Why LLPs May Be the Perfect Fit for Your Business

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Why LLPs May Be the Perfect Fit for Your Business

Post Updated on: 29-10-2024

Want to know why an LLP business model might be the right choice for your business? Check out this blog post! 

If you want to start a business, you can choose from the various business structures available in India including one person companies, sole proprietorships, private limited companies, public limited companies and limited liability partnerships. A limited liability partnership (LLP) is one of the most popular choices for entrepreneurs in India. It offers the benefit of limited liability protection and is considered a separate legal entity from its owners. 

About Limited Liability Partnerships (LLPs)

A limited liability partnership is a type of business structure governed by the provisions of LLP Act 2008. Such a business is not governed by the Companies Act, 2013 and has different requirements from companies registered under this Act. An LLP is a separate legal entity from its partners. The partners of LLP are only liable for the amount of money they invest in the business, and not of other partners involved. 

You can think of an LLP as a common food court wherein each vendor operates their own food stall. Suppose the idli dosa vendor faces an issue like fire in his kitchen, then other vendors selling uttapam, vada, shahi paneer, etc. are not financially liable to cover the loss of the idli vendor’s kitchen. They’re only responsible for the success or failure of their own stall. Similar is the case of an LLP wherein each partner is only liable for their own contributions and not for issues that may arise due to another partner’s actions. 

Examples of Successful LLPs

Here are some examples of successful limited liability partnerships:

• Chockriti Chocolates LLP: Established in 2011, Chockriti Chocolates LLP is a designer luxury online store which sells chocolates. This chocolate company was qualified for the International Chocolate Awards.

• Hemant Shah and Associates LLP: A Pune-based firm that offers chartered accountant services, investment consultancy, and support for startups.

• Deloitte LLP: Deloitte LLP is the member firm of US-based Deloitte Touche Tohmatsu Limited. It is a popular accounting firm which is an LLP.

Benefits of LLP

A limited liability partnership has various advantages due to which many entrepreneurs go for this business model. 

• Limited liability for all partners: LLP limits the liability of its partners. The Limited Liability concept is not a new concept but traditional partnership firms registered under the Partnership Act 1932 do not have this kind of feature. Limited Liability means that in case of losses personal properties of the partners remain protected regardless of amount of losses and debt.

• Flexibility in business operations: LLP offers flexibility in operating business because in LLP partners take the business decision who is both the owners and manager of the business unlike the company in which usually owners and management are not always the same always. Unlike the company, there is no need to hold a proper meeting.

• Lesser compliances: The best part about opting LLP as a business model is that LLPs don't need to follow the stringent procedures and compliances.

• FDI in LLPs: Earlier LLPs were required to obtain prior approval from the Government but now this requirement has been done away with. For ease of doing business in India, the Government has allowed 100% FDI in LLP under the automatic route.

• Tax Benefits of an LLP: LLP partners only pay their own personal income tax, and the LLP is not taxed as a business entity. Because of this, double taxation is avoided. 

Drawbacks of LLP

Although LLPs come with a lot of advantages, they do have certain disadvantages. Let’s look at some of their disadvantages:

1. Inclusion of Indian Resident partner: If an NRI/ Foreign national wants to incorporate an LLP in India, then at least one partner should be a resident of India. Two foreign partners cannot form LLP without having one resident Indian partner along with them.

2. Transfer of ownership: Transfer of share by the partner is not easy in the partnership unlike in case of a company.

3. Investors usually don't prefer LLP: Investors usually don't want to invest into the LLP. The main reason for this kind attitude is the LLP structure. A partnership is governed by the partners and they contribute the capital in the business. This is the main concern because it is difficult for the investor to become a partner by contributing capital in the business. 

Conclusion

A limited liability partnership is a preferred business model for those who want limited liability protection. Many lawyers, chartered accountants, doctors, etc. prefer to go for this business model over other models like sole proprietorship, partnership firm, etc. In this article, we discussed the benefits and drawbacks of LLP, and some examples of successful LLPs to help you make the right decision!

Want to incorporate an LLP for you and your business partners? Connect with Registrationwala.

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