There are different ways to kick start your business venture and forming LLP is one of those routes. To go on through this route have its own benefits and drawbacks, which we discuss in this article. This will help the entrepreneur to know the additional perspective of the business structure. This is the most preferred form of business among professionals.
Let's look at the positive side first of LLP (limited liability partnership):
- LIMITED LIABILITY: As the name, itself suggest, LLP limit liability of its partners. There are many partners involved in the business, amongst whom the risk can be diversified.
- Flexibility: Limited liability partnerships offer partners flexibility in business ownership. Partners have the authority to decide how they will individually contribute to business operations.
- Lesser compliances: Unlike the companies, LLPs are not required to conduct board meeting and general meeting, and even not required to keep AOA and MOA.
- 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.
Drawbacks of LLPs (limited liability partnership):
- 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: If a partner wants to transfer his/her ownership rights then he/she has to obtain the consent of all the partners, which generally not an easy task.
Having discussed so far, you can evaluate that benefits to form LLP surpass its weak area.
In general, each business form has its own advantages and disadvantages but LLP is the only hybrid form of business structure which allows the owner to have mix benefits of traditional partnership and limited company.