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Concept & Advantages of LLP

The world wide recognized form of business organization has now been introduced in India by way of Limited Liability Partnership Act, 2008. A Limited Liability Partnership, which is popularly known as LLP has the advantages of both the Company and Partnership into a single form of organization.

LLPs also have many advantages over other forms of business such as proprietorship, partnership & Pvt. Ltd.

1) Limited Liability:

The first benefit of doing business via LLP is the limited liability conferred upon the partners. As a sole trader or in partnership business, personal assets of the proprietor or partners can be at risk in the event of a failure of the business, but this is not the case for an LLP. Unfortunate events like business failures are not always under the control, hence it is required to secure the personal assets of the entrepreneur in case of business failure.

If an LLP becomes insolvent and is wound up, only the assets of the LLP are used to clear its debts. The partners of LLP have no personal liabilities and are not made bankrupt and are free to operate as credible businessmen. Unlike proprietorship and partnership, where personal property of the proprietor or partner gets attached in case of business failure.

2) No Audit Requirements:

Audit is not required unless capital contribution exceeds Rs. 25 lakhs or turnover exceeds Rs. 60 lakhs.

3) Legal Entity/Status or Recognition:

An LLP is a legal entity, a juristic person established under the Act. It has its existence separate from its partners. Corporate entity status enables LLP to be taken more seriously than a proprietorship or partnership concern

Operating as a corporate entity, LLP often gives suppliers and customers a sense of confidence in a business. Bigger organisations will prefer in dealing with corporate entities rather than a proprietorship or partnership concern.

Helps to recruit quality people and achieve strategic motivation of employees by using flexible and wide range of management designations.

4) Taxation:

Taxation is same as a general partnership firms. LLP's pay an effective tax of 30.9%. They are exempted from 10% surcharge. LLP's tax payment is lower than that of companies, which pay a 33.99% tax on profits.

Tax will be imposed only on 10% or 40% of the LLP’s income, since the firm will be allowed to pay the balance 90% or 60% to the partners as remuneration. 

Unlike Private or Public Companies, LLP's are not required to pay of Dividend distribution Tax on distribution of profits among partners.

5) Other Important Advantages:

  • Low cost of Formation and compliances.
  • Easy statutory compliances as compared with Pvt. ltd. Companies
  • Less requirements of maintaining statutory records
  • Accepted form of business world-wide
  • No requirement of Minimum capital contribution
  • No restriction on maximum number of partners
  • Body corporate can be a partner of an LLP
  • Less Government Intervention
  • Easy to dissolve or wind-up

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