The concept of a Limited Liability Partnership has gained a lot of attention in the business world in recent years. LLP is basically a form or partnership where businesses and individuals come together in a mutual agreement to initiate a business with a limited liability. In this blog, you will learn a bit about the llp advantages and disadvantages.
What is A Limited Liability Partnership?
Before diving right into the advantages and disadvantages of an LLP, let’s briefly try to understand what a Limited Liability Partnership actually is.
Introduced in the year 2008, a Limited Liability Partnership is when two or more businesses or individuals with a common professional background come together to form a business. In an LLP, partners are liable only for the amount that they have invested in the business.
Which means that their personal assets and income are fully protected. If the company fails, the creditors can not come after the personal assets and income of the partners.
How is A Limited Liability Partnership formed?
To form a Limited Liability Partnership, you have to get your partnership registered with the MCA. During the formation of an LLP, there has to be a minimum of 2 partners.
The 2 partners will be required to fulfill all the mandatory duties and make sure that all the regulations of the business are met, including sending accounts to MCA.
In this guide, you will know about llp advantages and disadvantages, and there are a minimum of 2 partners required as mentioned above, however, there is no maximum limit of the number of partners an LLP can have. This makes the concept of LLP more rewarding as there is a wide scope of involvement of investors.
Advantages of a Limited Liability Company
Now that you have understood what an LLP is and how it is formed, let’s quickly dive into the advantages of a Limited Liability Partnership.
Flexibility
When it comes to management, the role of the partners is quite flexible. All the partners are given the freedom to choose whatever role they would like to take during the formation of the partnership. Each partner is allowed to manage the LLP and has the liberty to choose how much management they want. This makes the roles and responsibilities of every partner in an LLP, self-chosen.
Multiple Number Of Partners
As mentioned above, there is no practical limit to the number of partners in an LLP. Even in a Private Limited Company, there can be only 200 members at most, however, in an LLP, there is no maximum limit.
Registration Cost
Another advantage of LLP is that the registration cost for a Limited Liability Partnership is less as compared to other companies.
Protection
In an LLP the partners are only liable for the amount they have invested in the business. It means that their personal assets and income will be protected even if the company goes down the drain such as pvt ltd company registration online.
Disadvantages of an LLP
Most good things come with the risk of something bad, which is why there are a few disadvantages of a Limited Liability Partnership that cannot be overlooked. Here are a few disadvantages of an LLP.
Non-Compliance Penalty
One of the primary disadvantages of a Limited Liability Partnership is the heavy Non-Compliance penalty. Even if your LLP has been out of business throughout the year, you must file annual returns with the ROC. If an LLP fails to file the forms 8 & 11, a non-compliance penalty will be imposed. But before you should know what are the basics of LLP registration online in India.
Membership
Whereas the freedom of having as many partners as the company wants is a boon, on the other hand it also has a very crucial disadvantage. If there are two partners in an LLP and one decides to leave, the whole company will have to be dissolved.
No Equity Investment
Unlike other forms of businesses, there is no concept of equity investment in a Limited Liability Partnership before you should inquire about what is company formation. HNIs, business angels, venture capital funds, and private equity funds are not allowed to invest are shareholders of the company.
Higher Income Tax
Another disadvantage of limited liability partnerships is that they are taxed very highly. The income tax rate for Limited Liability Partnership is 30%. You better prepare yourself for the taxes if you are thinking of forming an LLP.
Conclusion
The concept of Limited Liability Partnership is gaining popularity consistently and it is also advantages of partnership. This form of business carries many pros along with a significant number of cons.
If you have decided to form a Limited Liability Partnership, reach out to JustStart’s legal experts and let them assist you through their expertise.
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