10 Reasons why startup should choose Limited Liability Partnership (LLP) to start their business in India

1.0 Introduction

Imagine going to a mall to buy a shirt with no specific brand or color in mind you will look for all the options, right? So, by going through all the options you will end up getting not just tired but confused as well. That is why it is always better to do your research before investing your money anywhere.

As said, when we don’t buy a t-shirt before doing the proper trial, then how can we choose an entity to start a business especially when there are so many options already available in the market that the chances of making a mistake are very high. Hence, being a new business you must have the knowledge of what every option is offering in order to make the best decision.

Because once you know the benefits of each and every type then you will be able to select the best option available for your business.

In this article today we will make it easier for you to understand what exactly is LLP and if it is the type of business for you.

2.0 What is limited liability partnership?

If you want to enjoy the features of a company along with the flexibility of a partnership than LLP is the best option for you.

LLP is a partnership with features of a company like limited liability. Limited liability means where your liability is restricted to the contribution you made in LLP. E.g. suppose there is a liability of Rs.10 lakh, and your contribution is Rs.5 lakh, then your liability is restricted up to Rs.5 lakh.  

Another beneficial feature of LLP is that another partner will never be liable for the negligence of a partner.

Like a company, an LLP as well is a separate legal entity, distinct from its partners. The basic requirement to form an LLP is 2 partners; there can be more than 2 as well. Among these 2, one of them should be a resident of India.

3.0 Reasons to choose LLP as your business organization  

There is n number of reasons as to why any startup should choose LLP over everything else. Here we will discuss the top 10 reasons. Hope they will help you in deciding the form of business you want to take.

The Important Point

However, before going forward, if you are a startup willing to raise investment in future for your startup, then LLP is not for you. In that case, you shall need to register a private limited company.

#Reason No.1 – Easy to register an LLP

Since you are a business and looking for a new start, then you will be happy to know that registering LLP is easy and smooth. The requirements for LLP registration are basic and easy to understand. The basic requirement is to 2 partners out of which one must be a resident of India. The registered office should be within the territory of India.

#Reason No.2 – No minimum capital requirement for LLP

There are no minimum capital requirements in LLP. You can start your business even with Rs.5000 capital. This is because people usually face the capital crunch in the beginning. Further, the cost of registering the LLP is also very less.

#Reason No.3 – Easiest form of business – Easy to operate

LLP is the easiest form of business as there are not many obligations on the partners and all the duties and responsibilities of partners are mentioned in the partnership deed. It is easy to operate and conduct.

In private limited company, you require board resolutions to be passed for taking any decision, however, no such requirement is there in LLP, though the decision is still taken by the majority or in consonance with the LLP agreement.

#Reason No.4 – Lesser compliances than Private Limited Company

Once you have registered an LLP there are not many compliances you need to follow. For new businesses, it is the perfect start. No need to worry about the general meeting, annual general meeting, board meetings etc. You can conduct your business peacefully without many formalities.

Similarly, the partners can decide and organize their internal management mutually which will be in the LLP agreement. Only two forms are required to be filed annually, i.e. Form 8 and Form 11.

#Reason No.5 – Separate legal entity i.e. separate person in the eyes of law

As a separate legal entity, you have the power to sue under the LLP and not the partners. An LLP can sue and be sued by others. Partners are not liable in the case of LLP in any legal case.

#Reason No.6 – Protection from debts – Personal assets remain safe

The partners are protected from the debts of the LLP. In other words, the partners will not be responsible personally for the debts of the business. This is another example of limited liability.

If your business is under debt that has to be returned then you being a partner will not be held responsible for it personally.

#Reason No.7 – Partner not responsible for the act of another partner

This is the most sensible and reasonable of all. The law says that if in an LLP a partner commits a fraud then the other partner(s) will not be held responsible for his act.

Similarly, if any of the partners was negligent or careless and some loss was incurred then that particular partner has to bear the losses

#Reason no.8 – Separate Cibil score

In LLP partner is an agent of the business hence the cibil score of business and partners are different. The partners individually will have a different cibil score and the LLP will have different. Hence, even if the partners have a bad cibil score, the same shall not have an impact on the cibil score of the LLP.

#Reason no.9 – Loan to partners

In company law, a company cannot provide a loan to its directors as it is restricted by law. However, in LLP, it is not the case. Under LLP, the business can provide a loan to its partners if the same is allowed by the LLP agreement.

#Reason no.10 – Easy to wind up

If anything goes wrong in LLP and you plan to end the business/partnership you can do so without as many formalities. Winding up of an LLP can be either voluntarily or by tribunal.

4.0 Conclusion

Since a lot of startups are emerging in India day by day it is important to know what is best for them. Starting a business is a huge step and it should not weigh you down in any way. Let us make this step a happy and easy journey for you. Email us at info@hubco.in and get the consultation for free.

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