Amazing Advantages and Disadvantages of Limited Liability Partnership
Like other business entities, LLP or limited liability partnership is also a separate business entity that is new yet grabbed the spotlight. However, it has occupied a significant place in the corporate world because of the features it offers.
Here in this article, we are going to discuss the limited liability partnership and its benefits and drawbacks. So, let’s get started with our guide.
Limited Liability Partnership
Limited liability partnership is very similar to other business models but only different in the sense that it offers a great extent of freedom to the partners. In the limited liability partnership, all the partners enjoy limited liability and are not responsible for the wrong actions of other partners.
In this partnership, partners don’t need to lose their personal assets in case of any mishappening. Also, there is no minimum limit of capital investment, and partners can invest according to their preferences.
Here at least two members are required to start the partnership, but there is no limit on the maximum partners. This sort of partnership is generally formed by lawyers, solicitors, accountants, and other parties who meet to drive the maximum profit.
To form an LLP, there are no such rigid structures, and anyone, including companies, individuals, foreign companies, foreign limited liability partnership firms and native limited liability firms, can form an LLP.
Because of the no minimum capital requirement and the freedom, it offers, a limited liability partnership is the first choice of small and middle-size businesses and startups.
So, after describing a limited liability partnership, in brief, it’s time to move on for its advantages and disadvantages the of.
Benefits Of Limited Liability Partnership
Although there are many benefits that limited liability provides to its partners but here, we are discussing some of them in brief.
Whether it’s shares, duties, agreement or capital investment, a limited liability partnership provides flexibility. There are no hard and fast rules for the partners and their investment.
There are even not rigid conditions for the duties and responsibilities. Also, members can make the agreement as they want.
For every LLP, that agreement is essential because, on the basis of that, all the members are governed. So, when partners can decide the agreement, they can decide duties and responsibilities too.
- Separate Legal or Business Entity
An LLP is a separate legal entity, so it can have a bank account on its name, assets on its name and can sue others and can be sued by others. Also, even if there is any loss because of negligence by any of the partners, then other partners don’t need to pay for it.
So, there is also a very limited liability on the partners in the partnership and security for their personal assets.
As compared to other business entities such as private limited company, it is very less expensive to form and start limited liability partnership firms.
There is no extra cost on starting an LLP, also there is no minimum capital investment limit, and even the cost of compliances for a limited liability partnership is very low. So limited liability partnership is a very affordable business model to choose from.
- Easy To Incorporate, Maintain and Wind – up
When compared to traditional business structures, a limited liability partnership offers ease of work at every stage.
There is no such crucial procedure to start an LLP, and one can easily do online LLP registration. Moreover, the agreement, according to which all the partners have to work is also very flexible.
There are not so many compliances for the maintenance of the limited liability partnership, and almost only three compliances are there, which an LLP has to fulfil.
Also, there is no compulsion for the board meetings, board resolutions, annual general meetings, and other formalities. Even if the partners decide to wind – up the LLP, then it is easy to close it too.
- Tax Benefits
In a limited liability partnership, the partners get many tax benefits. There are several tax exemptions for the partners, such as dividend distribution tax and alternative minimum tax.
There are no taxes on the income and share of the partners in the limited liability partnership.
Disadvantages Of Limited Liability Partnership
As there are two sides of a coin similarly with benefits of limited liability partnership, there are some drawbacks too which are important to discuss.
- Procurement of Funds
One of the most common disadvantages that LLP has is that it is very difficult to raise funds. There is no minimum capital requirement to start a limited liability partnership, and the limited liability of the partners make it less creditable for the VCs to invest.
So limited liability partnership firms don’t get the required funds.
- High Tax Rates
Although there are many tax benefits and exemptions for the limited liability partnership, the tax rate for them is high as compared to other small company form of business. For the LLPs, the tax rate is 30% which is much high.
- High Penalties
Although a limited liability partnership has a flexible structure but then also the penalties are huge in case of any late filing or default.
However, there are disadvantages of limited liability partnership, but then also it emerged as a game-changer in the business world. It has increased the profitability of the businesses and helped them achieve a new height of success and glory.