What is Limited Liability Partnership and What are the Advantages and Disadvantages of LLP?
Before Limited Liability Partnership (LLP) existence, there was the only popular option in India and that was a Private Limited company. But nowadays if you are doing small businesses like consultants and any short duration businesses then Private Limited company is not preferred choice, the better option is LLP.
The main benefit of this type of business is if something goes wrong with your business your personal asset will not be impacted and will be safe and hence peace of mind. This already has much better branding than sole proprietorship and partnership, because it’s internationally recognized business nature. Many parts of the world are familiar with this and it is very famous across the globe especially in Europe, USA. There it is named as LLC. So with the registration of LLP, you get ready-made branding kind of business and the people are comfortable with investing the fund in this too.
Initially, foreign investment was not allowed for Limited Liability Partnership but now the government has made it available for foreign investment too, so you can easily attract foreign investors. But there is one clause for the foreign investment you at least have one business partner who is staying in India. For example, if you have 10 business partners in your LLP, you at least need 1 person who is staying in India always. The major disadvantage of this is you cannot covert Limited Liability Partnership into Private Limited company, Government of India doesn’t allow this. Maybe in future, the government will come up with the new law but now at least you have to settle with Limited Liability Partnership only once done. And for generating fund for this form of business you cannot offer shares.
People prefer LLP over Private Limited company because of its lower setup cost than Private Limited company. Also for short duration business projects like real estates, this is the best option. People come together and form an LLP and after completion of the project, they can easily close the business. Another small advantage of Limited Liability Partnership is they have certain benefits in taxes, once you pay the taxes for business you can distribute profit to partners. In the same scenario on the hand in Private Limited company, you have to pay both business taxes and dividend taxes. Advantages and Disadvantages of LLP are as follows:
Advantages of Limited Liability Partnership ( LLP )
1.Secure Personal Assets
2. Lower cost of registration
3. Lesser Compliance
4. No limit of partners
5. Taxation Liability is limited
Disadvantages of Limited Liability Partnership (LLP)
1.Less Popular and awareness
3. Nonscalable business form
4. Investors are not willing to fund because of no share transfer
5. The corporate tax rate is 30%
Above mentioned Advantages and Disadvantages of LLP will be beneficial before register for LLP.