There are various business structures such as Sole Proprietorship, One Person Company, General Partnership, Limited Liability Partnership, Private Limited Company, and Public Limited Company, that an entrepreneur can choose to start a business. Choosing an ideal legal structure would be one of the first decisions an entrepreneur would make. But how to decide which business entity is ideal for your business? 

In this article, we will discuss Limited Liability Partnership (LLP).

A Limited Liability Partnership (LLP) combines the advantages of both the Company and Partnership into a single form of business entity. It was introduced in India as an alternative corporate business entity that provides the benefits of limited liability of a company but allows its members the flexibility of organising their internal management based on a mutually-arrived agreement as in the case of a partnership firm. 

Profit-Sharing

The partners of an LLP share profit and losses in any ratio as agreed amongst themselves in the LLP agreement. In absence of such agreement, the profit and losses shall be governed as per the Limited Liability Partnership Act, 2008.  

Ownership and Control

The partners of an LLP control, share mutual rights and duties of partners as per the LLP agreement. The agreement can be drafted as per the choice of the partners. In absence of such agreement, the mutual rights and duties shall be governed as per the Limited Liability Partnership Act, 2008. 

Liability

The LLP is a separate legal entity, liable to the full extent of its assets, with the liability of the partners being limited to their agreed contribution in the LLP which may be of tangible or intangible nature or both. The partners of the LLP are not liable on account of the independent or unauthorized actions of another partner or their misconduct.

Legal Formalities

Limited Liability Partnership firms are governed by the Limited Liability Partnership Act, 2008. Additionally, the LLP is governed by the LLP agreement signed between all partners. 

Advantages and Disadvantages of LLP

Advantages

1. Separate Legal Entity

2. Relatively Quick Formation

3. Flexibility without imposing detailed legal and procedural requirements

4. Perpetual existence irrespective of changes in partners

5. Internationally renowned form of business in comparison to Company

6. No requirement of minimum capital contribution

7. No restrictions as to the maximum number of partners

8. Partners are not liable for Act of other partners

9. Personal assets of the partners are not exposed except in case of fraud

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Disadvantages

1. LLP cannot raise funds from Public

2. An act of one partner may bind the LLP

3. Under some cases, liability may extend to personal assets of partners

4. No separation of Management from owners

5. Substantial Level of Financial & Legal Compliance

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Suitability of Limited Liability Partnership

The Limited Liability Partnership form of business entity is suitable for businesses that are service-oriented and require low investment needs. 

Documents Required for LLP

The LLP form of the business organisation requires the following documents:

1. Digital Signature Certificate for Partners
2. Director Identification Number
3. PAN Cards of Designated Partners
4. Address Proof
5. No-Objection Certificate from the landlord of the location of the registered office, for rented premises.

Choosing the ideal legal entity for your business should be done in consultation with a legal professional. Your Virtual Legal Counsel can guide you to set up the most preferred legal entity for your business. Your Virtual Legal Counsel will work with you as a partner in incorporating and protecting your business. Schedule a meeting with YVLC to discuss the ideal structure for your business to set up in India. 

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