Overview
Documents
Benefits
Merits | Explanation |
Limited liability | The partners of an LLP have limited liability for the debts and obligations of the LLP. Their personal assets are protected in case the LLP faces financial problems. |
Separate legal entity | An LLP has a separate legal entity from its partners, which means it can sue or be sued in its own name. It is also easier to raise capital from investors or obtain loans from banks. |
Taxation | LLPs are taxed as a partnership, which means they are not subject to corporate tax. The profits earned by the LLP are taxed at a flat rate of 30%, plus applicable surcharge and cess. |
Flexibility in management | The partners of an LLP have the flexibility to manage the business as per their agreement. They can decide the profit-sharing ratio, decision-making process, and other internal matters as per their needs. |
No minimum capital requirement | Unlike companies, LLPs do not have any minimum capital requirement. Partners can contribute any amount of capital they deem appropriate. |
Demerits | Explanation |
Compliance requirements | LLPs have to comply with various legal and regulatory requirements such as filing annual returns, maintaining proper accounts, and getting their accounts audited. This can be time-consuming and increase the cost of running the business. |
Limited liability protection for partners | LLP partners are not completely immune from legal liability. They can be held liable for their own actions or for actions taken by them in the capacity of partners of the LLP. |
Limited fundraising options | Unlike companies, LLPs cannot raise funds from the public as they are not allowed to issue shares. They can only raise funds from partners or through debt financing. |
Lack of perpetual succession | An LLP is dissolved upon the death, retirement or insolvency of a partner, which means that it has a limited life span. |
Limited applicability | LLPs are not suitable for all types of businesses. Certain businesses such as banking, insurance, and stock broking are not allowed to be registered as an LLP. |