WHAT IS LIMITED LIABILITY PARTNERSHIP? A new trend that has been observed of-late is that more and more entrepreneurs have started opting for Limited Liability Partnerships. But what is a Limited Liability Partnership? Till few years back there used to be only 2 forms of organisation 1. Limited Liability Organisations i.e., Companies 2. Unlimited Liability Organisations i.e., Partnership/Proprietorship But these organisations have their own plus and minuses. However as Businesses grew there was a need for a form of organisation which was a hybrid between the 2 forms of organisations. Moreover, the rapid growth of service sector created an environment and a demand for a new form of Organisation. Thus, the concept of Limited Liability Partnership was evolved which incorporates the benefits of both Companies as well as Partnerships. MEANING OF LLP The Law defines LLP as:- “A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organising their internal structure as a partnership” FEATURES OF LLP 1. The LLP has Separate Legal Entity i.e., the LLP and the partners are distinct from each other. 2. Minimum of 2 partners are required to for, a LLP. However, there is no limit on the maximum number of partners. 3. No requirement of Minimum Capital Contribution. 4. Registration is compulsory. 5. The LLP Act does not restrict the benefit of LLP structure to certain classes of Professionals only and would be available for use by any enterprise. 6. Company Law Board has jurisdiction over the affairs of the LLP. BENEFITS OF FORMING A LLP: 1. The Liability of each partner is limited to his share as written in the agreement filed at the time of creation of LLP. 2. It has Low Cost of Formation and is Easy to Form. 3. The Partners are not liable for the acts of each other and can be held liable only for their own acts. 4. Less restrictions and compliance are enforced on a LLP by the Government. 5. As a Juristic Legal Person, a LLP can sue in its name and be sued by others. DISADVANTAGES OF FORMING A LLP The only disadvantage of forming a LLP is that it cannot come out with its IPO (Initial Public Offer) and Raise Money from the Public TAXATION OF LLP’s: In India, the Government has notified that LLP’s would be taxed in the same form as Partnership i.e. Tax would be levied on the LLP and the partners would be exempt from the tax. Moreover, as LLP’s would be taxed in the same form as Partnership Firms, no tax would be levied on the conversion of Partnership Firms into LLP’s. LLP’s are taxed at a flat rate irrespective of income for the A.Y.2013-14 as follows Income Tax at 30% of total income. Surcharge at 10% if total Income Exceeds Rs. 1 Crore. Educational Cess is payable at 3% of the total of Income Tax.
Posted on: Sat, 24 Aug 2013 05:54:51 +0000
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