Limited liability partnerships are relatively new creations that are used for their financial protections. With a general partnership, individuals may be personally responsible for a partner's actions. Limited liability partnerships, or LLPs, limit the amount that may be recovered in a lawsuit to partnership assets alone. This led to the rapid success of the LLP. In the early 1990s, only a few states allowed them; now, every state and the District of Columbia allow them. By combining aspects of partnerships and corporations, limited liability partnerships offer several advantages.
The Limited Liability Partnership (LLP) is viewed as an alternative corporate business vehicle that provides the benefits of limited liability but allows its members the flexibility of organizing their internal structure as a partnership based on a mutually arrived agreement. The LLP form would enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements.
Merits:
1. Limited Liability for partners : That means each partner is responsible only for the amount of money he has given or promised to the partnership, and each partner is not "personally liable.". This makes limited liability partnerships more secure and less financially risky than a partnership.
2. Globally accepted structure: LLP form of organization is a new concept in India. But such a form of organization is in existence in other countries in the name of Limited Liability Corporation. YouTube not only started as a LLC, but remained as such until Google buyout; to this day the footer of the main page still reads "© 2011 YouTube, LLC"
3. Non applicability of Minimum Alternate Tax (MAT):No income tax as per Section 115 JB of Income Tax Act,1961:
· As per the above section, “Where in the case of an assessee, being a company, the income tax payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after [the 1st day of April, 2012] is less than eighteen and a half percent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income tax at the rate of 18.5%.”
· The above provisions says that even if a company is under loss as per the normal tax provisions, it has to compute its total income, known as book profits and has to pay tax accordingly.
· An LLP not being a company will not attract the provisions of Section 115JB of Income Tax Act, 1961.
4. No Double Taxation: Unlike corporations, limited liability partnerships are taxed directly through the partnership. This avoids corporate double taxation, where income from a corporation and distributed profits are both taxed.
5. The ability to directly manage a partnership is a significant advantage of a limited liability partnership. In a corporation, shareholders hold stock in the company and elect a board of directors, who then make executive decisions for the company. Corporations also may have company directors doing more mundane, daily business.
6. Limited liability partnerships avoid the unnecessary extra steps by allowing each partner to directly own or control a portion of the partnership.
7. No Dividend Distribution Tax: Section 115-O of Income Tax Act, which taxes profits distributed by a domestic company, is not applicable.
8. No limit on Maximum partners: Indian Partnership Act, 1932 shall not be applicable to LLP’s and there shall not be any upper limit on number of partners in an LLP unlike an ordinary partnership firm where the maximum number of partners can not exceed 20.
9. The Indian Government had allowed Foreign Direct Investment (FDI) only in companies. Recently the Government announced that it would allow foreign direct investment (FDI) in limited liability partnership (LLP) firms in a calibrated manner, a move that would help attract greater overseas funds and latest technologies in the country.
"The government has reviewed the extant policy on foreign direct investment and decided to permit FDI in LLP firms," the ministry of commerce and industry said in a statement.
Non-applicability of Company provisions: Under a LLP, the Designated Partners need not disclose their interest outside the LLP, which is mandatory under Section 299 of Companies Act,1956.
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