Limited liability partnership (LLP) is a form of the new corporate structure. An entrepreneur has an ample number of options to select the right state of business, some of them are partnership, one-person company, and sole proprietary, so on and so forth.
The concept of partnership is passe, to register LLP in India is a new concept introduced through the Limited Liability Partnership Act, 2008.
The benefits of LLP (limited liability partnership) include the benefits of a partnership. It has more to offer as well to the company where the liability is limited among the partners.
Some of the benefits that LLP offers are given below;
It is easy to establish, manage, and run business for entrepreneurs. LLP can be established through the LLP agreement, which is based on the needs of the partners. There is less compliance level like transferability of the shares, the minimum number of the directors, annual meetings, etc., as compared to a partnership firm and a private limited company.
No minimum capital requirements
LLP can be established with the minimum capital contribution and requirement. Capital contribution can be in the form of immovable and intangible assets like a trademark, patent, and movable and tangible assets like plants, furniture, etc. There is a minimum capital requirement for the registration of a private company of Rs. 1 lac, and for the public company, it is Rs. 5 lacs. Still, there is no such minimal capital requirement for LLP (limited liability partnership).
No limits on the maximum number of partners
In the case of LLP (limited liability partnership), there is no limitation on the minimum number of partners. The numbers of partners can differ from 2 to many. There is no restriction on the maximum number of partners in LLP (limited liability partnership) wherein the partnership firm, the full allowable number of partners, is 10. In contrast, in the case of a banking firm or any other case, it is 20 and in the case of a private limited company, it is 200.
Meagre registration cost
The cost of forming and registering any private company or public company is much higher than the formation and registration cost of LLP (limited liability partnership).
No requirement for mandatory auditing
LLP does not have to audit their accounts mandatorily. Nonetheless, LLP is needed to audit its accounts only if the capital contribution of the LLP goes beyond Rs. 25 Lakhs or annual turnover goes beyond Rs. 40 lakhs. Whereas, in the case of a company (private or public) with whose paid-up capital exceeds Rs.1 lakh, they are obliged to audit their accounts.
All the returns should be filled regularly for the LLP to maintain compliance to avoid the hefty penalty for non-compliance. LLP (limited liability partnership) has very few observations in comparison to private limited companies. LLP (limited liability partnership) has to submit a Statement of accounts and solvency within six months from the closure of the financial year (on or before 30th of October), and the annual return has to be filed within 60 days from the closure of the financial year (on or before 30th of May). Some of the annual filings are mandatory regardless of registration of company in India or the LLP formation without considering the revenue aspect. LLP (limited liability partnership) must maintain the financial year from the 1st of April to the 31st of March, compulsorily. In the private limited company, there are 5 to 6 compliances that the company has to comply with.
Low taxation burden on LLP (limited liability partnership)
In LLP, the partner has no liability to pay the tax on the profits and its partners’ share. LLP is not liable for any dividend distribution tax under section 115-O on any distribution of profits made by the company to its partners. As per section 40(b), deduction of the remuneration, salary, bonus, commission, interests of partners, and any payment of wages are subjected to a determination under the said clause. Provision of deemed dividend beneath the income tax law, Is not relevant and application to LLP.
No dividend distribution tax on LLP (limited liability partnership)
If the company distributes a dividend to its shareholders, the company is liable to pay additional dividend distribution tax under section 115O at 15% (surcharge and educational cess). In the case of LLP (limited liability partnership), partners can easily withdraw profits of the LLP (limited liability partnership) without the liability to pay the additional dividend distribution tax. Thus, partners can withdraw their money and profits quickly.