A Limited Liability Partnership (LLP) is a business structure preferred by small and professional businesses (consultants, lawyers and CPAs) that want low cost, flexibility and easy compliance. If you are a small business, then choosing a Limited Liability Partnership (LLP) as your business structure can offer several benefits.
You do not need a certain amount of money to start an LLP. You can start an LLP with any amount of money. This allows small businesses with limited funds to start an LLP. It is much easier to follow the rules of an LLP and it requires less paperwork and filings and fewer board meetings.
As per the LLP Act, 2008, you must register your LLP in India as it is a legal way to establish a Limited Liability Partnership. There must be at least two designated partners/limited companies in an LLP. The partners are responsible for tasks as per the LLP Agreement. An LLP Agreement outlines how the business should be run and organised.
Benefits of LLP
- An LLP can offer the benefits of both partnerships and limited companies. Regular partnerships are exposed to financial risks, whereas an LLP limits personal liability for losses to each partner’s contribution. If the business loses money, the partner’s personal assets remain safe.
- In private limited companies, the profits are distributed based on the number of shares owned by an individual, whereas in an LLP, profits are distributed as per the LLP Agreement.
- An LLP does not have to pay corporate tax, though all profits are taxable. The LLP as a whole is taxed on profits, and the individual partners are not taxed based on their share.
- An LLP has a flexible internal structure, and it is easy to add or remove partners or alter the rights and duties of the partners. A new member can be easily added by executing the deed of the LLP Agreement.
- If the partners leave or change, the LLP will continue to exist. This helps to make the business stable and makes it easier to find investors.
- Small LLPs with a turnover of under Rs. 25 lakhs do not have to undergo mandatory audits, which saves time and money.
- The Ministry of Corporate Affairs oversees LLPs, which gives your business a legal status and is respected. Banks, customers, investors and vendors are more likely to trust your business.
- Compared to public limited companies, the cost of LLP registration in India is lower. LLP also has lower ongoing compliance costs, which makes it ideal for businesses that want to keep costs low.
- An LLP is not the same as its partners legally. An LLP can sign agreements, enter into contracts, own property, and be sued in its name.
Setting up an LLP
- While setting up an LLP, the first thing to do is to choose a name for your LLP. The name you choose for your LLP must be unique and not similar to any registered company names. The name should not contain any offensive or sensitive words. The name must end with Limited Liability Partnership.
- You have to choose a registered address for your LLP for office purposes. It must be a valid mailing address in the same country in which the LLP is registered. Home addresses are also acceptable.
- You should register your LLP in India online or through a service provider. The registration application has to be filled and the required documents have to be submitted. The Registrar of Companies (RoC) issues a registration certification after verifying the documents.
- All the partners should get a Digital Signature Certificate (DSC). Apply to the authorised agencies for it.
- Each partner should have a Director Identification Number (DIN).
- After your LLP is registered, you should open a bank account in its name and get PAN and TAN.
- Create an LLP Agreement covering the responsibilities of the individual partners, how the profits will be distributed, how decisions are made and who needs to agree and how partners can join and leave. An LLP Agreement should be made at the outset to avoid any disputes further down the line.
Business owners who want legal protection, easy compliance and low costs at the same time can opt for an LLP business structure.
