Because an LLP can enter into a contractual relationship in its own capacity, it offers a great advantage to the partners for limiting their personal risk. The liability of the financial contribution of any partner is restricted to the capital contribution as per the LLP agreement. Many new-age businesses prefer LLP registration over partnership so that their personal assets remain safe in case of insolvency. Further, one partner is not held responsible for the actions of the negligence of any other partner.

Registration of LLP creates a separate legal identity than its partners. Governed by the LLP Act of 2008, it allows the business to contract with other entities, take legal action, own assets and borrow funds in the name of an LLP itself. It is a major advantage that is not available to a regular partnership firm.

LLP Agreement, deed among partners of an LLP, clarifies operating structure including rights and responsibilities of the partners. Typically, LLP would select a “Designated Member” who would control day-to-day operations. It can have individuals or existing businesses as members. Further, this structure allows to clearly define roles of the partners and their respective responsibilities. It could also help in protecting partner’s interest in case of loss because of an unlawful act of any other partner.

A key benefit of registering an LLP over a private company is lesser compliance requirement. It doesn’t have a mandatory audit requirement until a certain level of turnover or contribution. Unlike companies, compliances related to board meetings, statutory meetings, etc. do not apply to LLPs.