Advantages of LLP (Limited Liability Partnership)

Limited Liability Partnership will be assessed as a Firm w.e.f Assessment year 2010-11. The definition of Firm has been amended as under,
“Firm shall have the meaning assigned to it in the Indian Partnership Act, 1932 and shall include a Limited Liability Partnership as defined in the Limited Liability Partnership Act 2008.”

LLP enjoy the following advantages on taxation matters:

1. Distributions of profits by the LLP are exempt from tax in the hands of the partners
2. LLP are not liable for payment of Dividend Distribution Tax on profits distributed to the partners. The existing rate of DDT is 16.995% on dividends distributed by companies.
3. LLP are kept out of the purview of Minimum Alternate Tax.
4. The provisions of deemed dividend (defined u/s 2(22)(e)) read with section 56(2) are not applicable to LLP. Any advance made by a Company to specified members is considered as deemed dividend to the extent of distributable profits thereby rendering the amount advanced as taxable income.

LLP also enjoys the following benefits:
1. Flexibility of Capital: There are no restrictions for withdrawal of Capital unlike in case of companies.
2. The cost of registration, compliance of law, audit, management and other paper work is relatively less in case of LLP when compared to such expenses in Company form of organization.