Limited Liability Partnership is a business that possesses the features of both the company and the partnership firm. This company structure was introduced by the limited Liability Partnership Act 2008. This concept of LLP was introduced with effect from year 2008 however still not many entrepreneurs prefer to opt for this structure. This is because many entrepreneurs have the common misconceptions or myths about the Limited Liability Partnership. The lack of complete knowledge refrain the aspiring entrepreneurs from selecting the Limited Liability Partnership as their business structure. In order to assist the people in choosing the right structure here we are outlining the main misconceptions associated with LLP and the correct explanations for them.
You need big amount of investment for starting LLP – It is generally believed that LLP is not suitable for small scale entrepreneurs as it requires the large amount of investment. However, this is just the myth as there is no minimum capital requirement established for starting the LLP. Even the small scale professionals can opt for Limited Liability Partnership and run their business.
The taxation liability for LLP is high – The partnership firm is not distinct from its members. Thus, the taxation liability of the firm is calculated by ascertaining the liability of the partners only. There are different tax slabs applicable for the taxation of individuals thus according to the income the tax liability occurs. On the other hand the LLP is a separate entity liable to pay tax on a fixed rate. However, if you will look at the broader version of it the total liability will come out to be same only.
You need to have a separate office address- Yes, it is true that for incorporating the LLP you need a registered office address for your firm. However, that registered address can be your residential address also and there is no requirement of having a separate business place address. As nowhere in the rules and regulations of the LLP act it is written that you can choose a residential area address as your office address.
One you have incorporated the LLP the work is done – Many people assume that if you have incorporate an LLP your work is done and there are no further regulatory requirements. However, one thing to be understood here is that there are certain compliances requirements that every LLP needs to fulfil after its incorporation. These compliances are required to be fulfilled within the specified due dates.
There are no significant benefits are starting LLP – The benefits of LLP are not well understood by the people even after such long years of introduction. The public at large with lack of knowledge fails to understand the real benefits of LLP. The major benefit that is associated with LLP unlike the traditional partnership firm is the liability of the partners of LLP is limited to their share only. Thus the personal assets of the members can never be used to discharge the liability of firm. Apart from this the benefits of perpetual succession, separate legal entity etc are also there.
The procedure of LLP incorporation is costly and lengthy – As the LLP is a legal structure people believe that incorporating a one will be a costly and time consuming affair. However, the reality is that with so many online portal providing the services of LLP registration the process has become faster and simpler. Also not too many requirements are stated by the MCA for LLP and just few forms are required to be submitted. In comparison to the benefits associated the cost of LLP registration is very less.
Partner’s income is less – According to the LLP act there is no restriction on the income of the partners and the partners can take home the ratio of profit as discussed earlier and stated in the LLP agreement. The partners can take remuneration in the form of remuneration, interest on capital and share of profits.
Through this blog we have tried to burst out major myths associated with the LLP registration. Concluding this blog we just want to urge you to not rely on the society myths instead you should research for yourself and obtain the information from the authentic and relevant sources.