There are a number of reasons why many entrepreneurs prefer to go in for a Limited Liability Partnership over a Private Limited Company. It is considered easier to set up, as a rule is comparatively hassle-free in day to day operations, has significantly lower burdensome compliance requirements and costs, and therefore many see it as advantageous to begin their organization in this manner. Let us look at some of the reasons for this choice and the LLP Advantages.
No requirement of minimum contribution
As against company there is no minimum capital requirement in LLP. An LLP can be formed with least possible capital. The particulars of Minimum Capital contribution are 1. Private Company – 1,00,000; 2. Public Company – 5, 00,000; no such mandatory requirement and moreover, the contribution of a partner may consist of tangible, movable or immovable or intangible property or other benefit to the LLP.
No limit on owners of business
An LLP requires a minimum 2 partners while there is no limit on the maximum number of partners; this is in contrast to a private limited company wherein there is a restriction of not having more than 200 members.
Lower Registration Cost
The cost of registering LLP is low as compared to cost of incorporating a private limited or a public limited company. An illustration can show the approximate cost involved in formation of private limited company and an LLP.
No requirement of compulsory Audit
All limited companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement. This is perceived to be a significant compliance benefit. A Limited Liability Partnership is required to get the audit done only in the case that: -
- The contributions of the LLP exceeds Rs. 25 Lakhs, or
- The annual turnover of the LLP exceeds Rs. 40 Lakhs
Savings from lower compliance burden
Every year, there are about 8 to 10 regulatory formalities and compliances are required to be duly completed and submitted by a Private limited company whereas a Limited Liability Partnership is required to file only two, namely, the Annual Return & Statement of Accounts and Solvency.
Taxation Aspect on LLP
For income tax purpose, LLP is treated on a par with partnership firms. Thus, LLP is liable for payment of income tax and share of its partners in LLP is not liable to tax. Thus, no dividend distribution tax is payable. Provision of ‘deemed dividend’ under income tax law, is not applicable to LLP. Section 40(b): Interest to partners, any payment of salary, bonus, commission or remuneration allowed as deduction.
Dividend Distribution Tax (DDT) not applicable
In the case of a company, if the owners to withdraw profits from company, an additional tax liability in the form of DDT @ 15% (plus surcharge & education cess) is payable by company. However, no such tax is payable in the case of LLP and profits of a LLP can be easily withdrawn by the partners.