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 Features of Limited Liability Partnership (LLP)
Features Of Limited Liability Partnership (LLP)
Independent Entity: Like any living person, Limited Liability Partnership (LLP) has its own individual identity which is separate and distinct from its owners. This makes it similar to a company and ensures that partners may come or go but the business continues to exist.
Minimum amount of Capital: Capital acts as the food for an enterprise and a good amount of capital makes the survival of the firm long-term. Therefore, the minimum amount of capital of LLP is decided before hand by the partners rather than any Act and is contributed by them.
Optional Audit: Audit ensures that the books of accounts of the firm are presented in a true and fair manner. It also safeguards the interests of the stakeholders involved which in the case of a company are huge in numbers. That is why, it is mandatory for a company to have regular audits. However, Unlike a company, audit of LLP’s books of accounts is not mandatory, except:
- If the contributions of the LLP exceeds 25 lakhs; or
- If the annual turnover exceeds 40 lakhs.
Minimum Number of Members: Having shared some of its features with the Partnership, Limited Liability Partnership (LLP) can also be constituted with a minimum of two members having a Directors Identification Number (DIN) and also acting as designated partners. However, there is no limit on the maximum number of partners all of whom are required to have their Directors Identification Number(DIN). Registration process is same as that of a company.
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A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.
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