Advantages of Making LLP for Startups

CS GAURAV KUMAR SHARMA 9990694230

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The organization and operation of an LLP is on the basis of the LLP agreement which is made on mutually agreed terms and conditions• The cost of registration for an LLP is lower as compared to that of incorporating a

public or private limited company• As partners are liable only up to their agreed contribution, no joint liability is created

by the independent and unauthorized acts of another partner• The registration process is comparatively simpler as compared to that of a company.• Remuneration of partners, voting rights etc. is all clear and as per the LLP

agreement.• Unlike in the case of a company, there is no restriction on the limit of remuneration

to be paid to a partner. The only requirement is that such remuneration must be authorized by the LLP Agreement and must not exceed the limit prescribed under it.

• Partners are not liable to be sued for the dues against the LLP as the LLP can sue and be sued in its own name

• There is greater flexibility and ease when it comes to becoming a partner, leaving the LLP or transferring interest in the LLP as per the LLP Agreement.

• Partners are free to enter into any contract (unlike in a company where there are restrictions on the board regarding some specified contracts, in which directors are interested)

• As an organization on account of stringent regulatory framework, an LLP will enjoy comparatively higher credit-worthiness than that of a partnership but lesser than a company.

• There is no mandatory requirement to get the accounts audited like in the case of companies.• Unlike partnership firms and sole proprietorships, an LLP is a regulated body and can raise funds

from private equity investors, financial institutions etc.• Tax Benefits:• a. For income tax purposes LLPs are treated at par with partnership firms. Only the LLP is liable for

payment of income tax and the share of its partners in LLP is not liable to tax. Provison of "deemed income" under income tax act is inapplicable to LLPs.

• b. Tax rate is lower than that applicable to companies• c. LLPs are not subject to Dividend Distribution Tax as compared to companies, hence no tax

liability arises when profits are distributed to its partners.

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