Benefits of setting up a Limited Liability Partnership
There are numerous types of organizations or firms that can be set up and conducted business, but one of the easiest and hassle free ways of setting up a business is that of Limited liability Partnership. In this type of Business structure, two or more people come together and operate a single business. Limited Liability Partnership is easier to set up, lower compliance requirements and cost.
The advantages of a LLP are:
1. Unlimited Partners: There is no limit to the number of partners in a Limited liability Partnership as compared to a private Company where the number of members is limited to 200.
2. Low Capital Contribution: There is no Set minimum amount to be contributed by the partners in this form of Partnership unlike a Private Company where the minimum contribution is
Rs.1, 00,000.
3. Low Registration Cost: The Cost of incorporating a LLP is less than incorporating a Private Limited company.
4. Yearly compliances: A LLP has only 2 compliances to be submitted in a year- its Final accounts and Statement of Accounts and Solvency. This easy and less compared to the 8 to 10 compliances of a private limited company.
5. Audit not Mandatory: A LLP doesn’t have to get its books audited as a mandatory requirement. Only under two circumstances does it have to get its books Audited
a. If the Annual Turnover of the LLP exceeds 45 Lakhs
b. If the Contribution of the LLP exceeds 25 Lakhs
6. Tax Aspect: An LLP is Liable to pay Income Tax as in a Partnership. The Share of the partners profit is not Liable for tax in the partner’s hands. Salary to Partner, remuneration, interest to partner are allowed as deduction and these are taxable in the hands of the partners.
7. Dividend Distribution Tax is not Applicable: A partner in a LLP can withdraw profits easily and doesn’t have to pay any interest on his withdrawals, whereas if an owner withdraws profits form a private limited company, the Company has to pay an additional tax in the name of DDT at 15% plus cess (effectively about 18%)
8. Capacity to Sue: the partners of the LLP are not personally liable for any of the dues payable by the LLP. The LLP can sue and be sued only in its name. The partners can be made liable only to the extent of their contribution in the LLP.
9. Transferable Ownership: it is very easy to leave or join a LLP in accordance with the terms of the LLP Agreement.
10. Raising Money: It is easy for an LLP to raise money as it is a regulated entity like a company.
The Documents required to incorporate a LLP are:
1. PAN card of the Partners
2. ID and Address proof of the Partners
3. Photographs of the partners
4. Digital Certificate Signatures of the Partners
5. Proposed Names for the LLP with their objectives ( Max 6 names)
6. Rental Agreement/ Tax Paid Receipt and Electricity Bill
7. NOC from Landlord
8. Subscribers Sheet
9. Limited Liability partnership Deed
10. Profit Sharing ratio
11. Partners Contribution to the Partnership.
– Contributed by Neha Chugh