Know the benefits of Limited Liability Partnership -The most popular type of partnership business among Indian business owners and entrepreneurs is a limited liability partnership. Wondering why is that so? Well, that is primarily due to the fact that it offers a number of benefits over more conventional types of partnership businesses, like a Partnership Firm. In this article, we’ll discuss at great length these benefits that have made LLPs so popular in the Indian market.
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The LLP Act of 2008 introduced a Limited Liability Partnership as an incorporated form of partnership business with the added benefit of restricting the liability of the owners or partners. Prior to this, the only legal entity that could be used to establish a partnership business in India was a partnership firm. The LLP was introduced with the purpose of fixing every problem that was antiquated to the organizational structure of the firm, including optional registration and unrestrained liability for the owners. Because the LLP combines the best aspects of a Limited Company and a Partnership Firm, it has been in huge demand among startup owners and business entrepreneurs in India.
Benefits of Limited Liability Partnership
A Limited Liability Partnership has gained immense popularity in the Startup ecosystem of India, owing to several benefits it offers to all its stakeholders, especially, its investors and creditors. These include limited liability, easy incorporation, flexible management, and enhanced credibility for credit and investment. We have elaborately explained each benefits of Limited Liability Partnership in the sections below.
Prior to the introduction of LLP, the only form of Partnership business that existed in India was the Partnership firm, also one of the oldest business structures in India. The worst drawback that a Partnership Firm had was that it did not limit or restrict the liability of its owners or partners. This is to say that the partners, as the owners of the firm, had to pay off the entire amount of liabilities accumulated by it, at times with their personal assets and properties. Moreover, the partners of a firm are not only individually, but also jointly liable, meaning that all the partners are deemed responsible for the acts done by each of the partners in the official capacity.
A Limited Liability Partnership overcame all these challenges and brought forth limited liability for the partners. The liabilities of the business are shared among all its partners, in a predetermined fixed ratio, mutually agreed by them, and mentioned in the LLP Agreement. In case of an LLP, under no circumstance will the partners be liable to pay any amount that exceeds this ratio. Moreover, unlike a Partnership Firm, none of the partners of an LLP are liable for the actions of any other partner, whether done in official or unofficial capacity.
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Credible for Credit and Investment
Incorporation has a number of advantages, but the most basic one is the establishment of a distinct legal identity of the business, so that it operates under its own identity instead of the identity of its owners or partners. Moreover, after a business is incorporated by the concerned public authorities, most of its basic details and documents are recorded with the government. This enhances its credibility and reliability as the chances of fraudulence and forgery on part of the business decreases to minimum. This is especially beneficial when the business, in this case the LLP, is seeking funding through investment and credit.
Easy to Incorporate
Unlike a Partnership Firm, which may be registered or unregistered, an LLP is mandatorily registered under the LLP Act of 2008. Moreover, registering a Partnership Firm is quite exhaustive and time consuming as the entire process is completely offline. There is a lot of paperwork and documentation involved, and the applicant literally has to visit the office of the Registrar to get the firm registered.
However, for registering an LLP or Limited Liability Partnership, the process involved is 100% online from the beginning to the end. The application that needs to be submitted for the purpose of registration can be accessed in the electronic form on the official website of the Ministry of Corporate Affairs. Moreover, the form can be filled out and submitted online, with the online payment of the prescribed application fee. Even the documents that are required to be submitted along with the application can be uploaded digitally. This saves the need of traveling to the Registrar’s Office, and also reduces needless paperwork and documentation, making the process easier, efficient, cost-effective and less time consuming.
Flexible to manage
Another significant benefit of a Limited Liability Partnership is the flexibility that it offers in the internal management of the business. Unlike a Company, where the internal rules of management are governed by the provisions of the Companies Act, in an LLP the rules of internal management are decided by the partners and are mentioned in the LLP Agreement. As no statutes or laws are involved, amendments to the rules can easily be made, whenever necessary, by changing the provisions of the LLP Agreement. Therefore, for this reason, an LLP is considered to have a more flexible management compared to other business structures like the Company.
The legal cost of operating a business involves the expenses made in fulfilling legal formalities and compliances. Since, according to the LLP Act, the LLP has to fulfill an extremely low number of compliances, the legal cost of operating it is also quite minimal. Among its most important legal compliances are the filings of annual returns, annual financial statements, and the annual statement of solvency, along with tax and various other institutional compliances under laws like the Income Tax Act, the GST Act, the EPF Act, and the ESI Act.
As we conclude this blog, we hope that you now have a better understanding of all the benefits that an LLP offers, and the reason why these benefits of Limited Liability Partnership have resulted in such huge popularity of LLP businesses since the day of its inception. If you still have any questions, do not hesitate to contact our startup advisors, who will be glad to help you resolve all your doubts and queries. Moreover, we also provide LLP registration services, and if you are looking forward to incorporating your LLP in India, you can subscribe to our wholesome and reasonably priced packages of LLP Registration.