Why an LLP is better than a Partnership? - YouTube

Hi

If you have been thinking about starting your own business and are wondering between a Partnership

and a Limited Liability Partnership, then this video should give you the answer. For

those of you in a hurry, the short answer is: "Don't even think of a Partnership! LLP

is the way to go." Let me explain to you why.

I will give you 3 reasons why you should not go for a Partnership.

The very first reason being UNLIMITED LIABILITY. So what is meant by that? A partnership is

very easy to start. All you need is a Partnership Agreement printed on stamp paper. That's it.

However, a partnership comes with a very high risk. This risk in legal terms is called UNLIMITED

LIABILITY. What do I mean by that?

Let's say you run a partnership business and it has gone into some legal trouble and you

have been asked to compensate Rs. 10 lakhs to the affected party. Now, if your partnership's

bank account has that much money, you are safe. But if not, you will have to arrange

10 lakhs somehow by selling maybe your own property, your own land, house, jewellery,

etc., etc. in order to arrange that money. In other words, your personal assets and property

are not safe in a partnership. This is called "unlimited liability".

In a limited liability partnership, as the name suggests, the liability of the partners

is limited to the amount they contribute to the LLP. So let me explain to you this with

an example. If you have contributed just Rs.10,000 to start your LLP, even if the LLP gets into

some legal trouble, all you need to pay is Rs.10,000. Your liability ends there.

This is the most important difference and this is the most important reason why you

should not be thinking about a partnership. What are the other reasons?

The second most important reason is that a partnership is not a separate legal entity.

So if one of the partners decides to leave the partnership or he dies, the partnership

ceases to exist. You will have to form another partnership from scratch.

This is not the case with a Limited Liability Partnership because a Limited Liability Partnership

is a separate legal entity in itself. Even if one of the partners decides to leave, the

LLP continues to exist.

Let's look at the third important reason. The third important reason is that of trust.

An LLP is more trustworthy than a Partnership - mainly because an LLP is incorporated under

the Ministry of Corporate Affairs. This is not the case with a Partnership. In order

to start a partnership, all you need is to draft an agreement and print it on stamp paper.

SInce an LLP goes through a strict process, an LLP brings with it a lot of trust.

So these were the 3 important reasons why you should not be considering a Partnership

over a Limited Liability Partnership.

For those of you who are cost-centric, here is the cost difference.

In order to start a partnership, you will be spending anywhere around 2000 to 2500 rupees

to draft a partnership agreement. This is what good lawyers charge to draft the partnership

agreement.

After the agreement is drafted, if you have to register your partnership, you will be

spending another 5000 rupees to register your partnership. So, overall, in order to start

and register your partnership, you will be spending around 7000 to 8000 rupees.

Now let's look at what is the cost to start a Limited Liability Partnership. The government

fees to start an LLP is just rupees 2000. The government actually wants to promote LLPs

in the country. In addition to 2000 rupees, you will be spending an additional amount

as professional fees. This could range anywhere between 5000 rupees to 10,000 rupees. But,

overall, you must be able to start a Limited Liability Partnership for 10,000 rupees all

inclusive.

So you will be spending around 8000 rupees to start and register a Partnership, whereas

you will be spending 10,000 rupees to start a Limited Liability Partnership - which is

more secure. Your assets and property are safe in a Limited Liability Partnership.

I think this clearly explains why you should be considering an LLP and not a Partnership.

If you are still not convinced about why you should go for an LLP, don't worry. Just give

us a call at 7200 365 365 to talk to one of our experts. You could also send us an email

at [email protected].

That's all I have for you in this video. Looking forward to talking to you soon in another

exciting video.

Good Bye and you have a great day!