10 reasons why start-ups must opt for LLP to initiate their business in India

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Introduction

It becomes challenging to choose the right and suitable form of structure for your start-up as there are plenty of options available in the market to choose from. That’s why it becomes pertinent to know what every option is offering to your business to make the best decision. Here, in this blog, we would discuss LLP and why it is beneficial for your business to opt for it.

Defining LLP

If you want to have features of both companies and the flexibility of a partnership, then LLP is the option for you. LLP is a partnership with company features like limited liability, which means your liability will be limited to the contribution you have during the online LLPĀ  registration India. Suppose there is a liability of Rs. Five lacs, your contribution is Rs. 250000, then your liability is limited up to Rs. 250000.

Another benefit that LLP offers is that partners will never be liable for the negligence of the other partner. Like the company, LLP is a separate legal entity, distinct from its partners. The primary requirement to set up an LLP is two partners; there can be more than two partners as well. Among these two, one of them has to be an Indian resident.

Here are some of the reasons why you must opt for LLP.

  • Easy to register.

Since your business is a new start, you would be happy to know that registering the LLP is very smooth and easy. LLP registration requirements are straightforward and lucid. The primary need is that there have to be two partners, of which one has to be an Indian resident. The registered office must be within Indian territory.

  • No minimal capital requirements.

There is no minimum capital requirement in the LLP. You can initiate your business even with Rs. 10000 capital as people generally faces the capital crunch initially. Also, the cost of registering the LLP is nominal.

  • Easy to operate.

LLP is the most accessible form of business. There are very few obligations to abide by concerning partners and responsibilities and duties of the partners as mentioned in the partnership deed. It makes business operations easy.

In a private limited company, one requires board resolution to be sanctioned for taking any decision. There is no such requirement in the LLP as the decision will be taken by the majority or in consonance with the LLP agreement.

  • Separate legal entity.

As a separate legal entity, you will have the power to file a lawsuit under the LLP and not the partners. The LLP can sue and be sued by others. Partners will not be liable in the case of LLP is in any legal disputes.

  • Protection from debts.

The partners will be protected from the LLP’s debts. The partners will not be responsible for any debts of the business personally. If your business is under the pile of debt that has to be returned, then you, being the partner, would not be held liable to pay those debts personally.

  • Partner will not be responsible for the actions of others.

It is one of the most reasonable and sensible of all. The law says that if in the LLP a partner commits fraud or misconduct, then other partners will not be held responsible for his/her act.

Likewise, if any of the partners was negligent or careless and some loss was incurred, the particular partner must bear the losses.

  • Fewer compliance than other forms.

Once you have registered the LLP, there are very few compliances that you need to abide by. The new business will not have to worry about annual general meetings, general meetings, board meetings and so forth once you follow statutory compliance immediately after LLP registration. You can carry out your business peacefully. Likewise, partners can determine and organize their internal management mutually, which would be in the LLP agreement. Only two forms are needed to be submitted annually, form 8 and form 11.

  • Separate CIBIL score.

In the LLP, the partner is the business’s agent. Hence, the CIBIL score of the business and partners will be different. The partners will have individual CIBIL scores, and LLP will have different. Thus, even if the partners have a bad CIBIL score, the same will not impact the LLP’s CIBIL score.

  • Loan to partners.

In company law, a company is not allowed to offer loans to its directors as prescribed in the law. But in the LLP, the business can offer a loan to its partners if it has been mentioned in the LLP agreement.

  • Easy to wind up.

If any goes awry in the LLP and you plan to end the partnership or business, you can do so sans any formalities. LLP’s winding-up process can be either voluntarily or by the tribunal.

In conclusion.

As a lot of start-ups have been coming out in the market in India regularly, it is crucial to know what is the best form of business for them. Initiating a business is a big step in entrepreneurship, and it must not go in vain.

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