Meaning of Limited Liability Partnership
Limited Liability Partnership is a type of partnership in which all partners share limited liability according to their investment in the business. It is one where partners are not responsible for each other’s personal liabilities arising out of their misconduct and negligence. Limited liability partnership gives the right to each partner to manage the business affairs.
This type of partnerships is not influenced by insolvency, retirement or death of the partners. In case of any failures or losses partners are liable only to the limit of their investment in partnership but their personal assets cannot be used for paying off company debts.
Limited liability partnership contains elements of both a partnership and a corporation. Such partnership has a separate legal entity from all its partners. For forming a limited liability partnership, a minimum of 2 members is required however there is no limit on the maximum number of allowed persons.
Advantages of Limited Liability Partnership
Ease of Formation
Limited Liability Partnership is quite easy to form as it has minimum legal requirements. It has lower cost of registration and also there is no limit on minimum amount of capital required for forming such partnership.
All partners in a limited liability partnership have limited liability in accordance with the capital invested by them in business. They are not responsible for other partners’ misconduct or negligence.
Separate Legal Entity
Limited liability partnership enjoys a separate legal entity that is it is distinct from its partners. It has its own name separate from its partners and can sue or be sued in its name.
This partnership has a perpetual succession and is not affected by the life of its partners. Death, insolvency or retirement of one or more partners does not affect the continuation of the partnership.
Easy to Transfer Ownership
Limited liability partnership is easy to be transferred as there are fewer formalities to be done in joining or leaving the partnership. The admission of new partners and the removal of existing partners is quite easy here.
No limit on Number of Partners
It does not have any limit on the maximum number of persons that can be admitted in this partnership. However, at least 2 persons are required for forming limited liability partnerships.
Limited liability partnership enjoys several tax benefits and is exempted from various taxes like GST dividend distribution tax and minimum alternative tax. There is no need to pay taxes on income and share of partners in this partnership.
Disadvantages of Limited Liability Partnership
Difficulty in Raising Capital
Limited liability partnership has difficulty in raising the funds. People do not consider it a credible business and do not want to invest in this type of partnership.
Lack of Recognition
This partnership faces several restrictions and is not recognized by all. Limited liability partnership is not given recognition in every state due to limits put by the state regulations.
Limited liability partnerships are required to pay a huge amount of penalties for non-compliance with procedural matters.
Higher Tax Rate
These partnerships pay higher taxes in comparison to other companies. Limited liability partnerships are taxed at the rate of 30% rate irrespective of their turnover.