If you want to start your business as “Limited Liability Partnership” (LLP) then you must register it under the Limited Liability Partnership Act, 2008. Minimum 2 partners are required to incorporate an LLP, however, there is no upper limit for the maximum number of partners. Among the partners, there shall be minimum of 2 individual designated partners and at least one of them shall be resident in India.
The rights and duties of the designated partners are governed by the LLP Agreement. The designated partners are directly responsible for the compliance of all terms and conditions of the LLP Agreement and the provisions specified in the Limited Liability Partnership Act, 2008.
Benefits of LLP
- Low cost of incorporation.
- Separate legal entity identical to incorporated companies.
- Limited liability of partners to the extent of the contribution made by the respective partner.
- Less compliance cost and regulation compared with incorporated companies.
- No requirement for minimum capital contribution.
- No upper limit for the maximum number of partners.
- Audit of LLP is mandatory only if the capital contribution exceeds Rs. 25,00,000/- or the annual turnover of LLP exceeds Rs. 40,00,000/-.
- For taxation purposes, the LLP is treated as a partnership firm. The LLP is liable for payment of income tax and the partner’s share in LLP is not liable for income tax.
- Profits of an LLP can be easily withdrawn by the partners and is not liable for tax.
Drawbacks of LLP
- Higher penalty for non-compliance under the Income Tax Act, 1961 and the Limited Liability Partnership Act, 2008 (i.e., Income Tax Return and Annual Filing respectively).
- Venture Capital and Private Equity Fund cannot invest as a shareholder in the LLP.
- High-income tax payout compared with an incorporated company.
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