Limited Liability Partnerships, LLP is a unique and new form of business that combines the advantages of both 'Company' and 'Partnership' in a single business entity. This business form was introduced in India in the Year 2008 with the approval of the Limited Liability Partnership Act, 2008.
LLP is a superior form to partnership. The partnership is often discouraged to use because of its unlimited liability feature, i.e. your personal assets may also be held up in case all the dues are not cleared. Hence, it is very risky to use this form of business. So, to overcome this problem, a most important feature of limited liability of company is added to the partnership, which results in Limited Liability Partnership.
LLP is a separate entity, which can be formed in India by a minimum of two persons coming together with a motive of earning profit. Unlike a Private Limited Company, an LLP is easy to manage. It is subjected to minimal post registration compliances.
Some of the demerits of an LLP are, one doesn’t have the option of generating equity in an LLP which decreases the chances of raising funds from the investors in case of a startup, as investors are mostly expected to take up some percentage of the profit shares from the company.
Although, if a startup is not keen on raising funds and wants less stress on the compliances filing part, then they can opt for LLP type of partnership.
An LLP in India has following features:
-Liability of Partners in LLP is limited to their capital contribution.
-Less compliance is needed as compared to a Public Company.
-Flexibility in business operation because partners can decide how they will individual contribute to the business operations.
-Now, LLP can access to foreign equity funds under the automatic route. No RBI approval is required.
-No tax is levied on a distribution of profits amongst the partners.
-No restrictions on a maximum number of partners.