A foreign investor looking to set up business in India must consider multiple factors before deciding on what type of business entity to choose. Limited Liability Partnership (LLP) is gaining popularity with its numerous benefits it gives to the entrepreneur. LLP is a business entity which combines the limited liability of a company and the flexibility of a partnership.
LLP Registration in India requires that the LLP should operate in an industry where 100% FDI is allowed
We have listed down the features on a LLP which should help you make informed decision.
Partner’s Liability is Limited
One of the main reasons to register an LLP is limited liability. Limited liability means limited exposure to financial risk by investors of a company. Limited liability ensures the partner’s liability in the LLP is limited to the capital amount invested in the LLP.
For example, if Sam invested Rs 50,000 to start a LLP in India. The maximum liability he can have is Rs 50,000. In other words, his can potential loss cannot be beyond Rs 50,000. He won’t be liable for any liability beyond this initial Rs 50,000.
Another important feature of an LLP is that the act of one partner does not affect the other partner. For example of one partner borrowed some money in the name of the LLP without the knowledge of the other partner, the other partners cannot be held liable.
Transfer and Exits
LLP has perpetual succession meaning, the LLP can continue its existence irrespective of changes in partners. Partners may come and go but the LLP continues to be in existence. A partner of an LLP can resign and assign his profit sharing to another person and exit the LLP. Exit formalities can be completed by way of executing a simple supplementary agreement.
Limited companies need to hold board meeting 4 times a year, at least once in every quarter. It also needs to hold annual general meeting and maintain minutes for such meetings. LLPs do not have to adhere to such compliance unless and otherwise specified in the LLP Agreement.
LLP need not get its accounts audited unless its turnover exceeds Rs. 40 Lacs or the capital contribution is more than Rs 25 Lacs any financial year.