What Are The Advantages And Disadvantages Of LLP

Advantages and Disadvantages of LLP:

A limited liability partnership is a partner whose partnership is limited to the capital invested by each to start the business. Your personal assets in the LLP are not liable for the debts of the firm. An LLP is a corporate body which is a legal entity independent of the partners who are a part of the organisation.

Limited Liability Partnership (LLP) integrates the separate legal entity status of a company and the ease of running a partnership along with the limited liability aspects. What's more, such an entity has minimum compliance requirements and is not required to conduct an external audit of its books, unless it has a turnover of Rs 40 lakh per annum or a paid-up capital contribution of Rs 25 lakh.

What are the Advantages and Disadvantages of LLP?

Advantages of LLP:

1. Separate Legal Entity:

An LLP is a separate legal entity. The meaning of that the LLP has its own assets and that can be use. Furthermore, not only one partner is liable or responsible for the any negligence and misconduct of the another partner.

2. No Owner/Manager Distinction

An LLP consists of partners, who own and manage the business. It is different from a private limited company, whose directors can be different from the shareholders. For this reason, VCs do not invest in LLP structure

3. Flexible Agreement:

The partners of the LLP are totally free to make or draft the agreement according to they please with its regard to the rights and duties of partners.

4. Limited Liability:

The liability of the partners is limited to the extent of his/her contribution towards the LLP. As long as fraud is not detected, the partner's personal assets are protected from any liability of the LLP.

5. Low Compliance Requirements:

An LLP is much easier and cheaper than a private limited company as there are just three compliances per year. On the other hand, a private limited company has a lot of compliances to complete and conduct the audit of its books.

6. Easy to Dissolve LLP:

Not only is it easier to start, but it is also easier to dissolve an LLP as compared to a private company. Although it is still taking two to three months to complete the process, it may take a year to wind up a private limited company.

What are the Disadvantages of LLP?

Disadvantages of LLP:

1. Inability to raise VC (Venture Capital) Funds:

VCs (Venture Capital) will not be willing to invest in LLP structure. This is because in an LLP all the shareholders must be partners, who have certain responsibilities towards the entity. No VC wants any of these responsibilities, and hence, should invest only in a private limited company.

2. Rights of Partners:

It can be make the LLP in a way that there has more rights of one partner than the other partners. So it is not a vote per share system. Therefore, a few fewer partners may settle if the higher shareholders lead the business in a direction that affects their interests.

3. Maximum Penalties:

Compliance of an LLP is minimal, but if you do not fulfil them, you may end up paying more in fines with a private limited company. It’s fine may extend to Rs 5 lakh for one year.

If you want to enter into LLP, you need to be registered by LLP Company Registration under the Act. You will have to spend time and money in the documents and legal formalities of incorporating the business. You cannot have confidential business matters because you must meet legal requirements.