LLP

What are the Key Characteristics of an LLP for Entrepreneur?

LLP is one of the predominant forms of business in the market as it offers numerous benefits to the business. One reason entrepreneurs prefer it is because of its limited liability. That’s why to get the benefits of it.

To leverage the benefits of LLP, It is important to carry out the limited liability partnership registration in India as per the provision of the LLP act, 2008, with the required documents.

Characteristics of LLP.

Body corporate. 

The LLP can be considered as a body corporate formulated under the LLP act’s provisions. Thus, it is a legal entity distinguished from its members and is a perpetual succession as well. Hence, the addition or departure of partners will not have any impact on its existence, liability, or rights as an entity.

Not bounded through the partnership act, 1932. 

It is not bounded through the Indian partnership act, 1932.

A total number of partners.

It requires a minimum of two partners, but there is no limit on a maximum number of partners. Every partner is the LLP’s agent but not of the other partners to conduct the LLP business.

Books of accounts.

Separate books of accounts have to be maintained and audited according to the stated rules.

Partners’ contribution to the entity.

Partners’ obligation to contribute to the LLP’s assets will be according to the agreement.

Need to convert.

To get free from the costly and needless compliances under the companies act and to obtain advantages from the more convenient way of conducting business and running professions as provided by the LLP act, 2008.

Additionally, professional practice will not be allowed in the form of a company. If they make a partnership, the liability will be unlimited. Hence, for them, it is surely a boon as many professionals with similar interests can come together to provide specialized professional services while making sure that their liability will be limited. Thus, it is beneficial to do business in the LLP’s form.

Who can convert? 

Nonetheless, if a company exists at the LLP act’s commencement, does this company have to renounce the convenience of conducting its business as an LLP, just for the cause that it was incorporated during the pre-LLP concept period? Then the answer is no. This is fundamental because the LLP act into effect with a provision to convert a private limited company into it. Also, if a private company was set up after the LLP act, 2008, it can carry out the process of conversion to LLP through the process stated in the act.

Clause 56 and 57 of the said acts, offer that a private limited company and an unlisted public company can carry out the process of conversion to LLP if the conditions stated in the 3rd and 4th schedule of the LLP act are being met.

As the 3rd schedule, a business having private limited company registration can carry out a process of conversion to it, if only;

  1. There is no security interest in the company’s assets while applying for the conversion.
  2. The LLP’s partners are none other than the company’s shareholders.

Likewise, in the 4th schedule, an unlisted public company can carry out the process of conversion to it, if only;

  1. There is no security interest in the company’s assets while applying for the conversion.
  2. The partners are none other than the company’s shareholders.

Conversion effects. 

In the conversion process, all the tangible and intangible, including moveable or immoveable assets, property, rights, liabilities, and obligations concerning the company and the company’s whole undertaking, will be transferred to the LLP and vested to it.

Conversion effects with respect to tax.

Let’s see the effect of conversion with respect to tax. With the advent of converting a private limited company into an LLP, the IT (income tax) act, 1961 has been amended to serve with the issue of taxability while converting.

 

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