Why is LLP a Better Option for a Startup?

By Trademark Bazaar - 31st January 2018

Why is LLP a Better Option for a Startup?

Limited Liability Partnership is the hybrid form of the business structure consisting of the features of traditional partnership firm and the benefits of the company. Unlike the traditional partnership firm the liability of the members of limited liability partnership is limited to their share only. Thus a single partner is not liable for the acts of the other partners. Limited liability partnership is the best form of legal structure for the startups as it limits the risk of the partners to their share only. Where two or more persons desire to come together and carry on a business then LLP is definitely a best-suited structure. Specifically, this form of structure is suitable for the professionals who desire to come together.

Following are some of the features of limited liability partnership-

1. The legal identity of the LLP firm is distinct from its members.

2. The liability of the members of LLP is limited to their share only.

3. The minimum number of members required to incorporate a partnership firm is two. However, there is no limit on the maximum number of members.

4. A private limited company or an unlisted public company can be converted into LLP.

5. The rights and duties of the LLP are governed by the LLP agreement.

Minimum requirements for forming an LLP

•    Two partners.

•    Two designated partners of which at least one should be Indian resident.

•    DPIN (Designated partner identification number) for all partners.

•    DSC (Digital signature certificate) for one of the designated partner.

Why startups should chose LLP as a business structure?

1. Limit on the liability of members- A new venture generally involves a lot of risks thus the partners are worried about their liability. Limited Liability Partnership does away with this shortcoming and limits the liability of the members to their share only.

2. Distinct legal identity- Limited liability partnership has a separate identity from its members. This assists the startups in establishing its own legal identity separate from its members. Also, it allows the members to work in tension-free manner.

3. No restriction on the number of members- Minimum two members are required to incorporate an LLP. Further there is no restriction on maximum numbers of members in Limited Liability Partnership unlike other form of companies like private limited company,one person company etc. Thus a startup is empowered to start its business with any number of members it desires.

4. Minimum Capital not required- Usually startups find it hard to raise the minimum capital required for company incorporation. Unlike other form of companies, the LLP can be formed with any amount of capital. Therefore there is no requirement for minimum capital. Thus LLP is very suitable for startups.

5. Lower compliance and registration cost- The cost of formation and compliance for limited liability partnership is very less as compared other types of corporate structures. 

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