A Limited Liability Partnership (LLP) is a business entity that blends the benefits of a corporation with the flexibility of a partnership. It offers limited liability protection to its partners while allowing them to manage the business directly. The LLP can continue to exist even if its partners change and can enter into contracts or own property in its own name.
Under an LLP, a partner’s liability is limited to the amount they agree to contribute. Partners are protected from being held responsible for the actions, negligence, or misconduct of other partners. LLPs in India are governed by the Limited Liability Partnership Act, 2008 and the LLP Rules, 2009.
Choosing the right business structure is crucial when starting a new venture. Below are the reasons why a Limited Liability Partnership can be an ideal choice:
An LLP can be formed without any minimum capital contribution, unlike a Private Limited Company which requires a minimum authorized capital of ₹1 lakh. Capital contributions in an LLP can be made in installments, making it ideal for small businesses.
An LLP is legally separate from its partners. It can own property, enter into contracts, sue, and be sued in its own name. Entry or exit of a partner does not affect the firm’s continuity.
Partners’ liability is limited to their capital contribution. Personal assets are protected unless a partner is involved in fraud or wrongful acts.
Compliance requirements for LLPs are lower than those for Private Limited Companies. An audit is only mandatory if turnover exceeds ₹40 lakhs or capital contribution exceeds ₹25 lakhs.
LLP profits are taxed at the entity level, avoiding double taxation. Partners do not pay tax on profit distribution.
An LLP continues to exist regardless of changes in partners. It may be wound up voluntarily or by tribunal order.
LLP documents (except the LLP agreement) are publicly accessible, offering transparency and higher credibility. This improves trust and helps with fundraising from banks and financial institutions.
An LLP must have at least two designated partners, but there is no upper limit on the number of partners, making it suitable for expansion and investment.