Limited Liability Partnerships (LLPs) are one of the highly preferred categories of business entity in almost all economic sectors of the countries worldwide. LLPs were introduced in India through the Limited Liability Partnerships Act, 2008. The main advantage of LLP is ease of maintenance while at the same time providing limited liability to the owners. Like Private/Public Limited Companies, this form of business constitution also provides an advantage of limited liability but at the same time the control of a Partnership firm is hindered to some extent. Therefore, LLPs are considered as unique form of entities which integrate the features of both limited companies and traditional partnership firms. Due to their hybrid structure, LLPs are suitable for small to medium-sized business or professional enterprises. The only disadvantage of LLP is in rising of capital or attracting and retaining talent by way of issuing Employee Stock Ownership Plans (ESOPs).
The Partners of an LLP have utmost freedom in managing the affairs of their LLP. In form of LLP Agreement the Partners can decide the way they want to run and manage the LLP. The Act does not regulate the LLP to a large extent, but allows partners the liberty to manage their LLP as per their will and fancies.
One can easily become a Partner or leave the LLP or otherwise it is easier to transfer the ownership in accordance with the terms of the LLP Agreement.
Usually, LLPs are taxed at a lower rate as compared to a Private Limited Company. Furthermore, LLP is also not subject to Dividend Distribution Tax, so there will not be any tax while you distribute profit to your partners.
An LLP can easily attract finance from PE Investors, financial institutions, etc. Unlike a sole proprietorship or partnership, seeking funds by an LLP is not difficult at all.
An LLP having its annual turnover and contribution exceeds Rs. 40 Lakh and Rs. 25 Lakh, respectively, is required to get its account audited annually by a chartered accountant. It comes off as a great reinforcement to small businessmen.
The personal liability of an individual partner is limited under the LLP. It means that a partner cannot be held liable for the errors, omissions, incompetence, or negligence of another Partner and employees or other agents of the LLP.
An LLP has a less burden of compliance as compared to a private limited company.
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