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.
We offer LLP Registration online and LLP Annual Return Filing services, ensuring smooth setup and compliance with ROC regulations.
Registration process of LLP.
Obtain DSC and DIN:
Firstly, you have to obtain the documents like Digital Signature Certificate(DSC) and Director identification number(DIN).
Every designated director needs a DIN which can be through an online application on the Ministry of Corporate Affairs(MCA) portal.
Reserve a name for LLP:
Use the Reserve Unique Name – Limited Liability Partnership (RUN-LLP) to finalize the name of your LLP. Registrar will approve the name once they complete verifying its availability.
LLP Incorporation:
You need to fill and file the FiLLiP form with the registrar. There is a fee which needs to be paid as per Axenture ‘A’.
File an agreement for LLP.
You have to create a draft of LLP agreement which contains partner rights, duties and responsibilities and file it withing 30 days of incorporation.
Obtain the certificate of incorporation.
Once you complete the registration process, you will receive the certificate of incorporation, confirming the existence of the LLP.
Conclusion
Understanding the Advantages and Disadvantages of LLP is essential when deciding whether to start your business as a Limited Liability Partnership. LLP offers several benefits, such as limited liability, flexibility, and lower compliance requirements, making it a cost-effective option. However, you should carefully consider certain drawbacks before making a decision.
Suggested Read :
Importance of an LLP Certificate
How to Change Office Address of LLP?
Process to Change LLP Agreement
FAQ
1. Which can be better for start-up, Pvt Limited or LLP?
LLP is better option for start-up as it provides limited liability and various tax benefits.
2. Is there any turnover limit for the LLP?
Yes, If the annual turnover exceeds Rs 40 Lakhs, then there is an audit required.
3. What are the fees for LLP registration in India?
It depends on the invested capital amount. If the capital amount is under ₹ 1 lakhs then the fee is ₹500
4. What are the taxation charges in LLP?
An LLP needs to pay 30% fixed rate tax on its total income.
5. Is it mandatory to do GST registration for LLP?
It is not mandatory for all LLPs to do GST registration. However, there are several conditions; if your companies are meeting with any of that then you need to do GST registration.
Leave a Comment