Why are Entrepreneurs Preferring LLP Over Other Business Structures?

There are several reasons why many entrepreneurs prefer to go in for a Limited Liability Partnership registration over a Private Limited Company or any other business structure. LLPs are considered easier to set up and are comparatively hassle-free in day-to-day operations. It also has a lower compliance burden if there is minimal activity. Hence, many Entrepreneurs see it as advantageous to begin their organization in this manner. 

What is LLP (Limited Liability Partnership)?

Limited Liability Partnership combines the flexibility of a partnership with the benefits of a limited liability company. In India, it took shape after January 2009 and was an instant success with startups and professional services. The idea behind LLP was to provide a form of business that is easy to maintain and to help owners by providing them with limited liability.

Benefits of LLP Incorporation

  • No Requirement of Minimum Contribution

There is no minimum capital requirement in LLP. It can be formed with the least possible capital. Moreover, the contribution of a partner can consist of tangible, movable or immovable, or intangible property or other which benefits to the LLP.

  • Convenience 

As entrepreneurs, It becomes easy to start and manage a business. LLP agreements are customized according to the needs of the partners concerned. There are fewer formalities in areas of legal compilation, annual meetings, and resolutions as compared to any other Private Limited Company. 

  • Minimal Cost of Incorporation

The cost of Limited Liability Partnership registration is low as compared to the cost of incorporating a private limited or a public limited company.

  • No Limit on the Number of Owners of the Business

Minimum two partners are required for a limited liability partnership. Unlike a private limited company, wherein member’s number is restricted to the limit of 200, there is no such limit of partners in LLP.

  • Audit is Not Mandatory in All Cases

All companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in the case of LLP, there is no such mandatory requirement. This is perceived to be a significant compliance benefit. A Limited Liability Partnership is required to get the tax audit done only in the case that:-

  • – The contributions of the LLP exceeds Rs. 25 Lakhs, or
  • – The annual turnover of the LLP exceeds Rs. 40 Lakhs
  • Tax Benefits

For income tax purposes, LLP is treated on a par with partnership firms. Thus, LLP is liable for payment of income tax and the share of its partners are not liable to tax. Thus, no dividend distribution tax is payable. Provision of ‘Deemed Dividend’ under income tax law, is not applicable to LLP. Section 40(b): Interest to partners, any payment of salary, bonus, commission, or remuneration allowed as deduction.

  • Perpetual Succession

An incorporated LLP has perpetual succession. Notwithstanding any changes in the partners of the LLP, the LLP will be the same entity with the same privileges, immunities, estates, and possessions. The LLP shall continue to exist till it is wound up under the provisions of the relevant law. It has been observed for a long time, that businesses are required to provide such a format of business that can combine the flexibility of partners and the advantages of limited liability of the company, and that too at a very low cost of compliance.

The format of limited liability partnership is useful for small and medium size of enterprises. LLP has been the most used vehicle for the professional or in the service industry. LLP is itself responsible for its losses and debt occurring in business, rather than that of its partner/member. Therefore, LLP is recommended as a profit-making business.

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