Importance of Limited Liability Partnerships for Unlocking Business Potential

Invеsting comеs with its own sеts of challеngеs and risks. In this world of invеstmеnts, thе valuе of an assеt can plummеt. Which is why never invest all your money in one place. It can put you in debt. That is why you have a “Limited Liability Partnership” (LLP). Know more about the importance of limited liability partnership.

Introduction of Limited Liability Partnership

A Limited Liability Partnership (LLP) offers investors protection by limiting personal liability for business debts. In the context of investing in renewable energy assets, an LLP structure safeguards individual investors from bearing sole responsibility for potential financial losses or legal liabilities arising from the project. 

This importance of limited liability partnership encourages investment in renewable energy ventures. This fosters a conducive environment for capital infusion and participation in sustainable initiatives without exposing investors to excessive personal risk, thereby promoting growth in the renewable energy sector.

6 Salient Features of Limited Liability Partnership

1. Liability of Partners  

One of the features of limited liability partnership is the liability of partners. The partners are liable as per the contribution of their shares in the business or investments. A partner is liable for his wrongful acts. One partner in this agreement is not responsible for the act of the others due to negligence or misconduct.

2. Separate Legal Entity

To realise the importance of limited liability partnership you must understand that it is a body incorporated and a legal entity. It works separately from its partners. It is liable to the full extent of its assets. 

However, the liability of the partners is only for their agreed contribution to the agreement. According to the Limited Liability Partnership Act, of 2008, a limited partnership will have perpetual succession. 

3. Limit of Partners

For an LLP agreement, a minimum of two partners is necessary. This is also statеd in Sеction 6(1) of thе Limitеd Liability Partnеrship Act, 2008 by thе Ministry of Company Affairs. Thеrе is no maximum limit on thе numbеr of partnеrs.

The designated members are responsible for registering the LLP at the Ministry of Companies House. The importance of limited liability partnership must ensure that all the members of this partnership adhere to statutory requirements. Their duties must be clearly stated in any formulated partnership agreement. 

Apart from the limit of partners, LLPs, regardless of their turnover, need to undergo a statutory audit. Let’s see what this audit is all about.

4. Audit of Accounts 

To carry out the audit, the partners of the LLP provide a qualified chartered accountant. This is important as it allows them to carry out an objective and unbiased audit. The importance of limited liability partnership lies in its ability to maintain all such accounts.

LLP shall maintain annual accounts where there is a requirement for audit of the accounts only if the contribution exceeds Rs. 25 lakh or the annual turnover exceeds Rs. 40 lakh. Every LLP needs to file a statement of accounts and solvency with the Registrar of Companies (ROC). 

5. Admission or Retirement of Partner

LLP can continue even if a partner retires or withdraws from the firm. The functions and duties continue irrespective of the changes in the partners. A partner, when he retires, ceases to be a member of this partnership. However, this does not end the subsisting relationship between the other partners of the firm or between the firm and other parties. 

6. Designated Partners

LLP shall have two individuals as designated partners and one of them shall be a resident of India. LLP will appoint this individual to manage all business of the entity. The role of the designated partner extends way beyond managing the business activities. They can receive and hold funds and even sign the statement on behalf of the LLP. 

So how do you form a limited liability partnership? Find out below the process of carrying out this partnership. 

How to Form a Limited Liability Partnership

Since the importance of limited liability partnership ensures that one partner is not responsible for all financial decisions of the other, they need to sign an agreement. All partners need to sign and do the steps mentioned below:

• Digital Signature Certificate (DSC) to ensure the security and authenticity of all documents filed electronically
• DPIN (Designated Partner Identification Number) for all designated partners.
• Name of this LLP. Ensure that this name is not similar to names or trademarks of any existing LLPs.
• Capital contribution of partners of the LLP.
• LLP agreement of partners
• Proof of registered office of LLP

There are a few other conditions that are necessary to fulfil if you want to become a partner in an LLP.

• To assess the importance of limited liability partnership you need to be a partner for at least 2 years before applying for this designation.
• The personal worth of an individual needs to be at least ₹ 2 crores.
• One needs to have at least 20% shareholding in LLP.

With all such features, investors can enjoy the benefits of LLP to ensure they make profitable investments. Find out the advantages of LLP that stop the risk from spreading and establish a division of labour. 

7 Advantages of Limited Liability Partnership

1. Restriction on Liability 

Whenever a limited liability encounters financial issues or a limited liability partnership member undergoes prosecution, it restricts the liability of every member. They experience restrictions on the money they have invested in this partnership. 

LLP does not have taxes like corporations. Their profits undergo taxations via Self-Assessment. However, they must pay Corporation Tax. The members pay National Insurance and Income Tax via Self-Assessment on individual shares of business gains.

2. Flexibility 

The internal structure of an LLP is as interesting and versatile as a conventional one. Owing to the importance of limited liability partnership, you can modify the legal rights and obligations of partners, as well as adjust their capital contributions and profit-sharing proportions, which is a straightforward process.

3. Tax Transparency 

LLP does not have taxes like corporations. Their profits undergo taxations via Self-Assessment. However, they must pay Corporation Tax. The members pay National Insurance and Income Tax via Self-Assessment on individual shares of business gains.

4. Professional Reputation

An LLP enhances the professional reputation of a venture. Most of the time it is favourable for companies and other corporations. Mostly, it is very favourable for high-value contracts.

5. Easily Appoint New Members

As there is no share capital in LLP, there is no need to transfer or issue additional shares to bring in new members. The appointment of new members means there needs to be an agreement with all existing members. 

6. No Articles of Association

The importance of limited liability partnership lies in the fact that there is no requirement for adopting articles of association to regulate the relationship between members and LLP.

Internal regulations are present in a partnership agreement at the judgement of the members. This is an optional, private document, thereby making alterations a simple process. If there is no partnership agreement then every member has equal rights and responsibilities. 

7. National Insurance Savings

A limited liability partnership has no registrable liability as an employer if the only people working through the company are members. Such importance of limited liability partnership ensures that there is also no requirement to pay Class 1 Employers’ National Insurance Contributions on any profit paid to members.

FAQs: Importance of Limited Liability Partnerships for Unlocking Business Potential

What are the characteristics of a limited liability partnership?

An LLP allows each partner limited personal liability for debts or claims of their partnerships. This business structure includes two parties, one with a management role who are only liable for only the amount of money they invest.

What are the tax benefits specific to LLPs?

LLPs pay 30% of their total revenues in taxes. A reduced rate of 35% applies to an LLP’s taxes if the annual income does not exceed 1 crore INR. For earnings to partners, LLPs are exempt from taxes. 

On what grounds can you dissolve an LLP?

LLP dissolution is based on mutual agreement, insolvency, or unlawful activities. Specific grounds vary by jurisdiction; consult local regulations.

Who owns an LLP?

LLP is owned by designated partners, sharing responsibilities and liabilities as defined in the partnership agreement.

What are the limitations of LLP?

LLP limitations include limited capital raising, perpetual succession reliance on partners, and potential personal liability for partner actions.

Conclusion 

Understanding the importance of limited liability partnerships allows partners to receive their share of profits without the additional tax burden, making profit distribution more tax-efficient.The investors via Sustvest after investing become non-designated partners of that LLP. Through this, you get exclusive legal rights to ownership of the renewable energy asset and SustVest has no claim to the project.