Dear Readers,
Here are the 15 reasons why a corporate or a start-up should incorporate an LLP for lesser compliance & smooth business functioning:
1. LEGAL RECOGNITION: An LLP is governed through Limited Liability Partnership Act, 2008 the entity gets its legal recognition itself.
2. LESS DOCUMENTATION: It is very simple to incorporate an LLP, as the process is very apt and smooth as compared to the formation of Companies and does not involve many complications. Unlike Memorandum and Articles in case of a company an LLP is run through an agreement only which is a master document in itself and no requirement of stamp duty and other legal documents.
3. LIABILITY IS LIMITED: A LLP exists as a separate legal entity from its designated partners. Both LLP and Designated Partners, who own it, are separate entities and both operate separately like directors in a company. Any business with potential for lawsuits should consider incorporation; it will offer an added layer of safety to its Designated Partners and Partners.
4. INTERNATIONAL CONCEPT OF BUSINESS: LLP’s are incorporated throughout the world but in INDIA concept was arrived just 9 years back in the corporate market via registration through the ministry of corporate affairs.
5. CAN SUE AND BE SUED: The capacity to sue being a separate legal entity is obvious but an LLP can sue as well in the name of LLP itself, not in the name of Designated Partners. The partners are not liable to be sued for dues against the LLP. Just like a Company, LLP is also a body corporate, which means it has its own existence as compared to the partnership. LLP and its Designated Partners are the distinct entity in the eyes of law. LLP will know by its own name and not the name of its partners.
6. TAX PLANNING: LLP is taxed at a lower rate, UNLIKE Companies. Moreover, LLP is also not subject to Dividend Distribution Tax as compared to a company, so there will not be any tax while you distribute profit to your designated partners and partners.
7. EXCHANGE OF OWNERSHIP IS FAST: It is easy to become a Designated Partner or leave the LLP or otherwise it is easier to transfer the ownership in accordance with the terms of the LLP Agreement from one person to another without any lengthy litigation.
8. COST EFFECTIVE: Initial cost of incorporation and other compliance cost are very much low, unlike companies an LLP can be incorporated by investing the maximum amount of rupees 4000 with 2 designated partners.
9. AUDIT IS NOT COMPULSORY: Under LLP, only in case of business, where the annual turnover/ contribution exceeds Rs 40 Lacs/Rs 25 Lacs is required to get their account audited annually by a chartered accountant. This provides great relief to small businessmen.
10. NO PRINCIPAL AGENT RELATIONSHIP: All designated partners or partners are not an agent to other designated partners and LLP as well, therefore they are not liable for the individual act of other designated partners in LLP, which protects the interest of individual designated partners.
11. SECRETARIAL COMPLIANCES: The annual compliances are very less, unlike companies, if no drastic change has been occurring only 2 forms are required to file every year LLP 11 & LLP 8.
12. FUNDS RAISING CAPACITY: Financing a small business like HUF, sole proprietorship or partnership can be COMPLEX at times. An LLP being an artificial entity like a company can attract finance from PE Investors, financial institutions, banks and other investors.
13. PERPETUAL SUCCESSION: An incorporated LLP has perpetual succession. Notwithstanding any changes in the partners of the LLP, the LLP will be the same entity with the same privileges, immunities, estates, and possessions. The LLP shall continue to exist till its is wound up in accordance with the provisions of the relevant law.
14. SEPARATE PROPERTY: An LLP as a separate legal entity is capable of owning its funds and other properties. The LLP is the real person in which all the property is vested and by which it is controlled, managed, and disposed off. The property of LLP is not the property of its designated partners. Therefore designated partners cannot make any claim on the property in case of any dispute among themselves.
15. PROMINENT TO MANAGE: LLP Act 2008 gives LLP the most freedom to manage its own affairs. Designated partners can decide the way they want to run and manage the LLP, in form of an LLP Agreement. The LLP Act does not regulate the LLP to large extent rather than allows designated partners the liberty to manage it as per their will and fancies.