According to the recent newspaper reports, the ministry of corporate affairs (MCA) has decriminalised several provisions of the LLP (limited liability partnership) act, 2008, as a part of the efforts to make the ease of doing business more efficient and favourable.
These would contain norms related to the submission of annual returns, the appointment of designated partners, eligibility, registration of partnership deed, maintaining and keeping the books of account and so forth. It is essential to conduct the registration of the partnership deed process in India before starting the partnership firm business.
A partnership firm or the LLP ((limited liability partnership) are the two available options when the number of business founders is two or more. Both of them have their own advantages and disadvantages. In this concise and short blog, you will see the benefits and drawbacks of each of them to help you choose the right one for your business.
If you are two or more than two founders, you might have a hard time choosing betwixt the LLP (limited liability partnership) and partnership. But the two have distinct reasons entirely. The LLP (limited liability partnership) is meant for expert and advisory firms with no requirement for equity funding. If this applies to your business, choose the LLP (limited liability partnership). It has been gaining popularity since 2008 as it conjoins some of the better aspects of the partnership firm and private limited company (PLC). Nonetheless, if you are running and operating a business with no liabilities or debts, you should choose the partnership firm. Now, let’s inspect the features of both the structures as given below.
Characteristics of the LLP (limited liability partnership).
For non-scalable businesses – if you are running or operating a business that will not require equity funding in the future, then you might want to register your business as the LLP (limited liability partnership) as it conjoins various benefits of the private limited company (PLC) and general partnership. It will have limited liability, such as a private limited company (PLC) with a simple structure like the general partnership.
Fewer compliances to follow – the ministry of corporate affairs (MCA) has made some concessions to the LLP (limited liability partnership). For instance, an audit requires to be conducted only if one’s turnover goes beyond Rs. Forty lacs or paid-up capital is more than Rs. Twenty-five lacs. Also, whereas all structural changes require to be communicated to the RoC (Registrar of companies) in the case of private limited companies (PLC), the requirement is minimum for LLP (limited liability partnership).
Tax benefits – precisely, if your business is earning more than Rs. one crore in profits, the LLP (limited liability partnership) provides tax benefits. The tax surcharge applies to companies whose profit goes beyond Rs. one crore does not apply to LLP (limited liability partnership) or DDT (dividend distribution tax). Loans to partners are not taxable in the income as well.
A number of partners – there is no upper limit to the number of partners; there might be some in LLP (limited liability partnership). So, if you are building a large advertising agency, you should not worry about any cap on the number of partners.
Start-up cost – it is much cheaper than initiating a private limited company, with government fees of Rs. 5000, with no paid-up capital and low compliance costs.
Characteristics of the partnership firm.
Infinite liability – on account of infinite liability, the business partners will be liable for all of their debts. This means, if for whatever reason, you are unable to repay a fine or the bank loan, this can be recovered from your personal belongings. Hence, the institution, bank, or supplier will have the right to your car, jewellery and so forth. Also, aside from the ease of set-up and minimum compliance, the partnership provides no benefits over the LLP registration.
If you choose to go with it and register it, which is optional, it might not be cheaper. That’s why unless you are running a small business (for example, Dabba service in your locality and would like to set a profit ratio with your partner), then you should not go with it.
Easy to initiate – if you go without registering your partnership firm, all you require to get initiated in a partnership deed. It can be done in two or four days. Once you have the appointment with the registrar, this registration process can be done in a day compared to a private limited company (PLC) or LLP, and it is a very smooth and easy process.
Two elements are crucial, and a partnership company must be registered if it is a small business that will have no liabilities or debts. The LLP must be registered if the business is advisory or professional and that requires no equity funding.