Why to prefer LLP over Partnership Firm

Incorporating an entity as a Partnership Firm or LLP? This is the general point of confusion for all. In such case, prefer comparing the benefits of options available and then come to a conclusion.   The general concept is that Partnership is easy to incorporate and no secretarial norms need to be done. This is absolutely correct!! But the basic proceeding is generally overlooked. Know why to prefer LLP over Partnership Firm.   Many compliance needs to be complied irrespective of nature of entity i.e., Partnership or LLP:

• Getting a Service Tax / VAT registration
• Getting a PAN & TAN Card
• Opening a fresh bank account
• Getting an IEC have to be complied
• Tax return needs to be filed if income exceeds taxable limit.

  When we look upon the benefits of LLP, following are highlighted:

• LLP combines some of the advantages of a Private Limited Company with some of the advantages of a traditional Partnership
• LLP has separate legal entity
• Liability of the Partners is limited i.e., only the amount contributed by the Partners to the firm can be used to pay off the debts of the Partnership firm
• No limit on maximum number of partners as compared to traditional partnership its 20
• LLP can also purchase movable / immovable property in its name as compared to traditional partnership, must be purchased in the name of partners.

  Understand basics of LLP: Formation Every LLP shall have a registered office and it shall be registered with the ROC. An incorporation Document subscribed by at least two partners shall have to be delivered to the Registrar in form 2.   Designated Partners At least two “Designated Partners” shall be mandatorily be appointed who shall be individuals and at least one of the Designated Partner shall be a resident of India. Every Designated Partner would be required to obtain a “Designated Partner’s Identification Number” (DPIN).   Name of LLP Every limited liability partnership shall have either the words “limited liability partnership” or the acronym “LLP” as the last words of its name.   Books of Accounts An LLP shall be under an obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A “Statement of Accounts and Solvency” in prescribed form shall be filed by every LLP with the Registrar every year.   Audit Audit is not compulsory till:

• The contribution of the LLP exceed Rs. 25,00,000
•   The annual turnover of the LLP exceeds Rs. 40,00,000

  Remuneration and Interest to Partners Remuneration and interest paid to partners is deductible at the hands of LLP within limits prescribed under Income Tax act subject to agreement and other terms & conditions. The conditions for allowing deduction of interest are as follows –

• Payment of interest should be authorized by the partnership deed and should be in accordance with terms of partnership deed.
• Interest should not pertain to period prior to partnership agreement and (c) Interest should not exceed 12%.

  Presumptive Taxation Scheme LLP cannot avail presumptive taxation scheme under sections 44AC or 44AD of Income Tax Act.   For registration, write to us at info@taxmantra.com or visit taxmantra.com _____________________________________________________________________