Advantages and Disadvantages of LLP as a Startup

Introduction

It is important to know the advantages and disadvantages of LLP as a start up. An individual must be aware of the information which is necessary to know before taking any step.

What is a Limited Liability Partnership?

Limited Liability partnership is a business structure that provides liability protection to the company. There are minimum two people required and no limit bar for the maximum number of people. LLP is a flexible entity where each and every partner has limited liabilities.

Advantages of LLP

• Cost-effective: The main benefit of LLP as a start up is that it has a lower cost of registration. There is no need to charge extra for the registration procedure.
• Flexible: It provides the flexibility to decide the terms and conditions of your partnership by your own. Also provides the free hand to transfer your ownership to someone else.
• No need of minimum capital: There is no minimal capital investment needed for an LLP. You can start it with any amount of minimum capital.
• Tax benefits: LLP provides various tax benefits like there is no dividend distribution tax (DDT) and also lower tax rates compared to other companies.
• Separate legal entity: An LLP operates as a separate legal entity, meaning it can own property, make decisions, sue, and be sued in its own name.
• Limited liability: The major benefit is that partners have limited liability, protecting their personal assets from any risk.
• Less formalities: You can complete the registration process smoothly with fewer formalities.

Disadvantages of LLP

• Limitation of growth opportunity: LLP cannot issue shares to the public so it won’t suit the businesses who have large amount off capital.
• Less recognition: Investors may find it difficult to provide funds because they do not widely recognize LLPs like private limited companies.
• Limited Life: Businesses seeking long term sustainability should avoid an LLP, as it dissolves when a partner retires or passes away. Since LLP requires at least two members, the partnership may have to dissolve if one partner decides to leave.

Features of the LLP

• Separate Legal Entity: An LLP is an individual legal entity, which means it can own property, enter into contracts, and be sued in its own name.
• Limited Liability: In LLP, the liability is limited for partners as per their contribution. There is no risk for personal assets of the partner.
• Flexibility: LLP provides extensive flexibility in the terms of management.
• No Minimal Capital requirement: There is no minimum capital require to start an LLP as start up.