The Limited Liability Partnership Act 2008 introduced the limited liability partnership firms in India. This widely recognized form of business organization popularly known as LLP combines the advantages of a partnership type of business organization with that of a company.
Limited liability is the advantage that partners enjoy in starting a LLP; this confers a definite advantage over partnerships and sole proprietorship firms where the personal assets can be attached for paying debts in the event of losses. In case of insolvency of LLP, only the assets of the firm can be used to pay off debts; the partners of a LLP have the status of any credible businessman in all circumstances.
Limited liability partnerships have a separate legal entity set by the Limited Liability Partnership Act 2008; an aspect that gives suppliers and customers a confidence in dealing with LLP’s. This separate legal entity is definitely a positive point when it comes to attracting quality workforce and using flexible policies to motivate employees.
Requirement of audit only in extreme cases; when capital exceeds Rs. 25, 00,000 (twenty five lakhs.) and turnover exceeds 60, 00,000 (sixty lakhs.)
LLP enjoy tax benefits as compared to companies; the effective tax would be around 30.9% and they are exempt from the surcharge of 10%. It is lower than the 133.99% tax on profits paid by companies. LLP as compared to both private and public companies do not have to corporate tax on distribution of profits/dividends or minimum alternate tax. Payment of a tax of about 10% to 40% still leaves LLP with enough to pay partner’s remuneration; saving on double taxation as partners pay the taxes on the amount paid to them.
LLP’s enjoy the advantages of limited liability, but have the advantages of low cost of formation and other formalities and statutory regulations as compared to private companies. There are the least requirements to maintain statutory records, least government intervention, and no stipulation for minimum capital contribution or restrictions to the maximum number of partners. LLP’s are easy to dissolve and have minimum government intervention. It is also possible for a body corporate to be a partner of a LLP.