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Advantages and Disadvantages of LLP

October 30, 2024 by Team Instabizfilings

Advantages and Disadvantages of LLP

What is a Limited Liability Partnership (LLP)

 

A Limited Liability Partnership Registration is one of the most popular business structures which generally gives people the best of both worlds: ominf, decidability, and the ability to grow, but not personal liability. This is a versatile business structure that has got features of a Private Limited Company a traditional partnership, and a limited liability company; hence, it appeals to profiled businesses.

 

 

Procedure of obtaining LLP Form

 

Step 1: Check Name Availability

Before lodging the incorporation application of LLP check its name in the database of MCA to confirm that the name has not been used or not too similar to that of any existing company, including Limited Liability Partnership (LLP). Name shall not be identical or too similar to any of the existing companies. It can be reserved through the filing of an application with the Registrar of Companies under RUN.

 

Step 2: Get a Digital Signature Certificate

It says that in order to get DSC or Digital Signature Certificate, it is mandatory to register with a certified authority.  . It's a hybrid model that combines the benefits of Private Limited Company a traditional partnership and a limited liability company,

 

Step 3: Create an MCA Portal Account

Create a user account on the MCA portal (www.mca.gov.in) to file requirements and Process of Limited Liability Partnership Registration Create a user account on the MCA portal (www.mca.gov.in) to file LLP registration documents.

 

Step 4:

Prepare the necessary documents, including:

  • Subscriber’s Statement which contain basic information about the LLP and its subscribers

  • Particulars of Designated Partner(s) and Consent of Designated Partners in FiLLiP form

Submit these documents in an electronic form with the ROC using the MCA portal.

 

Step 5: Pay Registration Fees

 

Step 6: Wait for Approval

Obtain the ROC’s consent of the registration application of the LLP.

 

Step 7: It is advisable for you to apply for a certificate of incorporation

 

Step 8: Get PAN and TAN

 

Step 9: Open a Business Bank Account 

 

Step 10: File LLP Agreement

for PAN and TAN with the Income Tax Department to ensure tax compliance. These are required for Raipur Municipal Corporation compliance and filing returns.

 

Step 11: Obtain Other Registrations

Obtain other necessary registrations, such as:

  • GST Suvidha Kendra  (if applicable)

  • The professional tax registration (if applicable)

  • Registration of a shop and establishment (if any) is also to be done besides the legal business name.

 

Step 12:

Comply with ongoing requirements, including:

  • Filing annual returns that is form 11 to the Registrar of Companies

  • Effectively filing income tax returns more especially in terms of accompanying acts as well as constant compliance with those acts.

 

 

 

  • Limited Liability Protection: By limited liability protection, LLPs protect partners’ personal property in circumstances such as the business’s debts or legal crisis.

 

  • Flexibility in Ownership: LLPs provide for relative freedom of organization and ownership because there are no limitations to the number and nationality of partners.

 

  • Easy to Form and Manage: One of the greatest advantages of LLPs is the flexibility of formation and management which less rules than in companies.

 

  • Tax Benefits: Taxation occurs on the partners’ share of profits and therefore less taxation takes place.

 

  • Perpetual Succession: LLPs have the characteristic of perpetual succession and this means that the business formed will carry on with its operations regardless of the withdrawal or death of the partner.

 

  • No Minimum Capital Requirement: Unlike other structures of business, there is no maximum or minimum capital requirement of an LLP stating the capital that can either be brought in by the partners or is required to be paid up.

 

  • Professional Flexibility: These type of business structures are suitable for the working professionals like Lawyers, Doctors and Architects and others may wish to practice together, but independently.

 

  • Easy to Wind Up: It is easy to wind up LLPs as compared to companies and there are many advantages therefore over forming a company.

 

  • No Restriction on Foreign Investment: Like most other structures, LLPs are allowed foreign investments, which makes the structure favorable for companies who want to attract global capital.

 

  • Better Credibility: It is accepted that LLPs are a more credible business structure than the conventional partnerships and the business credibility and reputation are also improved.

 

  • Easy to Transfer Ownership: An LLP can easily transfer the ownership and therefore it is easy to introduce new partners into the business or dissolve it.

 

  • No Dividend Distribution Tax: Different from most companies, LLPs do not incur dividend distribution tax hence unlike usual companies, the partners have to pay extra tax once they share profits.

 

  • Better Risk Management: Professional firms and those attracted to long-term wealth creation chose LLP structures because it offers a better way of sharing risks and minimizing losses.

 

  • Scalability: The structure of LLPs is extremely flexible, and it can expand or smaller depending on certain market conditions, making it suitable for most growing businesses.

 

All these make LLPs a suitable form of enterprise for the numerous companies that prefer a flexible, adaptable and a tax efficient form of enterprise with limitation of liability.

 

Disadvantages of Limited Liability Partnership (LLP)

 

Here are some of the main disadvantages of LLPs:

 

  • Complexity: More understood formalities and documents are required to sustain LLPs as opposed to traditional partnerships and Additional operations in LLPs become time-consuming and costly.

 

  • Limited Liability Protection:

 

  • Lack of Flexibility:

 

  • Tax Complexity: LLPs are regarded as partnership business and, as such, they face certain difficulties in the sphere of taxation, if, for instance, there are different type of partners within the LLP.

 

  • Limited Access to Capital: LLPs maybe restricted in terms of funding since they cannot be floated; they cannot float shares to the public to get funds.

 

  • Limited Transferability of Ownership: One of the disadvantages of an LLP is that the ownership interests are not easily transferable hence partners can easily be locked out of the business.

 

  • Dispute Resolution: Owing to the principle of mutual cooperation, conflicts of interest often arise in LLPs and soliciting professional legal opinion to resolve such disagreements is usually cumbersome and expensive.

 

  • Limited Brand Recognition: There are often no branded associations connected with an LLP, which may limit its ability to attract the client’s attention and obtain investment.

 

  • Regulatory Compliance: These regulation and compliance mean that LLPs are bound by some regulation and this can be draining on their time and pocket.

 

  • Limited International Recognition: Because LLPs may not be acknowledged in each country they may face certain restrictions on their ability to operate cross-nationally.

 

  • Limited Access to Government Contracts: The legal structures of LLPs can also restrictsome of the formal contracts it can bid for or participate in as a government tendering company.

 

  • Limited Ability to Raise Debt Capital: In respect of debt financing, LLPs may find it very challenging because partners may be reluctant to lend money to a partnership firm.

 

  • Limited Protection for Minority Partners: While forming an LLP, partners do not get the same measure of protection like that of corporate houses and this often results in strife related to affairs of the company.

 

  • Limited Ability to Go Public: The major disadvantage of LLPs is that they cannot offer their shares to the public, which can put a dampener on their prospects of expanding sources of financing and gaining greater recognition.

 

  • Limited Professional Liability Protection: That is, although LLPs will limit liability of members and the business entity created by the LLP itself, an LLP may not afford the same degree of professional liability protection as do PCs and PLLCs.

 

 

Disclaimer

 

The information provided in this blog is purely for general informational purposes only. While every effort has been made to ensure the accuracy, reliability and completeness of the content presented, we make no representations or warranties of any kind, express or implied, for the same. 

 

We expressly disclaim any and all liability for any loss, damage or injury arising from or in connection with the use of or reliance on this information. This includes, but is not limited to, any direct, indirect, incidental, consequential or punitive damage.


Further, we reserve the right to make changes to the content at any time without prior notice. For specific advice tailored to your situation, we request you to get in touch with us.


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