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Flexibility & Benefits of LLP

, April 10, 2013, 2 Comments

Flexibility in LLP Structure and in its unique appeal has helped many entrepreneurs to leverage its inherent positiveness and make it as the first choice of their startup structure. In the earlier article LLP for Startup/SMEs we delved into the basics of LLP’s structure and in continuation of that , we dig deeper into various other aspects of the framework.

Choice of agreement clauses
Rights, duties and obligations of the partners in the LLP are governed by the LLP agreement, partners have the choice to define the clauses as per their needs , for e.g. – inheritance transfer rights clauses can be added which then makes easy in such eventualities .

The LLP Act 2008 provides the rights to the partner to share profits and losses of the LLP and to receive distributions in accordance with the LLP agreement which are transferable either wholly or in part. The partners may lend money to and transact other business with the LLP.

It may include rights such as access to books, records of LLP firm and to inspect them and also one can add this clause in the agreement that bares any activities that may result in a conflict of interest situation. It also gives the flexibility to each of the parties hereto shall be entitled to carry on their own, separate and independent business and can include a clause of remuneration to be paid to the partner.

Lesser Compliances
The compliances required to be made under LLP Act are lesser as compared to Private Limited Company. E.g. there is no provision of holding any meeting or even it’s not mandatory to keep the records of the meetings of partners/ designated partners.

All LLPs are compulsorily required to get their accounts audited by a CA. However, mandatory audit of accounts is not required until the turnover in any financial year exceeds Rs. 40,000,00 (40 Lakhs) or the Capital contribution exceeds Rs. 25,000,00 (25 Lakhs).

Tax Benefit
The Profit will be taxed to the LLP separately & not to the Partners which avoids double taxation issues.

Mergers & Amalgamations
The provisions of Compromise, arrangement or reconstruction of LLPs are available which makes  it is also possible  – to merger two or more LLPs, just like a company or between LLP and a Private Company.

Right to manage the business
Unlike corporate shareholders (in case of Private Limited), the partners have the right to manage the business directly hence have better controls on all the activities.

No limit on maximum number of partners
LLP may introduce any number of partners (no maximum limit) which enhances the possibility of getting maximum number of investors for a business.

Quick round off of the other advantages
– Foreign nationals can be the partners in an LLP.
– LLP can invest in a Private Limited company/ Public company and become a shareholder of that company.
– Corporate body can be a partner of an LLP.
– Less Government intervention.
– Easy to dissolve or windup.
– No restriction on entering into contracts with other parties & vendors.
– Having the flexibility of perpetual succession- partners may come and go which will not affect the LLP in any manner.
– Ideal for professional servicing rendering company.
Read LLP for Startup/SMEs

In the upcoming parts of the MarketExpress Startup/SME series we shall look at adding more insights related to LLP & Startup/SMEs challenges