnership agreement and the applicable legal framework.
Credibility
As LLP registration is legally recognised as being registered with the MCA, there is more credibility for this type of entity.
Credibility means that if, say, tomorrow you need a loan and you go to the bank for a loan, you will be given more preference there because your business entity is registered as an LLP.
Lower Compliances
The compliance requirements to be followed by the LLP are lower. There are only two annual returns that need to be filed with the ROC: the Annual Return and a Statement of Accounts of solvency.
The other business entities have to comply with many annual compliances, which will cost a lot. Even the cost of incorporation is lower as compared to the cost of incorporating a private limited company or a public company.
Audits are not required in LLPs and are mandatory only when partners’ contributions exceed 25 lakhs and the LLP’s annual turnover exceeds 40 lakhs.
No meetings are required in the case of Limited Liability Partnership Registration. There are fewer compliance requirements in the LLP Registration process.
Flexibility
LLPs offer operational flexibility that is not available in other business structures. Through an LLP Agreement, partners can mutually decide rules and profit-sharing ratios.
You can freely structure responsibilities, introduce new partners, and define exit clauses, all without needing government approval, unless the LLP Agreement is being amended.
This level of customization and flexibility makes LLPs suitable for dynamic businesses and professional service firms such as CA/CS firms, consultancies, and tech startups.
No Minimum Capital Requirement
Unlike private limited companies that often require a higher capital investment, LLPs do not have any minimum capital mandate.
You can start your LLP with as low as ₹1, and there is no need to show proof of capital infusion during registration. This is ideal for startups that want to test an idea before investing heavily.
Further, contributions can be in the form of tangible or intangible assets, including goodwill, know-how, or services rendered.
Tax Efficiency
An LLP enjoys several tax advantages over companies. For instance:
- There’s no Dividend Distribution Tax (DDT).
- Profit shares received from LLP are not taxed on the partners.
- LLPs are not subject to corporate tax rates like private companies.
The overall tax liability of an LLP is often lower than that of a private limited company, making it a tax-efficient business model for bootstrapped startups and professionals.
Easy Exit or Dissolution
LLPs offer a simple closure process when partners decide to close the business. If the LLP has no liabilities and no activity, it can be closed through a simple online process using Form 24.
There’s no need to go through complicated winding-up procedures, as required for companies. This ensures minimal cost and legal hassle during exit.
Who Should Choose LLP Registration?
LLP is best suited for:
- Startups with two or more co-founders
- Professionals like consultants, designers, architects, and legal advisors
- Small businesses looking for low-cost incorporation
- Service providers and freelancers who want legal protection
- Entrepreneurs testing a new business model or product
Conclusion
To sum up, LLP offers many advantages over traditional partnerships. They are flexible and can be tailored according to the needs of a particular business.
Further, it is less expensive and has more credibility. Thus, for a deep understanding, contact JustStart today to register your business entity and enjoy its many other advantages.
For more information, contact JustStart, as LLP is emerging as the go-to model for new startups.
