Limited Liability Partnership Firm

How suitable is LLP for entrepreneurs in India?

calendar03 Apr, 2024
timeReading Time: 5 Minutes

Because of its unique combination of benefits, Limited Liability Partnerships (LLPs) have become the go-to company form for entrepreneurs in India. LLPs are becoming increasingly common in various industries because they provide a combination of a company’s limited liability protection and a partnership’s flexibility. With this company model, entrepreneurs can pool resources, experience, and skills while protecting their assets from liabilities related to the business. LLPs offer a favourable environment for innovation and growth in India, where entrepreneurial activities flourish amid a dynamic commercial landscape. Furthermore, LLPs are a desirable choice for start-ups and small enterprises due to their streamlined compliance requirements and lighter regulatory constraints, which promote entrepreneurship and economic growth.

This introduction lays the groundwork for a more thorough investigation of why LLP for entrepreneurs is the best-suited option. In this blog we will read about the important reasons on why LLP for entrepreneurs is a good option.

LLP for Entrepreneurs: Reasons for Preference

LLPs are the most common business type chosen by entrepreneurs for various reasons; some of the essential reasons why entrepreneurs find an LLP registration suitable are – 

  • It is not mandatory to generate a certain amount of investment to join an LLP or register it. The entrepreneurs can use tangible and intangible assets like the Intellectual Property Rights as an investment in the partnership. This way, they can use alternative investment means to fund the business, and the share percentage is also not decided; hence, the profit depends on the rate of participation, which is suitable for other partners as well.
  • More often than not entrepreneurs lack initial funding to start their business activities and organization. LLP registration solves this problem since it is very easy to register in it and along with that LLP can be registered even with a very small amount.
  • Registration of LLP for entrepreneurs depends on the amount of capital it is getting registered with. To register, the registration fee is decided upon based on the capital of the partnership. Hence, it is generally less than that of a company registration under the Companies Act of 2013.
  • The most important reason why these entrepreneurs prefer an LLP registration is that it comes with Limited Liability, and no partner is held liable for the acts of the other partner. No one is held liable personally for the losses incurred by the entity, hence, the fear of losing personal assets is not there which thereby gives assurance to the individuals about the loss of personal assets in case of business loss.

Advantages of a Limited Liability Partnership for Entrepreneurs

There are many advantages of a limited liability partnership in the country after its registration, and these are –

Partners

LLP can be registered with only two partners under the Limited Liability Partnership Act, 2008. There is no provision for the minimum number of members required; hence, it is easy for a small group of people to register the entity and work on the business plan. They have to make one designated partner of the LLP. However, they can add new partners in the coming time for whatever reason.

Extent of Liability

One of the vital advantages of LLP for entrepreneurs is that it avails the extent of liability. An LLP for entrepreneurs is the most suitable business form since it comes with no extra liabilities of other partners or even losses beyond your contribution. If the loss exceeds your capital contribution, the personal assets would not come to risk of being taken away. Although the partners work together, they do not owe any liability towards one another or even their losses. There is no such requirement of pooling a definite amount of money in the partnership firm and the liability can be in proportionate with the investment and percentage of shares in the entity.

Filing Requirements

Generally, there are not many filing requirements for a Limited Liability Partnership and this is why it becomes very easy and manageable for young entrepreneurs who can dedicate their time to prospering the business. Some young entrepreneurs have very less to no knowledge about these filings, so an LLP registration is very beneficial for them. An LLP has to file an annual return, a solvency proof at the end of every financial year, and a statement of accounts.

Registration Time

Entrepreneurs are generally very impatient and want their ideas to flourish in the market as soon as possible. If they opt for other kinds of incorporation then it will take much longer time than that taken by the registration of an LLP. It takes approximately 10-15 days for entrepreneurs to register their LLP firm. This quick registration allows them to start business activities as soon as possible and make their name in the related market.

Investment Opportunities

One of the main advantages of a limited liability partnership is that they get permission from the Reserve Bank of India to obtain funds from outside sources. Foreign Direct Investments are popular these days and the LLPs where the entrepreneurs are working hard and growth opportunities are more, certain foreign investors tend to invest in the firm to get the benefit out of it if the RBI thinks of giving the green signal. In the initial stages, the most challenging part for the entrepreneurs is the arrangement of funds, and if they are getting funds from foreign sources, they can worry less about funding and focus more on operations.

Easier Formation and Dissolution

Formation and Dissolution are straightforward for an LLP for entrepreneurs as it requires less compliance. During its formation, not many documents are needed and the process is not as complex either as in the case of Public or Private company registration. This helps these entrepreneurs to be involved in such partnerships whereby they can quickly start up the process and, in the case of failure, get away with it without much ado and more losses.

