Some of the important benefits of limited liability partnership form of business structure can be summarized as follows :
Important benefits of limited liability partnership
Financial Risk : Limited liability partnerships, not surprisingly, provide limited liability for partners. That means that each partner is responsible only for the amount of money he has given or promised to the partnership.
Management : The ability to directly manage a partnership is a significant advantage of limited liability partnership. In a corporation, shareholders hold stock in make executive decisions for the company and elect a board of directors, who then make executive decisions for the company. Corporations may also have company directors doing more humdrum, daily business. Limited Liability partnerships avoid the unnecessary extra steps by allowing each partner to directly own, control, or both, a portion of the partnership.
Personal Liability : If a LLP has constructed a hotel and it falls down and court orders a hefty compensation and penalty. Only LLP shall be held liable to pay and to the extent of its assets only. Partners are not to be held liable to pay and to the extent of its assets only. Partners are not to be held personally liable, if acted properly. Similarly if a LLP dealing with international client and client files a suit against the loss caused in the course of business, it may be possible that LLP could not properly argue the case in court and may have to pay large sum as compensation. Only LLP shall be held liable to pay and to the extent of its assets only. Partners are not to be held personally liable, if acted properly.
Legal Compliance :
If we compare the hardship in legal compliance in case of limited companies. LLP has very less and adequate compliance. Only annual returns and any changes in constitution, hypothecation of assets or stock are to be filed with the registrar. No detail of meetings and resolution passed is required to be filed. It is good from disclosure point of view too. As LLP is very much suitable for small and medium enterprises and they always remain in growing stage, competitors are easy to come hence any leakage of strategy or decision taken can prove costlier to them.
LLP structure saves them by not requiring them to submit minutes, resolutions etc with registrar. Provision of accounts and audit makes the LLP accountable and transparent. Audit under the act is different from the tax audit under Income Tax Act.
The requirements as to board meetings, annual meetings, resolutions, etc, are not there in case of LLP. There is lesser paperwork in case of LLPs, as even the execution of partnership agreement is mandatory. The filing requirements are also less and simpler as compared to a company.
Investment : No major investment is required to form a LLP. It is not a high incorporation expense. So this way it is cheaper than a company.
Flexibility : Internal flexibility is another benefits of the LLP business structure. As in general partnership, the internal structure of LLP can be organized as per mutual agreement. LLP is offer flexibility to define partnership relationship and inter se rights, duties and obligations by way of agreement.
The managerial remuneration, salaries and other compensation, distribution of profits paid to partners are not questionable by any authority as in the case of companies.
Expansion and Growth : There is no limit as to the maximum number of members in a limited liability partnership as in the case with firms.
Liability of Partner : A partner’s liability shall be limited, i.e., liabilities of LLP shall be met out of LLP itself.
Direct Taxation : Unlike corporations, (LLPs) limited liability partnerships are taxed directly through the partnership. This avoids corporate double-taxation, where income from a corporation and distributed profiles are both taxed. A small corporations suffer from double-taxation, a limited liability partnership may provide significant tax relief. `
Perpetual succession : LLPs provide for perpetual succession of business, unlike a partnership firm where partners exit affects the constitution.
Existing Business :
As LLPs can also be formed by converting existing firms or businesses – be it a firm or company, continuity of an existing business is ensured by forming a LLP.
Effectiveness : LLPs would provide an opportunity to small businesses not seeking to access capital market to participate in joint ventures, enable business strategies, access technology and face global competition as LLPs offer commercially efficient vehicle to do business.
Separate Legal Entity : Since LLP is a separate legal entity, its existence is not affected by the entry or exit of partners.
Protection to Name : LLPs name is protected as in case of companies. There cannot be two LLPs by the same name.
LLPs may own property and sue/be sued in its own name.
Liability Protection : Protection is available for all general partners from claims against the LLP.
Dividends : Partner dividends are reported on the partners personal tax returns.
Date of Examination : No date of termination is required in the partnership agreement.
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