All you need to know before choosing Limited Liability partnership as a form of business

All you need to know before choosing Limited Liability partnership as a form of business


Limited liability Partnerships (LLP) is the most popular form of partnership in India which is becoming the most favoured form of partnership over the traditional forms of partnerships and sole proprietorships

Features of Limited Liability Partnership

  • It should have a minimum of 2 partners
  • There is no limit on maximum number of partners
  • No minimum capital is required to start it

Factors to be considered

Benefits of a LLP

  1. Limited Liability: Unlike the sole proprietorship and partnership firms, where the owners have an unlimited liability, the liability of each partner in a LLP is limited to his share in the firm.
  2. Assurance and credibility in the eyes of consumers: A LLP would always have more credibility than a sole proprietorships and partnerships as there is no mandatory requirement to register these forms under any act, while a LLP should be registered with LLP Act.
  3. Easy to raise funds: Raising money as a small business such as a sole proprietorship or partnership can be difficult as you cannot add larger members to your business which is not the case with LLP as it can have any number of partners.
  4. More flexible than companies: A LLP would have lesser compliances than a public limited company or a private limited company.
  5. Better mutual existence of partners: Partners of LLP enjoys a better mutual existence as its partners are not liable for the acts of each other as compared to traditional partnerships where partners can be held liable for the acts of other partners as well.
  6. Juristic Legal Person: A LLP can sue in its name and can be sued by others. The partners of LLP would not be sued for dues against the LLP.

Limitations of a LLP

  1. It cannot be formed by a single person: While a sole proprietorship or a OPC (One person Company) can be started by just one person, we need at least 2 persons to form a LLP
  2. Difficulty in transfer of ownershipOwnership rights are not transferable easily without obtaining consents of all partners of the LLP. If any partner wishes to transfer some portion of ownership, he must obtain consent of all partners.
  3. Less flexible than partnerships and proprietorships: A sole proprietorship or a partnership will always have lesser compliances to meet than a LLP.
  4. Less business credibility: Another huge problem with limited liability partnerships is the fact that other business and many consumers or clients do not see them as a credible business. Companies gain much more respect and are generally more successful than LLP.

Compliances to be met

Here is the list of some general compliances under various laws which a private limited company must meet

Under LLP Act

  1. Filing of annual return (form 11): within 60 days of closure of its financial year i.e. by 30th May every year.
  2. Filing of statement of accounts and solvency (SAS) (form 8): within 30 days from the expiry of 6 months from the close of financial year i.e. by 30th October every year.

Under Income Tax

  1. Filing of Income Tax Returns
  2. Tax Audit & Filing of Tax Audit Report – Mandatory in case sales, turnover or gross receipts of a business exceed Rs. One Crore in the previous year relevant to the assessment year.

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    January 16, 2018 at 12:11 am

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