In India a business organization can take many forms such a LLP (Limited Liability Partnership), Private Limited Company, Public Company etc. On 7th January 2009 with assent of the President the Limited Liability Partnership Act, 2008 came into effect. LLP has been a successful business vehicle since then as it combines the benefits of a partnership with that of a limited liability company, making it a lucrative option for start-ups. It keeps personal wealth of partners safe and on the other hand it helps leverage the benefits of a partnership.
In Limited Liability Partnership a partner is not bound by other partner’s acts; it can be due to negligence, misconduct etc. In other words, LLP can also be defined as a corporate entity which combines professional as well as entrepreneur behavior to operate in effective, efficient and flexible manner by providing benefit of limited liability and larger financial resources.
Requirements and Benefits of a LLP
- Formation of a LLP requires a minimum of 2 partners and at least one of them shall be an Indian resident. Each partner will only be liable to the extent of its capital in the business unless found to have acted with fraudulent intentions and deceiving purposes to cheat creditors.
- It is a separate legal entity formed under the LLP Act 2008 therefore It shall now possess the power to sue and be sued. Also, both an individual and a body corporate may become a partner.
- Duties, rights & share of each partner are governed by an agreement among partners or between the LLP and partners subject to the act. Law gives the freedom to formulate the agreement per choice.
- There is No minimum capital required to form a LLP, moreover creation of a limited liability partnership is inexpensive as compared to other forms of business.
When paralleled with regular partnership a LLP is a preferred choice of lenders hence making borrowing easier. Also it has less stringent compliance and regulatory requirements making it easier for the business owners to focus on operations.
Disadvantages of a LLP in India
- A Limited Liability Partnership is not allowed to go public this means that it can not be listed on the stock exchange and is not allowed to raise money from the general public.
- Actions of any partner related to the LLP will have an impact on it and the entity will be legally held responsible for any liabilities thus created.
Winding up a LLP can be a tedious and expensive task.
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