A new trend that is being observed the recent days is the emergence of young entrepreneurs with their start-up businesses.  The various “Start-up India” initiatives taken by the Government of India is helping a great number of young and energetic entrepreneurs to come up with their unique and innovative business ideas and set up their business in India.  Now the question remains what form of business a start-up should opt for? Here in this article we shall discuss about Limited Liability Partnership as a form of business for the start-ups.

Limited Liability Partnership (LLP) :

The law defines LLP as :

“A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.”

Thus a LLP is a separate legal entity, liable to the full extent of its assets and the liability of the partners would be limited to their agreed contribution in the LLP. Further a Limited Liability Partnership is managed as per the LLP Agreement, however in the absence of such agreement the LLP would be governed by the framework provided in Schedule 1 of Limited Liability Partnership Act, 2008.

Why to opt for Limited Liability Partnership as a start-up?

Though the process of registration of a Limited Liability Partnership and a Private Limited company is similar with some difference in the documentation and the forms being filed for incorporation there are some major benefits which a Limited Liability Partnership form of business enjoys over a Private Limited Company or any other form of business.

Cost of registration :

The cost of registration of a Limited Liability Partnership is significantly cheaper as compared to the Government fee for incorporating a Private Limited Company or any other form of business. Thus the LLP meets the need of small business enterprises.

Transferability of ownership :

As LLP is a body corporate, which means it has its own existence, LLP and its Partners are distinct entity in the eyes of law. It is easy to 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.

Flexibility in managing the affairs of the LLP :

The LLP Act 2008 gives LLP the freedom to manage its own business affairs. Partner can decide the way they want to run and manage the LLP, in form of LLP Agreement. The LLP Act does not regulate the LLP to a large extent rather it allows partners the liberty to manage it as per their needs.

Liability as Partners :

The partners are not liable for the acts of each other and can be held liable only for their own acts. The partners of the LLP are entitled to carry on their own, separate and independent business and other Partners and the LLP shall have no objection provided that the said Partner has intimated the said fact to the LLP before the start of the independent business.

Compliance :

Another benefit of incorporating a LLP is the benefit of lesser Compliance. LLP are taxed at a lower rate and when it comes to compliance relating to the Ministry of Corporate Affairs, a LLP enjoys a significant advantage as it does not have to file various forms as compared to the Private Limited Companies or the Public Limited Companies.

Conclusion :

Thus we can conclude that the hybrid structure of LLP have facilitated entrepreneurs, service providers and professionals to organize and operate in an innovative and efficient manner for effectively competing in the global market. The passing of LLP ACT 2008 has definitely brought a remarkable difference in the existing law related to company laws in India.

We at Taxmantra.com can assist you in Incorporating the LLP. You may reach us at info@taxmantra.com or contact at +91 92300 33070.