There are different business model to start your business. Private limited company, public limited company, Limited Liability Partnership and One Person Company are the most common business models. Forming LLP is one of those business models.
To go on through this route have its own benefits and drawbacks, which we are going to discuss in this article. This will definitely help the businessman to know the additional insight of this business model.
Lets look at the positive side first:
- Limited liability: LLP limit the liability of its partners. Limited Liability concept is not a new concept but traditional partnership firm does not have these kinds of features. Limited Liability means that in case of losses personal properties of the partners remain protected regardless of amount of losses and debt.
- Flexibility: LLP offers flexibility in operating business because in LLP partners take the business decision who is both the owners and manager of the business unlike the company in which usually owners and management are not same always. Unlike the company, there is no need to hold proper meeting.
- Lesser compliances: The best part about opting LLP as business model is that LLPs dont need to follow the stringent procedures and compliances.
- FDI in LLPs:
Earlier LLPs were required to obtain prior approval from Government but now this requirement has been done away. For ease of doing business in India, the Government has allowed 100% FDI in LLP under the automatic route.
But it is like that LLP is the best business model. Each and Every business model has its own suitability to meet the needs of entrepreneur. Normally, LLP is not preferred by those who want to expand their business in India because of many issues. Therefore, they go for registration of private limited company or public limited company. Following are few points which indicate the negative side of the LLP:
- Inclusion of Indian Resident partner: NRI/ Foreign national who wants to incorporate an LLP in India then at least one partner should be a resident of India. Two foreign partners cannot form LLP without having one resident Indian partner along with them.
- Transfer of ownership: Transfer of share by the partner is not easy in the partnership unlike the company.
- Investors dont prefer LLP: Investors usually dont want to invest into the LLP. The main reason of this kind attitude is LLP structure. Since partnership is governed by the partners and they contribute the capital in the business. This is the main concern because it is difficult for the investor to become partner by contributing capital in the business
Having discussed so far, you can evaluate that benefits to form LLP surpass its weak area.