Taxation

LLP for entrepreneurs is beneficial in taxation as well since they are taxed differently than the registered companies. LLPs are not taxed directly, rather the profits are initially shared between the partners based on their share and then those partners have to pay taxes accordingly. These taxes are much lower in comparison to what registered companies pay to the government as per the Income Tax Act of 1961.

Impact of LLP on Entrepreneurs

The formation of LLPs has made a substantial impact of LLP for entrepreneurs in the Indian Market, such as –

Innovation

The impact of LLP on Entrepreneurs cannot be understated since it has made the growth in new budding entrepreneurs in the market with innovations. More and more people are coming forward with new ideas and experiments where some are struggling but some are making profits as well. This will increase employment and would increase the cash flow within and outside the country.

Partnership Encouragement

LLP for entrepreneurs encourages partnership whereby two or more individuals combine their resources and expertise to come together and start a venture. This partnership formation is essential for everyone’s growth, be it every partner, the business, or the country. With shared expertise, these entrepreneurs can achieve success quite early and also help in the delegation of work as per the business needs. Partnership formation ensures that no partner is overburdened and promotes the sharing of work, thereby managing the operations of the business effectively.

Economic Development

With the increase in LLP registration in the country, the country is also receiving certain benefits. Employment, innovation, and entrepreneurship have increased. Dependency on the government has decreased since the government has also helped these entities through various policies and tax reductions.

Conclusion

The Limited Liability Partnership (LLP) provides Indian business owners with a flexible and beneficial corporate structure for starting, operating, and expanding their enterprises. LLP for entrepreneurs offers an atmosphere favourable to innovation, collaboration, and business development because of its focus on limited liability protection, flexibility, and a lower burden of compliance. Even with numerous obstacles and restrictions, limited liability companies (LLPs) nonetheless have a significant impact on entrepreneurship, start-up support, and economic growth in India. In light of their unique business goals and aims, entrepreneurs who are thinking about LLP as their preferred business structure should carefully assess the advantages, difficulties, and ramifications of this structure.

Corpbiz can help with the LLP registration and formation of LLPs for entrepreneurs in the country with minimum paperwork and stress. Our vision is to work for these entrepreneurs, let them focus on bigger things, and maintain the operations of the organization. Our experts can provide guidance in the LLP registration process and can also offer extra assistance in complying with the procedures established for the registration.

Frequently Asked Questions

  1. What is a Limited Liability Partnership?

    A Limited Liability Partnership is formed when two or more individuals pool their expertise and resources to create an organization. This company type is registered under the Partnerships Act, 2008, and it comes with a limited liability for the partners towards the business. These partners are not liable for the losses of other partners.

  2. What filings are required to be made by LLPs?

    There are not many filing requirements for a Limited Liability Partnership and this is why it becomes very easy and manageable for young entrepreneurs who can dedicate their time to prospering the business. Some young entrepreneurs have very less to no knowledge about these filings, so an LLP registration is very beneficial for them. An LLP has to file an annual return, a solvency proof at the end of every financial year, and a statement of accounts.

  3. Is there any minimum capital requirement for LLP formation?

    No, there is no set limit for the formation of an LLP in the country. It can be started with the least amount possible to start a venture. Also, there is no set percentage of sharing of equities of the firm, and they get profit based on their contribution.

  4. Which type of resource contribution is allowed for the partners in an LLP?

    Entrepreneurs can make monetary contributions through their tangible assets like money, stocks, land, vehicles, and electronics or with intangible assets like the Intellectual properties of which they have the rights and proper registration done as per the regulations.

  5. What is the major drawback of an LLP for entrepreneurs?

    The major drawback of an LLP for entrepreneurs is that they don't generally receive funding from the public, angel investors, venture capitalists, and others since they cannot float their shares in the market or issue securities. They often increase the number of partners or raise funds on a personal level if they require capital.

  6. How long does it take to register an LLP?

    It generally takes around 10-15 days for an LLP to get registered under the Partnership Act of 2008. The registration also requires comparatively lesser documentation while registering.

  7. Can a partner leave the partnership firm in between?

    Yes, a partner can leave the partnership firm in between after taking away their assets, profits, and equity sharing in the firm. If the firm was going on in losses, then they have to pay the loss for which they are liable and then can move out of the partnership.

  8. Why do Entrepreneurs not opt for one-person company registration?

    Entrepreneurs don't opt for one-person company registration because the liability in it is unlimited, unlike in LLP for entrepreneurs. Also, the taxation is huge, compliances are more, and it takes time for it to get registered.

  9. What is the stamp duty required for an LLP Agreement?

    The amount of Stamp duty differs from one state to another.

  10. Is there any requirement for a director in an LLP?

    No, there is no such requirement of a director in an LLP. The firm's partners handle all the compliance, operations and other work. However, an LLP should have a minimum of 2 partners and should make a designated partner amongst themselves.

Read Our Article: What Is The Need For An LLP Agreement?

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