A time when people were forged by the unethical structure of partnership firms and were not diligent enough to afford the compliance of that of a company, is where the concept of Limited Liability Partnership Firms fits into picture i.e. an entity which offers management flexibility coupled with less compliance to follow. An LLP exhibits the characters of both a partnership and corporations. The partners’ are relieved from the responsibility of another partners’ misconduct or negligence. i.e, the partners have a limited liability as compared to a partnership. The assets are owned by the company as a separate legal entity, as in the case of a Pvt. ltd company.


As per the LLP Act 2008 an “LLP is defined as that business entity where having two Designated Partners is minimum requirement and such partners had their liability limited to their contribution towards the LLP”.

A Limited Liability Partnership, popularly known as LLP combines the advantages of both the Company and Partnership into a single form of organization and offers a hybrid structure. LLP as a business Structure proved itself to be a midway for those who were operating partnership firms, but wanted to work in the organized sector under a legally compliant structure with world recognition restricted liability.

The greatest advantage of LLP is the flexibility to do business. Instead of being bound by legal provisions, LLPs are free to create their own rules of management, which was not possible in case of companies. As result, a lot of companies have started to convert themselves into LLP.


There are a number of reasons why many entrepreneurs prefer to go in for a Limited Liability Partnership over a Private Limited Company. It is considered easier to set up, as a rule is comparatively hassle-free in day to day operations, has significantly lower burdensome compliance requirements and costs, and therefore many see it as advantageous to begin their organization in this manner. Let us look at some of the reasons for this choice and the LLP Advantages.

No requirement of minimum contribution

LLP is easier to set up, as compared to a Pvt. ltd company. There is no requirement of minimum capital in LLP. It can be formed with the least possible capital. The particulars of Minimum Capital contribution are 1. Private Company – 1,00,000; 2. Public Company – 5,00,000; no such mandatory requirement and moreover, the contribution of a partner may consist of tangible, movable or immovable or intangible property or other benefit to the LLP.

No limit on owners of business

An LLP requires a minimum 2 partners while there is no limit on the maximum number of partners; this is in contrast to a private limited company wherein there is a restriction of not having more than 200 members.

Lower Registration Cost

The cost of registering LLP is low as compared to cost of incorporating a private limited or a public limited company. An illustration can show the approximate cost involved in formation of private limited company and an LLP.

No requirement of compulsory Audit

All the limited companies, be it Private or public, are required to get their accounts audited. This audit isn’t mandatory for an LLP.  Audit of accounts is compulsory only when the turnover exceeds Rs. 40 lakhs in any financial year or contribution by partners exceed Rs. 25 lakhs.

Savings from lower compliance burden

In case of a private limited company, there are numerous regulatory formalities and compliances to be completed and submitted as per mandate, every year. Whereas, in for an LLP, only the Annual returns and statement of accounts and solvency are to be submitted.

Taxation Aspect on LLP

LLP is liable for payment of income tax, but the share of the partners is not liable to tax. No dividend distribution tax is required. In the case of a company, if the owners to withdraw profits from company, an additional tax liability in the form of DDT @ 15% (plus surcharge & education cess) is payable by company. However, no such tax is payable in the case of LLP and profits of a LLP can be easily withdrawn by the partners.