Disadvantages of LLP (Limited Liability Partnership)

Limited Liability Partnership (LLP) is a relatively new form of business entity that was formed to overcome the limitations of the existing forms of business entity mainly, Partnership and Company. The need for LLP grew as small business owners who usually started off with the Partnership form of business had to bear unlimited liability despite their meager means. Thus, Limited Liability Partnership (LLP) provided the much needed respite by combining the best of both worlds. By drawing its characteristics from both the partnership and the company form, it is slowly catching up to be a popular way of organising the business. As a hybrid, it makes the liability of the partners limited to the extent of their contribution to the firm and frees them from being held liable for the negligence or misconduct of their partners. This has therefore made it an attractive form of business entity. Following are the Disadvantages of LLP(Limited Liability Partnership)

Disadvantages of Limited Liability Partnership (LLP)

Limited Liability Partnership (LLP) is not immune from the acts of its partners who might act to the disadvantage of the firm. Thereby making the firm liable for their acts.

LLP’s sources of funds are limited to the extent that it does not raise money from the public in general.

LLP is not considered a very lucrative investment by venture capital firms who prefer private limited over LLP. This is because LLP is a relatively new concept in India which they do not wish to test. LLPs having their own agreements that might state a duration for which the firm will exist. Also, some of the advantages of LLP like that of optional audit does not go well with the objectives of a venture capitalist.

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