Concept of Limited Liability Partnership

Limited Liability PartnershipEntrepreneurs starting a new business are curious if they should register a Private Limited Company or Limited Liability Company . Both entities offer many similar features required to run a business and its hard to differentiate between two.

The LLP can continue its existence irrespective of changes in partners. LLP is capable of entering into contracts and holding property in its own name. The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.

Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.

Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.

Limited liability partnership or LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. Apart from LLP services, Aristotle Consultancy offers various accounting outsourcing services like accounts receivable , accounts payable , reconciliation services and many more.

Registration process of both the entities is almost similar as well with some difference in document and forms.

Registration cost for incorporation of LLP is cheaper than that of private limited company. LLPs have been introduced to meet the needs of small businesses and hence enjoys lower fee.

LLP structured as a body corporate and a legal entity separate from its partners. It will have perpetual succession.

Tax compliances are similar for both the entities. However, when it comes to compliance relating to the Ministry of Corporate Affairs, LLP enjoys significant advantage. A LLP does not have to have its accounts audited if the annual turnover of the LLP is less than Rs. 40 lakhs and the capital contribution is less than Rs. 25 lakhs. A private limited company on the other hand would have to file audited financial statements with Ministry of Corporate Affairs each year.

Advantages –

LLP form is a form of business model which:

  • Organized and operates on the basis of an agreement.
  • Provides flexibility without imposing detailed legal and procedural requirements
  • Enables professional/technical expertise and initiative to combine with financial risk taking capacity in an innovative and efficient manner

Disadvantages –

  • Private limited company offers its promoters a better image or standing than that of LLP.
  • Private limited company also enjoys better access to funding from banks and foreign direct investment.

Difference between LLP & Private limited company

  • A basic difference between an LLP and a joint stock company lies in that the internal governance structure of a company is regulated by statute (i.e. Companies Act, 1956) whereas for an LLP it would be by a contractual agreement between partners.
  • The management-ownership divide inherent in a company is not there in a limited liability partnership.
  • LLP will have more flexibility as compared to a company.
  • LLP will have lesser compliance requirements as compared to a company.
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