LLP is a superior form to partnership. The partnership is often discouraged to use because of its unlimited liability feature, i.e. your personal assets may also be held up in case all the dues are not cleared. Hence, it is very risky to use this form of business. So, to overcome this problem, a most important feature of limited liability of company is added to the partnership, which results in Limited Liability Partnership.
LLP is a separate entity, which can be formed in India by a minimum of two persons coming together with a motive of earning profit. Unlike a Private Limited Company, an LLP is easy to manage. It is subjected to minimal post registration compliances.
Some of the demerits of an LLP are, one doesn’t have the option of generating equity in an LLP which decreases the chances of raising funds from the investors in case of a startup, as investors are mostly expected to take up some percentage of the profit shares from the company.
Although, if a startup is not keen on raising funds and wants less stress on the compliances filing part, then they can opt for LLP type of partnership.
WHY LIMITED LIABILITY PARTNERSHIP?
It is very easy to form LLP, as the process is very simple as compared to Companies and does not involve much formality. Compared to other forms of starting business, LLP has been found as the easiest form of incorporating a company and requires fewer hassles.
Just like a Company, LLP is also a body corporate, which means it has its own existence as compared to a partnership. LLP and its Partners are a distinct entity in the eyes of the law. An LLP is known by its own name and not by the name of its partners.
An LLP exists as a separate legal entity from its partners. Liability for repayment of debts and lawsuits incurred by the LLP lies on it and not on Partners. Forming an LLP is a good way to protect your personal assets from your company's liabilities.
It is easy to become a Partner or leave an LLP or otherwise it is easier to transfer the ownership in accordance with the terms of the LLP Agreement. It is relatively easy to transfer the ownership of an LLP to another person as compared to other business forms.
Under LLP, only in case of business, where the annual turnover/contribution exceeds Rs 40 Lacs /Rs 25 Lacs are required to get their account audited annually by a chartered accountant. This provides great relief to small businessmen.
Compared to a Private Limited Company, A Limited Liability Partnership tends to have less compliance to follow.
There are some important advantages over the private limited company. For example, Dividend Distribution Tax and tax surcharge don't apply. Loans to partners are also not taxable as income
Limited liability partnerships offer partners flexibility in business ownership. Partners have the authority to decide how they will individually contribute to business operations.