Advantages and Disadvantages of Limited Liability Partnership
A
limited liability partnership Registration or LLP Registration
is a kind of partnership which combines the characteristics of corporations and
partnership. All the partners or at least some of them have limited liabilities
and every partner is not liable for problems caused by another. A limited
liability partnership is an independent entity. It continues to function even
if the partners change. It includes some rights and duties for the partners
which are regulated by an agreement between the partners.
ADVANTAGES OF LIMITED LIABILITY PARTNERSHIP
REGISTRATION
1. Tax benefits
In
LLP, the partnership is not liable to pay taxes. The individuals can file taxes
like self-employment tax, personal income tax etc. This paves way for
individual tax returns. The percentage of partnership each partner has is taken
into consideration when the deductions are divided.
2. Limited liability
Generally,
in partnerships, each partner is legally responsible for the debts and
liabilities of other partners and the company. But LLP offers protection to the
partners from being responsible for the wrongdoings of other partners. They are
also free from any liability for the downfall of the company.
3. Any number of partners
This
is not limited in an LLP. Any number of partners can be involved in the
business. This becomes helpful if the business faces any issues. The amount can
be distributed to the huge number of partners and each will have lesser
liability of the debts.
4. Flexible
LLP
is usually flexible in nature. The partners have complete freedom to decide
about the percentage of their partnership. How much they want to contribute is
also their choice. The partners can opt out of any business meetings if they
wish so. There is no compulsion in anything.
5. Separate entity
An
LLP has a separate existence from its partners. It is considered as a legal
entity. Thus, LLP earns more respect when compared to other partnerships. The
customers are more satisfied and confident in dealing with LLP. Same is the
case with large organizations also. Their interest towards LLP is noteworthy.
DISADVANTAGES OF LIMITED LIABILITY PARTNERSHIP
Registration
1. Not accepted in all the states
Not
every state is ready to accept LLP. This may be because of the tax benefits and
the way in which an LLP works. Due to this, many states do not allow it to
operate. There are some states which do not permit LLP to function legally.
2. Be careful about agreements
As
already said, the partners have complete freedom in an LLP. It is possible that
they take advantage of this and misuse the freedom. The partners could sign
business deals without the knowledge of others. So, the agreements in an LLP
should be carefully made specifying each partner’s roles and limitations while
taking a business decision.
3. LLP assets
The
agreement of LLP specifies how much a member contributes. The partners can
contribute this in the form of assets or cash. Once contributed, it becomes an
LLP asset which is difficult to retrieve. The only way out is to specially
mention about the retrieval in the agreement.
4. Lengthy admission
Adding
a new member to a limited liability partnership
is a lengthy process. Firstly, a supplementary agreement has to be made with
the new member’s details and his contribution. The existing partners have to
then modify their contribution to facilitate the entry of new member. Finally,
this has to be brought before the concerned Registrar of Companies within whose
control the partnership is.
5. Penalty
There is an LLP Act that has defined
the different penalties. You have to pay default fee for matters like late
filing of e-forms. The fee has to be paid for every day till it is filed or the
default continues. For certain matters, it can be paying a fine or paying fine
together with imprisonment.
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