What is an LLP?
A Limited Liabilty Partnership (LLP) is a hybrid structure between a partnership firm & a private limited company where the business is carried out in a corporate framework, guided by terms of the mutually adopted partnership deed.
Limited Liability Partnership are prevailed by ‘The Limited Liability Partnership Act, 2008’ and various Rules made thereunder
LLP was introduced to provide a form of business that is easy to maintain and to help owners by providing them with limited liability.
The name of LLP Company must finish with the suffix “LLP”, as it is the requirement of a “Limited liability partnership”
Features of LLP:
i) It is a separate legal entity, unlike partnership firms.
ii) The liability and responsibility of every partner is limited to the contribution made by each partner.
iii) At least two partners are required to form an LLP. There is no limit to the maximum number of partners.
iv) An LLP can be formed with the least possible capital, there is no minimum capital requirement in the incorporation of an LLP.
Advantages of LLP:
i) It has a Low Cost of Formation and is Easy to Form.
ii) LLP is a separate legal entity from the partners. Each partner can sue the other in case a situation arises.
iii) Less Restrictions and Compliance are enforced on a LLP by the Govt as compared to the restrictions enforced on a Company.
iv) An LLP can sue in its name and be sued by others.
v) LLPs have assets and liabilities that are separate from that of the promoters.
vi) An LLP can raise funds from Partners, Banks and NBFCs.
Disadvantages of LLP:
The disadvantage of forming a LLP is that it cannot come out with its IPO and Raise Money from the Public which a Company form of organisation can easily do.
What is the Audit requirement for LLP?
Accounts of an LLP are required to be audited when the turnover is Rs. 40 lakh or more or when the total capital contribution is Rs. 25 lakh or more.
The auditor of an LLP is appointed annually by the designated partners.
The first auditor is appointed before the end of the financial year. Subsequent appointment or reappointment of the auditors is made one month before the closing of the financial year by the designated partners.
Difference between LLP & Partnership Firm:
In an LLP the partners are not responsible to the creditors externally. They are liable to the extent of their contribution to the LLP while in the case of a partnership firm the partners are personally responsible to the creditors.
In case of partnership firm registration is optional while in an LLP registration with registrar of LLP required.
In case of partnership firm partners are agents of the firm and other partners while in an LLP partners act as agents of LLP and not of the other partners.
In case of partnership firm minimum 2 partners and maximum 20 partners are allowed while in an LLP minimum 2 partners and there is no limitation of maximum number of partners.
Note: This Post was last updated on March 6, 2021
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