An LLP (limited liability partnership) is another type of corporate business form which offers the limited liability benefits to the partners at low costs. It allows partners to organize the internal structure of their partnership firm. An LLP being a legal entity is completely liable for its assets but under this concept the liability of partners is limited. In other words, we can say that this new concept of LLP is a mix between a company and the partnership firm and is governed by its own act named Limited Liability Partnership Act, 2008.
Characteristics of LLP
As the LLP is governed by its own act, the provisions of the traditional partnership act are not applicable to them.
The LLP just like a company is a separate entity and can buy assets in its own name, sue and be sued etc.
In the LLP the partners have a right to directly manage the affairs of the business, unlike corporate shareholders.
The partners are individually liable for their negligence, misconduct etc. By this, it is meant one partner cannot be held liable for the misconduct of another partner like in the traditional partnership system.
The minimum member required for LLP is 2 members and there is no maximum limit.
An LLP is made only for the ‘profit’ business.
In LLP the duties and rights of parties are governed by the agreement between the partners.
Advantages of LLP
The process of formation of LLP is very simple. The minimum fee is Rs. 800/- and the maximum fee is Rs. 5600/-.
LLP has a separate existence hence partners are distinct in the eyes of law.
LLP has a perpetual succession as well; by this, it is meant that even if partners die or there is a change in the partners the LLP will still remain intact.
The LLP Act does not regulate the LLP to a huge extent, in fact, it provides the partners with the liberty to manage it as per their agreement.
The tax rates over an LLP is also quite lower as compared to a company. Also, LLP is not subject to dividend distribution tax, hence no taxation charges when the distribution of profit is done to partners.
Disadvantages of LLP
An LLP cannot raise funds from the public.
There is no separation of management from the owners.
In certain cases, liability may extend to the personal assets of partners as well.
Any act of one partner without the others may bind the LLP.
The LLP might not be the first choice due to extraneous reasons such as the department of telecom (DOT) would approve an application for the leased line only for the companies.
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