2011-11-17 00:00:00GeneralEnglishhttps://quickbooks.intuit.com/in/resources/in_qrc/uploads/2017/05/LLP1.jpghttps://quickbooks.intuit.com/in/resources/general/give-thought-llp/Give a thought to LLP

Give a thought to LLP

2 min read

Limited Liability Partnership (LLP) is a form of partnership characterized by the benefits of limited liability of a company and the flexibility of a partnership. Here, liability of the partner is limited to his agreed contribution.  Also, no partner is liable on account of the independent or un-authorized acts of other partners. A LLP is governed by the LLP Act, 2008, which came into effect from April 1, 2009. It is widely considered to be a very good option for Small & Medium Businesses who want flexibility as well as limited liability. Here’s why: • Low cost of formation • Low compliance requirements • Easy to manage and run and also easy to wind-up and dissolve • No minimum capital contributions required • Partners are not liable for the acts of the other partners • No minimum alternate tax (MAT) applicable as of date Some of the important aspects which makes this model so popular with the SMBs can be categorized below: • Business Objective: LLPs can be formed only for those businesses which have a ‘profit motive’. NGOs, Co-operatives cannot form LLPs • Who can start? A minimum of 2 people as ‘partners’. There is no cap on the maximum partners. • Legal Entity: An LLP is a separate entity and enjoys perpetual succession. Hence, all business activity (own assets, take legal actions, be sued etc) will be carried in its name and not that of the partners. • Rights & Duties: The partners are bound by the agreement between them. They have the flexibility to devise the agreement as per their choice and their rights and duties determined accordingly. Unlike corporate shareholders, the partners in an LLP have the right to conduct the business directly. However, unlike a normal partnership, one partner is not responsible or liable for another partner’s misconduct or negligence. • Liability:  Unlike a partnership, liability of the partners is limited to the extent of his contribution in the LLP. In case of bankruptcy or dissolution, his personal assets will not be touched. However, only in cases of proven fraud, the personal assets of the guilty partner can be taken over to recover dues to the LLP. • Accounting: Like any other business entity, every LLP needs to maintain their annual accounts and file returns. However, audit will be necessary only if the contribution exceeds Rs. 25 lakhs or annual turnover exceeds Rs.40 lakhs. Do you think your business entity can enjoy the benefits of a LLP? In our next feature, we will tell you how to register an LLP and get started.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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