15 Advantages for forming an LLP
There are a number of reasons why many entrepreneurs prefer to go in for a Limited Liability Partnership (LLP) registration over a Private Limited Company Registration in India. LLPs are considered easier to set up and are comparatively hassle-free in day to day operations. It also has a lower compliance burden if there is minimal activity. Hence, many Entrepreneurs see it as advantageous to begin their organization in this manner. We look at the various advantages of an LLP formation in India.
1. Limited Liability of Partners of LLP
As the name suggests in a Limited Liability Partnership Firm the liability of partners is limited to the extent of contribution in capital. It is only in case of a fraud by the LLP Firm their personal assets can be attached. This benefit was only available to the shareholders in a private limited company which has now been made available to the partners in a limited liability partnership firm.
2. Perpetual Succession
A LLP has ‘perpetual succession’, that is continued or uninterrupted existence until it is legally dissolved. A LLP being a separate legal person, is unaffected by the death or other departure of any Partner.
3. Lower Registration Cost of LLP
The cost of registering LLP is very low as compared to the cost of incorporation of a private limited company or a public limited company.
4. No Minimum Capital Contribution
There is no minimum capital requirement in LLP. An LLP can be formed with the least possible capital commitment. Moreover, the contribution of a partner can consist of tangible, movable or immovable or intangible property or other benefits to the LLP.
5. No limit on No. of Partners in an LLP
There is no limit to the maximum number of partners in an LLP. However, an LLP requires a minimum of 2 designated partners. In comparison a Private Limited Company has a restriction of not having more than 200 directors. Since there is no limit on the number of partners in LLP you can scale up your LLP across India and in Foreign Countries and even a Foreign LLP can have a Registration & Partners in India.
6. No Compulsory Audit for LLP
All companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But for LLP, there is no such mandatory requirement which reduces the compliance burden to a large extent. A Limited Liability Partnership is required to get the tax audit done only when
A) The contributions of the LLP exceeds Rs. 25 Lakhs, or
B) The annual turnover of the LLP exceeds Rs. 40 Lakhs
7. No Income Tax on Withdrawal of Profits of LLP by the partners
Under the Indian Income Tax Act, taxation of a Limited Liability Partnership (LLP) is treated on a par with partnership firms. Thus, LLP is liable for payment of income tax on its profits but the share of profits distributed amongst the partners in LLP is not liable to tax. This means the partners of LLP only need to pay income tax as applicable on the LLP and can withdraw their profits without any tax liability upon them. In comparison, a private limited company cannot transfer its profits to the shareholders/ investors and if they have to distribute profits/ dividends then the shareholders end up paying Income Tax upon the same. Therefore it costs you more to distribute profits in a private limited company.
8. Easy Winding Up
A Limited Liability Partnership Firm (LLP) can be winded up easily within a span of 2-3 Months by forming a dissolution deed. In comparison a private limited company takes about 1-2 Years to complete the winding up and moreover requires winding up process to be governed by the court.
9. Easy loans from any party for LLP Firm
A Private Limited Company is restricted to avail loans only from its Directors or Relative of Directors. In comparison an LLP is allowed to avail loans from any party. There is no necessity that they should be a partner or relative of partner in the firm.
10. Interest On Capital Invested by Partners allowed to LLP
An LLP is allowed to pay interest on the capital invested by the partners. It can ppay interest upto 18% of the capital amount invested. Therefore it gives more flexibility for partners to raise more capital. It also helps to compensate partners who invest major capital in the firm. The interest income received by the partners is taxable under the Income Tax Act, 1961.
11. Commission, Salary, Bonus & Remuneration to Partners
An LLP is allowed to pay salary & bonus to its partners. In addition they are also allowed to pay commission to partners for specific tasks which helps the firm to attract more business. An LLP can pay any remuneration to its partners subject to limits under the Income Tax Act, 1961 which allows Partner’s salary based on profits.
12. Flexibility of LLP Agreement
The partners of LLP are free to decide the Rules, Regulations & Duties of running the Limited Liability Partnership firm (LLP). The agreement can be amended between the partners from time to time without any restrictions
13. Separate Legal Entity
An LLP is a separate legal entity apart from its partners. It is an incorporated partnership firm. It can own assets on its own same. Since it is a registered firm it can Sue parties in any court of law and be sued. This shortcoming was always faced by unregistered partnership firms. Moreover one partner is not liable for misconduct or negligence of the other partner.
14. No requirement of Holding Board Meetings
An LLP is free from holding board meetings & Annual General Meetings as are required to be done in a Private limited Company. This reduces the compliance burden for the management.
15. Lower Filing Fee
The Filing Fee prescribed by the Ministry of Corporate Affairs is pretty low for a Limited Liability Partnership as compared to a Private Limited Company. The Form Filling Fee for Form 8 & Form 11 for an LLP is only Rs.50/- whereas for a private limited company the minimum filing fee is Rs.200/- per form.
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a) Obtaining a Permanent Account Number in India
b) Maintaining Bank Accounts for NRI & Managing Compliances
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d) Maintaining NRI Investment Records and Managing Compliances
e) Managing Assets including advisory for buying & selling to NRI & Foreign Nationals
f) Assisting Process of Repatriation of Funds from India to Overseas Accounts & Vice-versa
g) Seeking Approvals from Regulatory Authorities such as Reserve Bank of India, Income Tax Department etc.
h) Filling & Processing of Property Tax Returns & Managing Compliances
i) Valuation & Inspection of Assets
j) Setting Up Business in India & Managing Compliances
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