Is LLP right choice for your business?

Know about LLP

Limited Liability Partnership or LLP was first introduced in India in2009 as per the LLP Act 2008. As the name suggests, it’s a business set up in a partnership, though confusion between Partnership firm and an LLP is quite common, there are many differences between the two forms of business and their incorporation, main being the liabilities given in both since in a partnership firm the partners and the business are considered to be same and hence liability of business extends up to the partners making them and their personal assets vulnerable to any kind of financial crisis, however in an LLP there is a limited liability provided to the partners. Discussed below are certain parameters regarding LLP, on the basis of which you can choose whether an LLP is a right choice for your business or not.

The choice between right and wrong lies with you and your perception about a particular topic, but we can help you form a right perception. LLP, as stated before, has its own advantages as well as disadvantages. An LLP can be incorporated through LLP Registration. It massively decreases the risk of losing personal assets, with also a low compliance cost. It is very much considered to be a body corporate with a separate legal entity, a common seal, and perpetual succession. It is registered with the Ministry of Corporate Affairs(MCA). It demands at least two partners and two designated partners of whom one has to be a resident of India and is also required to maintain its annual accounts and operates on basis of an agreement. The law (Central Government) has the power to intervene in the proceedings of an LLP if it feels necessary. One more advantage of an LLP is that the partners are not answerable for the actions of some other partner because all partners are agents of the LLP, but not each other as in a partnership firm, and also the partners cannot be sued for any kind of dues held against the LLP though ‘duty of power’ can make a particular partner answerable in proceedings of the LLP depending upon the duty and situation. There are no limits to the maximum number of partners in an LLP.
We have already established a clear line between partnership firms and LLPs. Now let’s see the difference between an LLP and a Company;
An LLP is regulated by an agreement drawn between the partners whereas for companies there is a complex procedure of its regulation. An LLP can be considered as a mixture of a partnership firm with the advantages and without the disadvantages of a company. Also, an LLP has more flexibility and less compliance when compared to a company. ‘Management-ownership divide’ does not exist in an LLP because the partners are the owners. No annual statutory meetings are required for an LLP.
All this sounds good, right? But among all this, we cannot overlook some of the disadvantages of an LLP. Not all states allow the formation of LLP in their region due to the tricky working of an LLP, also some additional taxes exist in a case of LLP.
All of these factors together contribute in working of an LLP. Though there are some clear advantages of an LLP over other forms of business, there are certain disadvantages too which with time may reduce, though it also depends on you that what you make out of these disadvantages, they may seem understandable or not much of an issue to you? Then again, Is LLP right choice for your business or not depends on you and the nature and requirements of your business. You can create an LLP to start your own business with a few friends. Small businesses would find an LLP as a good way to structure their businesses. You have the analysis in front of you. Now, create your own understanding and proceed carefully. We at LegalRaasta can help you to register LLP to reduce the burden of overwhelming forms and filings.

This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST Software, GST Return Filing, GST Registration, Section 8 Company Registration, Nidhi Company Registration, IEC Registration, Fssai License, File ITR Online.