Why LLP not Partnership?

 Partnership: Limited Liability Partnership entities, the world wide recognized form of business organization has been introduced in India by way of Limited Liability Partnership Act, 2008. A Limited Liability Partnership, popularly known as LLP combines the advantages of both the Company and Partnership into a single form of organization. In an LLP one partner is not responsible or liable for another partner's misconduct or negligence, this is an important difference from that of a unlimited partnership. In an LLP, all partners have a form of limited liability for each individual's protection within the partnership, similar to that of the shareholders of a corporation. However, unlike corporate shareholders, the partners have the right to manage the business directly. incompetence, or negligence of the LLP's employees or other agents. Limited Liability Partnership is managed as per the LLP Agreement, however in the absence of such agreement the LLP would be governed by the framework provided in Schedule 1 of Limited Liability Partnership Act, 2008 which describes the matters relating to mutual rights and duties of partners of the LLP and of the limited liability partnership and its partners.

In an LLP, all partners have a form of limited liability for each individual's protection within the partnership, similar to that of the shareholders of a corporation. However, unlike corporate shareholders, the partners have the right to manage the business directly. An LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the LLP's employees or other agents.

Limited Liability Partnership is managed as per the LLP Agreement, however in the absence of such agreement the LLP would be governed by the framework provided in Schedule 1 of Limited Liability Partnership Act, 2008 which describes the matters relating to mutual rights and duties of partners of the .

Pros OF LLP Renowned and accepted form of business worldwide in comparison to Company.

· Low cost of Formation.

· Easy to establish.

· Easy to manage & run.

· No requirement of any minimum capital contribution.

· No restrictions as to maximum number of partners.

· LLP & its partners are distinct from each other.

· Partners are not liable for Act of partners.

· Less Compliance level.

· No exposure to personal assets of the partners except in case of fraud.

· Less requirement as to maintenance of statutory records.

· Less Government Intervention.

· Easy to dissolve or wind-up.

· Professionals can form Multi-disciplinary Professional LLP, which was not allowed earlier.

· Audit requirement only in case of contributions exceeding Rs. 25 lakh or turnover exceeding Rs. 40 lakh.

PARTNERSHIP A managing the company and the income or losses the business generates. That income is paid to partners, who then claim it on their personal tax returns – the business is not taxed separately, as corporations are, on its profits or losses.

Pros of Partnership There are several advantages of choosing to structure a business as a partnership, which include:

· Fairly easy to set up and maintain over time

· Partners can pool their resources to fund the company's start-up

· Partners can share the workload and the rewards of the business's success

· Being able to offer key employees the potential to one day become a partner in the business can be a big carrot that encourages them to stay long-term

LLP is better than Partnership On the flip side, a simple Partnership is much cheaper to form, unless you decide to register it. On the special request of a client, when we decided to register a Partnership deed in post- Anna Hazare India, we found that touts and agents were charging us between Rs. 7000 and Rs. 15,000 just to register the simple Partnership. It would actually have been much cheaper to form a LLP, where the registration is completely online!

So coming back to the main question we need to answer here, let us compare some of the features of a Partnership vis-à-vis an LLP.

Partnership

Limited Liability Partnership

Quicker to form, unless you need to get it registered

Takes slightly longer, because of all the formalities and processes involved

Can be terminated quickly

Much more stable and not easy to terminate

Registration is not mandatory

Registration is mandatory but possible online

Needs a minimum of 2 Partners

Also needs a minimum of 2 Partners

Liability of Partners is unlimited. Even the personal assets of the partners can be annexed to pay of the debts of the Partnership firm

Liability of the Partners is limited. Only the amount contributed by the Partners to the firm can be used to pay off the debts of the Partnership firm

Ideal for hobbies, very small enterprises or people looking to test the waters

For people more serious and convinced about the business opportunity, this is the safer option

From the comparison above, it seems very clear that a has certain limitations. We also recommend that in most cases, if you want to choose between the two, it makes a lot of sense to choose the limited liability partnership route. Even from the point of view of drafting contracts and interacting with third parties like investors, having an LLP is safer (although investors love Private Limited Companies).

If we want to form a Partnership for any reason, then it need not be registered. We can do business perfectly legally without registering the Partnership. The only disadvantage is that if there is a Court case,

Finally, one major concern of many people is regulations and accounts. People choose to form a simple partnership because they do not want the legal regulations and secretarial norms that come along with forming a LLP or a Pvt. Ltd. Company. Worry not, the complexity is slightly overrated. While a Partnership is definitely easier from a regulatory point of view, all the basic procedures – getting a Service Tax / VAT registration, getting a PAN & TAN Card, opening a fresh bank account and getting an IEC still have to be complied with, even if we start as a simple Partnership. And if our income is above the taxable limit, you need to file tax returns irrespective of whether we are a simple Partnership, LLP or a Private Limited Company.

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