Posted in Finance, Accounting and Economics Terms, Total Reads: 200
Definition: Limited Liability Partnership (LLP)
Limited Liability Partnership (LLP) is a partnership in which some or all partners have partial liabilities depending on the authority. It thus displays essentials of partnerships and corporations. The significant difference from the traditional unlimited partnership is that in an LLP, a single partner is not accountable for another partner's delinquency or carelessness.
In a few countries, an LLP also includes one thing known as a general partner with unlimited liability. In contrast to the corporate shareholders, the partner’s posses the right to administer the business straightforwardly. The board organizes and hires corporate officers who then have as corporate individuals the officially permitted responsibility to administer the business in the corporation's best interest. An LLP in addition contains a dissimilar stage of tax liability from that of a business.
Limited liability partnerships are different from limited partnerships in a few countries, which might permit all LLP partners to have partial liability, whereas a limited partnership might need at least one unrestricted partner and consent others to assume the role of a inactive and limited liability investor. As a consequence, in these countries, the LLP is more suitable for businesses in which all investors desire to take a lively position in organization.
Characteristics of LLP are as follows:
1. Detached legal entity: LLP has a split Legal Entity. Thus the associates and the LLP are divergent from each other. This is like a corporation where the members are poles apart from the company.
2. No necessity of minimum capital: In case of companies there ought to be a lowest amount of capital that should be brought by the members or owners who want to shape it. But to initiate an LLP there is no obligation of minimum capital.
3. Minimum number of members: To initiate a Limited Liability Partnership at least 2 members are required firstly. Conversely, there is no boundary on the maximum number of partners.
Benefits of LLP are discussed below:
1. It is more elastic to catalog the internal configuration of LLP. Comparatively it is intricate to arrange the internal configuration of a company.
2. There is no utmost limit for the no. of partners in LLP. In the private limited company shareholders are restricted to the amount of 200 shareholders.
3. Utilization of funds depends on the partners wish. Funds can be bought and utilized only as per the norms programmed under the Companies Act, 2013.
4. LLP is let off of Dividend Distribution Tax. Company has to pay DDT on dividend distribution.
Demerits of LLP are discussed below:
LLP have some limitations within. Some of them can be sum up as below.
1. Any action of the associate without the other partner, may tie the LLP
2. LLP cannot hoist money from public.
3. Angel Investor or Venture Capital Firms does not favor LLP.