LLP or Limited Liability partnerships are registered under Limited Liability Partnership Act, 2008. Here, partners are separate from each other unlike Partnership firms and so partners of LLP are not personally liable for the liabilities of partnership firms. Also, LLP has a perpetual existence.
Partnership Firms
Partnerships are registered under Partnership Act, 1932 which was well liked form of business entity because of no major compliances and simplicity of registrations and operations. Here, partners and partnership firms are not considered legally separate and also partnership does not have perpetual existence.
Benefits of LLP
1. Taxation
Partnership firms and LLP’s are taxed at the same rates of income tax i.e. @ 30%. It is further added with education cess @ 2% and SHEC @ 1%. Also, surcharge @ 10% shall be payable once income cross the limit of Rs. 1 crore.Thus, LLP is liable for payment of Income tax and share of its partner in LLP is not liable for to tax. Further, provisions of deemed dividend is also not applicable to LLP’s.
2. Interest and salary
Likewise, interest to partners or payment of salary, bonus, commission or remuneration is allowed as deduction in hands of LLP.
3. Limited Liability
In case of LLP, other partners are not liable for the act of any partner. For instance, if some loss has incurred due to negligence of any partner then the guilty partner is only liable for such act and other partners are not liable.
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4. Minimum capital
LLP’s don’t require minimum capital to start business meaning thereby one can start LLP even with 1000 Rs. Of capital whereas it is at least Rs. 100000 in case of Private Company.
5. Compliance
LLP’s doesn’t have to bear much of the compliance cost as against private companies. For instance, in Companies compliances with regards to board meetings, annual general meetings, filing forms as required by ROC, etc. has to be done for which professionals are to be hired. However, this is not the case in LLP and so LLP faces lesser compliance costs as compared to companies.
6. CIBIL Score
Because partners are separate from LLP, CIBIL score of partner is not going to affect LLP and vice versa.
7. Loan to Partners
In companies, loan to directors is prohibited by companies act under section 185. However, such situations does not arise in LLP as LLP can give loans and advances to Partners.
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8. Limit for minimum members
In case of companies, minimum 2 members are required and it can reach to maximum members of upto 200. However, in LLP the limit for minimum members is same as companies but contrarily there is no limit for maximum number of members.
9. Maximum directors
In same way as above minimum 2 directors are to be appointed upto maximum of 15 directors in case of company. However, there is no limit for maximum directors in LLP with minimum requirement of 2.
10. Audit
Auditing is mandatory for companies which is not the case for LLP’s upto a particular limit i.e. turnover in excess of Rs. 40 lakhs or if capital contribution is more than Rs. 25 lakhs.
Read Also: No Tax Audit on showing Income @ 50% of Gross Receipts – Section 44ADA of Income tax Act, 1961
11. Share Transfer
Shares can be easily transferred in case of companies except for cases when it is restricted by Articles of Association. But in case of LLP, shares can be transferred by executing a n agreement before a notary public.
12. Finance
It is difficult for small business such as sole proprietorship or partnership to obtain finance from market but LLP’s being regulated entities doesn’t face much issues in obtaining finance.
13. Other Taxes
Wealth tax and surcharge is applicable in case of companies above a threshold limit unlike LLP’s.
14. Liability
In case of LLP, partners are protected from the liabilities of LLP as they are not personally liable to pay dues of LLP and this is what the name “LLP” suggests as “Limited Liability Partnership”.
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15. FDI
Foreign direct investment can be routed through either automatic route or government route by companies but it can be routed through only automatic channel in case of LLP.
16. Transparency
One of the main disadvantages of an LLP is disclosure of financial information for public record. But partnership is not required to disclose financial information.
Thus, LLP has all the benefits of Partnership firms and it also includes unique features of a Company.
Read Also: Income Tax Filing for Freelancers
For any questions, you may reach us at Discussion Forum
The author of the above article is CA Rahul Gaur.
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