There are several reasons why many entrepreneurs prefer to go in for a Limited Liability Partnership (LLP) registration over a Private Limited Company incorporation. LLPs are easier to set up and comparatively hassle-free in daily operations. It also has a lower compliance burden if there is minimal activity. Hence, many Entrepreneurs see it advantageous to begin their organization in this manner. We look at the advantages and disadvantages of an LLP formation in India.
1. No requirement of Minimum Contribution
There is no minimum capital requirement in LLP. With the least possible capital commitment. Moreover, the contribution of a partner can consist of tangible, movable or immovable, or intangible property or other benefits to the LLP.
2. No limit on owners of the business
An LLP requires a minimum of 2 designated no limit to the maximum number of partners contrast, unlike a private limited company with a restriction of not having more than 200 directors.
3. Lower registration cost
The cost of registering an LLP is low compared to incorporating a private limited or a public limited company. However, the difference between an LLP’s a Private Limited Company has come down in recent days.
4. No requirement of compulsory Audit
All private or public, irrespective of their share capital, get their accounts audited. But in the case of LLP, there is no such mandatory requirement. The perceived to be a significant compliance benefit. A Limited Liability Partnership is required to get the tax audit done only in the case that:-
The contributions of the LLP exceed Rs. 25 Lakhs, and the annual turnover of the LLP exceeds Rs. 40 Lakh.
5. Taxation Aspect on LLP
For income tax purposes, LLP with partnership firms. Thus, LLP is liable for payment of income tax. The share of its partners in the LLP is not for tax. Thus no dividend distribution tax is payable. The provision of ‘deemed dividend’ under income tax law does not apply to LLP. Interest to partners, any payment of salary, bonus, commission, or remuneration allowed as deduction.
6. Dividend Distribution Tax (DDT) not applicable
In the case of a company, if the owners withdraw profits from the company, additional tax liability in the form of DDT @ 15% (plus surcharge & education case) is payable by the company.