Test: Partnership Laws - B Com MCQ

The main advantage of an LLP is that it provides limited liability protection to its partners. This means that the partners are not personally liable for the debts and obligations of the LLP. Their liability is limited to the extent of their contributions in the LLP. This protects their personal assets from being used to repay the debts of the LLP.
Example: For example, if an LLP fails to repay a loan, the creditors can only seek repayment from the assets of the LLP and not the personal assets of the partners. This ensures that the partners' personal finances are protected in case of any financial difficulties faced by the LLP.

To form an LLP, there must be a minimum of 2 partners. However, there is no maximum limit on the number of partners in an LLP. This allows flexibility in choosing the number of partners based on the requirements of the business.
Example: If two professionals want to start a legal consultancy together, they can form an LLP with themselves as the only partners. On the other hand, if a group of doctors wants to start a medical clinic, they can form an LLP with multiple partners, each contributing their expertise and skills to the business. 

In an LLP, the annual accounts need to be audited only if the turnover of the LLP exceeds Rs. 40 lakh or the contribution of the LLP exceeds Rs. 25 lakh. If the LLP does not meet these thresholds, there is no mandatory requirement for an audit.
Example: If an LLP has a turnover of Rs. 35 lakh and a contribution of Rs. 20 lakh, it is not required to undergo an annual accounts audit. However, if the turnover exceeds Rs. 40 lakh or the contribution exceeds Rs. 25 lakh, the LLP will need to engage a chartered accountant to audit its annual accounts. 

The main disadvantage of an LLP is that there is no separation of management from owners. Unlike a company, where shareholders appoint directors to manage the business, in an LLP, the partners themselves have the right to manage the business directly. This can lead to conflicts and difficulties in decision-making, especially if there are disagreements among the partners.
Example: If an LLP has multiple partners with different opinions on how to run the business, it can be challenging to reach a consensus and make decisions. This lack of separation between management and owners can sometimes hinder the smooth functioning of the LLP. 

Designated Partners in an LLP are responsible for managing the LLP and have the authority to make decisions on behalf of the LLP. They are the partners who are designated as such in the incorporation documents or who become designated partners by and in accordance with the LLP Agreement.
Example: If an LLP has two designated partners, they will be responsible for overseeing the day-to-day operations of the business, making strategic decisions, and ensuring compliance with legal and regulatory requirements. They have the authority to act on behalf of the LLP and bind it legally. 

Every LLP is required to have a minimum of two designated partners. At least one of these designated partners must be a resident of India. The designated partners are responsible for managing the LLP and have the authority to act on its behalf. Example: If an LLP has three partners, all three partners can be designated partners. However, if an LLP has five partners, at least two of them must be designated partners. This ensures that there are individuals responsible for managing the LLP and making decisions on behalf of the business. 

A Digital Signature Certificate (DSC) is used in an LLP to verify the identity of the partners. As all the forms required for incorporating an LLP are filed electronically, at least one of the designated partners needs to have a DSC to digitally sign these forms.
Example: When filing the incorporation documents or any other forms with the Registrar of LLP, the designated partner with a DSC can digitally sign the forms, ensuring that the identity of the partner is verified and the information provided is authentic. 

The registered office of an LLP is the place where all correspondence related to the LLP takes place. It is the official address of the LLP and is used for maintaining statutory records and books of account.
Example: If the LLP receives any communication or notices from the Registrar of LLP or any other government authority, it will be sent to the registered office address. Similarly, if any partner or stakeholder needs to communicate with the LLP, they will send their correspondence to the registered office address. 

One of the main advantages of taxation in an LLP is that it is subject to a lower tax rate compared to a company. The profits of an LLP are taxed at the rate applicable to individuals, which is generally lower than the corporate tax rate.
Example: If an LLP has a profit of Rs. 10 lakh, it will be taxed at the individual income tax rate applicable to the partners. This can result in significant tax savings compared to a company, which would be subject to the higher corporate tax rate. 

An LLP may not be a suitable choice for some businesses because it cannot raise funds from the public. Unlike a company, which can issue shares to the public and raise capital through public offerings, an LLP is limited in its ability to attract public funding.
Example: If a business has plans for rapid expansion and requires a significant amount of capital, it may be more appropriate to choose a company structure rather than an LLP. A company can raise funds by issuing shares to investors, allowing it to access a larger pool of capital.