Limited Liability Partnership - A good launch vehicle for the new entrepreneurs, model that allows business to run as partnership, regulated for transparency, however, limit the liability of each partner. LLP provides flexibility without imposing detailed legal and procedural requirements.
Advantage of LLP over Partnership: In partnership firm liability of partners are unlimited and are personally liable for the debts of the business. In LLP, the liability of partners are limited. In Partnership firm, Partners are liable on account of the independent or un-authorized acts of other partners, however in case of LLP no partner is liable, thus allowing individual partners to be safeguarded from joint liability created by another partner’s wrongful acts or misconduct. LLP Limit the liability of partners.
Advantage of LLP over Company: An LLP is easier and inexpensive to start and run than a Private Limited Company. The Private Limited Company has lot of compliances, audit of books of accounts with steeper penalties for noncompliance’s. Audit is applicable for LLP when it cross certain threshold for Turnover or Investment. Winding up of LLP is much easier when compared with a Private Limited Company.
The LLP (Amendment) Act, 2021 LLP (Second Amendment) Rules, 2022 – Reforms directed towards ease of doing business and encourage start-up eco systems. These changes are making LLPs far more attractive and easier to handle. Amendment Act is effective from 01st April 2022. Key Highlights are as follows:
Introduction of Small LLP and Startup LLP
- Small Limited Liability Partnership” means a limited liability partnership—
the contribution of which, does not exceed twenty-five lakh rupees or such higher amount, not exceeding five crore rupees, as may be prescribed; and
the turnover of which, as per the Statement of Accounts and Solvency for the immediately preceding financial year, does not exceed forty lakh rupees or such higher amount, not exceeding fifty crore rupees, as may be prescribed: or
-Start-up LLP
“Start-up Limited Liability Partnership” means a limited liability partnership incorporated under this Act and recognized as such in accordance with the notifications issued by the Central Government from time to time.
“Residential Status” Every LLP shall have at least two designated partners, who are individuals and at least one of them shall be resident in India. A Resident means person stayed in India for not less than 182 days, pursuant to the amendment days changed from 182 to 120 days.
“Reduction of Penal Provisions” The total number of penal provisions under the LLP Act, 2008 will be reduced to 22, compoundable offences will be 7, non-compoundable offences will be 3, Total 12 offences are decriminalized under LLP.
“Lower Penalties”
With the amendment Act, Small LLP and Startup LLP may have advantage over the other LLP while facing penalties on default.
“Central Government have power to change the name of LLP”; if the name of the LLP identical to a trademark or resembles another LLP's name or Company, the Central Government has the power to direct an LLP to change its name, within 3 (three) months, if the LLP is failed to do so Central Government have power to allot a new name.
“Auditing and Accounting Standards for LLP”: Central Government may in consultation with NFRA, may prescribe Accounting and Auditing Standards.
“More DPIN’s at the time of Incorporation”: Amended rules allowed up to Five DPIN’s of Designated Partners could be applied for at the time of incorporating LLP, while the existing is Two DPIN’s.
“PAN and TAN”: Amended rules allow: In partnership firm liability of partners are unlimited and are personally liable for the debts of the business. In LLP, the liability of partners are limited. In Partnership firm, Partners are liable on account of the independent or un-authorized acts of other partners, however in case of LLP no partner is liable, thus allowing individual partners to be safeguarded from joint liability created by another partner’s wrongful acts or misconduct. LLP Limit the liability of partners.
“Change of Name”: For the change of Name, requirement of mentioning the Authority has been done away with the amendment.
“Winding up of LLP”: Pursuant to the amendment of rules, the need to submit a large number of documents in the physical form has been removed. This will make it easier to wind up an LLP.
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