Understanding Limited Liability Partnership- and How to Establish a Limited Liability Partnership Firm

Limited Liability Partnership

It is a single structure which comprises limited liability feature for a company. It gives a facility of flexibility in partnership. All such comes at the lowest cost with LLP (Limited Liability Partnership). The LLP is the structure which is governed by the Limited Liability Partnership Act 2008. With LLP, no partner can be claimed for the negligence of another one. Let us explore the process of setting up this LLP for a company.

Limited Liability Partnership
Limited Liability Partnership

 

Process of setting an LLP

To set up a corporate LLP structure for a company having two or more partners, need to follow some rules and steps as follows. The ‘partner’ may refer to a company or an individual person. They are also called as ‘corporate member’. All the partners have to pay tax based on their share of the company’s profit. This rule is same as for other business running with partners. The difference is that with LLP partners individually will not be liable for any kind of debts of the company.

  • First choose a proper name for the company, your business or your partnership.
  • To start with LLP, make sure that you have two or more partners for your company.
  • The company must have an address registered with the government. Make this address available for all.
  • Now you have to prepare an agreement of LLP. This agreement will document all the rules to be followed under LLP.
  • Register your limited liability partnership via an agent, software or by post. Once your registration is completed you will receive a certificate of incorporation.

What is better LLC or LLP and why?

LLC refers to Limited Liability Company (or corporation) whereas LLP is a limited liability partnership. Both have their own advantages. Selecting the better one among these two completely based on your company type and your requirements.

  • LLCs and LLPs provide protection from liabilities and debts beyond the declared value.
  • With the LLC member will not get the protection from liability of another member whereas LLP offers this protection.
  • Both the LLPs and LLCs offer different advantages with respect to tax.
  • LLC members can hire managers to handle management of their business.
  • With this facility, LLC members can also get the advantage of flexibility. They can incorporate as many members as they want.
  • They can do the partnership with corporations as a member.
  • The profit and losses of business are divided among partners through them they individually pay the taxes.
  • With this feature of both LLC and LLP, members can avoid double taxation.
  • LLP protects members from liabilities arising out of management decisions taken.
  • In nutshell, LLCs are more suitable for small businesses. It also depends on state government as rules differ with each state.

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