Understanding Limited Liability Partnerships for Startup businesses

If you are a startup, what are the different ways of setting up the company. One way is to setup a Limited Liability Partnership (LLP). In this episode of eLagaan Whiteboard Friday, the eLagaan (http://elagaan.com ) team explains all about this new way of doing business.

For small businesses, setting up a private limited company may not be the best approach and LLPs work better. However, there are drawbacks to LLPs if the business is poised for growth. LLP has been in India for about 3 years. LLP offers a limited liability so that if something goes wrong, your personal assets are not impacted. It is also a globally recognized way of doing business. Now Foreign direct investment is also allowed in LLP.

One designated partner must always be resident in India. LLPs will not be able to create stock option plans. Major disadvantage in LLP is that it can’t be currently converted to a private limted company. This is seen as a major disadvantage if at a later point the company needs to be converted to a private limited company. If your business is poised for growth, LLP may fall short at certain places like division of voting rights, issuance of shares etc.

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