A LLP is indeed advantageous because of comparatively lower cost of formation, lesser compliance requirements, easy to manage and run and also easy to wind-up and dissolve, no requirement of minimum capital contributions, partners are not liable for the acts of the other partners and importantly no minimum alternate tax (as of date). But, LLP cannot raise money from the public.

The ‘Limited Liability Partnership” (LLP) format of the registered company was originally created to enable the professions to take advantage of limited liability, but its popularity is growing among a much wider range of businesses.

India has witnessed considerable growth in the services sector and the quality of our professionals is acknowledged internationally. It is necessary that entrepreneurship knowledge and risk capital combine to provide a further impetus to our impressive economic growth. Equally the services sector promises an economic opportunity similar to that provided by information technology over the past few years. It is likely that in the years to come Indian professionals would be providing accountancy, legal and various other professional/technical services to a large number of entities across the globe. Such services would require multidisciplinary combinations that would offer a menu of solutions to international clients.

• Persons providing services of any kind
• Enterprises in new knowledge and technology-based fields where the corporate form is not suited.
• For professionals such as Chartered Accountants (CAs), Cost and Works Accountants (CWAs), Company Secretaries (CSs) and Advocates, etc.
• Venture capital funds where risk capital combines with knowledge and expertise.
• Professionals and enterprises engaged in any scientific, technical or artistic discipline, for any activity relating to research production, design and provision of services.
• Small Sector Enterprises (including Micro, Small and Medium Enterprises)
• Producer Companies in Handloom, Handicrafts sector.

But, LLP might not be a choice due to certain extraneous reasons, for example, DOT would approve the application for a leased line only for a company; Angels / VCs would be comfortable investing in a company.

However there are so many advantages of starting a limited liability partnership than a private limited company in India.

• If the company expects to employ people and the employee’s payroll is likely to be higher than the owners’ salary, a “private company limited by shares” may well be more tax-efficient that an “limited liability partnership”.
• If the business is likely to remain as just two or three members who are each making a similar contribution and each draw similar salaries then the LLP option will probably be more tax efficient.

One other important factor should be weighed in the balance : How likely is it that the business will be sold as a going concern? A “private company limited by shares” (LTD) is more anonymous and easier to separate from the owners by means of transferring the shares. A partnership is more personal and therefore less straight-forward to separate from the owners.

There is no absolute rule that makes one format better than the other. In any case, if your business changes over the years so that the alternative format becomes more appropriate, it is possible to form a new company of the other type – then transfer the business over to the new company.

• LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership.
• The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.
• The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.
• Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct.
• Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity.
• Since LLP contains elements of both ‘a corporate structure’ as well a ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.