LLP Advantages and Disadvantages in India
Limited Liability Partnership – New way of Business in India: – Hi Readers, in this Article we will discuss about LLP advantages and disadvantages in India. There are many ways to start a new business in India like Proprietorship; Partnership Firm, Limited Liability Partnership Firm (LLP), Private Limited Company, Public Limited Company. It is upto the individuals to choose the option of style of business.
In order to make it in line with the business practices followed across the globe, the Ministry of Corporate affairs introduced the concept of LLP in India, the concept restricts the liability of the partners to the extent of their business interests only. There are many other benefits available under the concept of LLP which are highlighted below: –
(i) LLPs are considered easier to set up and are comparatively hassle-free in day to day operations.
(ii) Lower compliance burden if there is minimal activity.
Hence, many Entrepreneurs always prefer to set up the easy mode of business style so that they can perform business easily.
There are many advantages for LLP available in Law: –
1). Limited Liability of Partners
As the name suggests that Limited Liability i.e. prime benefit of the creating an LLP will be that the partners enjoys a Limited Liability upto the extend of the business interests only. Their personal interests are no more vested under the LLP form of business.
All the personal assets of the partners will remain out of the ambit of business liabilities except in case of fraud. Partners are not to be sued in respect for due against LLP. In LLP an individual partner is also protected against joint liability created by another partner’s wrongful business decision or misconduct.
Partners need to comply with basic condition i.e. suffixing the word “LLP”; along with the name of business operations. The purpose of mentioning the term LLP is the highlight the legal status of the firm; so that each & every business vendor must be aware about the status.
2). No limit on owners of business
Minimum 2 persons are required for creating LLP and there is no upper limit over number of partners in LLP. The such facility provides the comfort over the restriction of number of members in Partnership firm, Private Limited Company.
3). Lower cost of registration
The registration / incorporation of incorporating LLP is much lower than the incorporating a company.
4). No Board Meetings / Minutes
Unlike in Company, A Limited liability partnership does not require to held Board Meeting / Minutes.
5). No mandatory requirement of audit
LLP doesn’t have any specific requirement for getting the financials audited under any law until it crosses the minimum threshold limit of turnover amount under the Income Tax Act 1961 i.e. tax audit under Income Tax Act 1961.
All the companies, irrespective of the status either private or public required to have financials audited under Companies Act, 2013.
6). Taxation Aspect on LLP
Under Income Tax Act 1961, the status of LLP remains the same as of partnership firm. The partners can move funds without any restriction.
Moreover, DDT (Dividend distribution tax) is also not applicable over LLP.
The remuneration, interest on Capital and other benefits as guided under section 40(b) of Income Tax Act 1061 remains applicable over LLP also.
7). Dividend Distribution Tax (DDT) not applicable
Unlike in Company, if owner wants to withdrew funds from company needs to incur an additional tax burden i.e. of DDT. However, in case of LLP partnership no such tax is payable while withdrawn by the partners.
LLP Disadvantages
An LLP also has various disadvantages when compared to a private limited company as under:
1). Higher Penalty for Non-Compliance
If LLP doesn’t perform even one business transaction then also there are certain statutory compliance needs to complied with the ministry of corporate affairs.
Every year the LLP needs to file Form 8 or Form 11 (LLP Annual Filing), a penalty of Rs.100 per day per form is applicable if there is any default. There is no cap on the penalty and it could run into Lakhs, if an LLP has not filed its annual return for a few years.
2). Conversion of Private Limited Company to LLP
After recent judgment by ITAT Mumbai, Its changed the entire tax planning parameter of the conversion of Private Limited Company to LLP.
According to judgment, any conversion from Private Limited Company to partnership firm / LLP; will attract capital gains tax calculation over the value of such conversion.
Now, any conversion of Private Limited Company into LLP will attract the eyes of Law Makers.
Compliance for LLP
Every LLP needs to comply with certain legal compliance with Ministry of Corporate Affairs, as the same is guided by Limited Liability Partnership Act 2008. The following are list of compliance which are to be followed: –
1). Form 8 by LLP Partnership
Form 8 is annually form and to be filed within 30 days from the end of 6 months of the financial year. This must be digitally signed by 2 designated partners and it must be certified by a chartered accountant / company secretary / cost accountant. Form 8 has two parts: –
Part A – Statement of Solvency
Part B – Statement of Accounts, Statement of Income & Expenditure
The penalty for not filing this form would be Rs. 100 per day until it is compiled.
2). Form 11
Form 11 contains details of the partners such as total no. of partners, capital contribution by all partners, details of body corporate as partners.
Form 11 should be file within 60 days from the closure of the financial year with the prescribed fee. Hence, the due date is 30th May of each year for filing LLP Form 11.
Hence, it is important to file LLP Annual Return on or before the due date to avoid penalty.
3). Income Tax Return Filing by LLP Partnership
Irrespective of revenue or profits, all registered LLPs in India are required to file income tax return (ITR) each year, . Hence, even an LLP that is dormant not having undertaken any transaction must file income tax return.
4). Maintenance of Documents by LLP Partnership
All LLPs partnership are required to maintain records such as names of partners and changes made, incorporate documents, fee payment proof, statement of account & solvency & annual return.
Also See,” Udyog Aadhaar and MSME Registration
For any query you can write at taxhouseindia@gmail.com. Before making any decisions do consult with your professional or tax consultant.
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