Website design By BotEap.comA foreign investor seeking to establish a business in India must consider multiple factors before deciding which type of business entity to choose. Limited Liability Partnership (LLP) is gaining popularity with the many benefits it offers to the entrepreneur. LLP is a business entity that combines the limited liability of a business and the flexibility of a partnership.

Website design By BotEap.comLLP registration in India requires the LLP to operate in an industry where 100% FDI is allowed

Website design By BotEap.comWe have listed the characteristics of an LLP that should help you make an informed decision.

Website design By BotEap.comThe liability of the partner is limited

Website design By BotEap.comOne of the main reasons to register an LLP is limited liability. Limited liability means limited exposure to financial risk on the part of a company’s investors. Limited liability ensures that the partner’s liability in the LLP is limited to the amount of principal invested in the LLP.

Website design By BotEap.comFor example, if Sam invested Rs 50,000 to start an LLP in India. The maximum liability that she can have is Rs 50,000. In other words, his potential loss cannot exceed Rs 50,000. She will not be responsible for any liability beyond this initial Rs 50,000.

Website design By BotEap.comAnother important feature of an LLP is that the act of one partner does not affect the other partner. For example, if a partner borrowed some money in the name of the LLP without the other partner’s knowledge, the other partners cannot be held liable.

Website design By BotEap.comTransfer and Departures

Website design By BotEap.comLLP has a meaning of perpetual succession, the LLP can continue its existence regardless of changes in the partners. Partners may come and go, but the LLP continues to exist. A partner of an LLP may resign and assign his or her share of the profits to someone else and exit the LLP. Exit formalities can be completed by executing a simple side agreement.

Website design By BotEap.comlawful accomplice

Website design By BotEap.comLimited partnerships must hold board meetings 4 times a year, at least once every quarter. You must also hold an annual general meeting and keep minutes of those meetings. LLPs are not required to adhere to such compliance unless otherwise specified in the LLP Agreement.

Website design By BotEap.comLLP need not audit its accounts unless its turnover exceeds Rs 40 lacs or the capital contribution exceeds Rs 25 lacs in any financial year.

Website design By BotEap.comincome tax

Website design By BotEap.comLLPs do not have a Dividend Distribution Tax (DDT) while Indian Limited Liability Companies are subject to paying DDT at 16.609% (including surcharge and education fee) on dividends paid to shareholders .

Website design By BotEap.comThe income tax rate for LLPs is 30%. Profits shared by partners after paying taxes are tax exempt.

Website design By BotEap.comlet’s see an example

Website design By BotEap.comJack and Jill start an LLP with a 50% profit sharing between them. In one fiscal year, the LLP made a profit of Rs 10,00,000. The corporate tax is Rs 3,00,000 (30% of the profit). The balance of Rs 700,000 was shared between Jack (Rs 3,50,000) and Jill (Rs 3,50,000). Jack and Jill do not have to pay taxes on their income.

Website design By BotEap.comCorporation

Website design By BotEap.comLLP and Private Limited companies are legal persons and a separate legal entity from their partners and shareholders. Limited liability company, similar to a private limited company, is able to enter into contracts and own property in its own name.

Website design By BotEap.comLLP Agreement

Website design By BotEap.comLLP is organized and operates on the basis of agreement. The LLP agreement will have the mutual rights, duties and obligations of the partners to each other and other legally binding provisions.

Website design By BotEap.comRemuneration and Interest on capital

Website design By BotEap.comPartners may receive compensation as a working partner, as long as the LLP agreement allows it.

Website design By BotEap.comLLP partners may also charge interest on invested principal up to 12% per year. Partners may also charge interest on loans made to the LLP, as long as the interest rates are within the limits specified in the income tax law.