ADVANTAGES AND DISADVANTAGES OF LIMITED LIABILITY PARTNERSHIPS
A limited liability partnership (LLP) can be defined as an incorporated business formed by 2 or more natural persons or a body corporate and is governed by the Limited Liability Partnership Act 2011 (LLP Act). LLPs are a perfect fit for most professionals like lawyers and doctors, two professions at high risk for malpractice suits.
Registration Process of a Limited Liability Partnership
LLP registration is structured to allow one stage registration process that involves filing an electronic application through e-citizen for the incorporation of an LLP and paying the required fee to the registrar of companies. The LLP is deemed created when the registrar of companies issues a certificate of incorporation
LLPs offer advantages for certain business professionals including:
- Ease of registration;
As explained above LLP registration is structured to allow for one step registration process as contrasted with registration of a company.
- Liability protection for partners;
The most salient and apparent advantage for LLPs is the limited liability guaranteed to the partners; this is espoused in section 10 of the LLP Act 2011. The partners are only liable for their capital contribution and are personally shielded from the liability of the business.
- Avoidance of double taxation;
Partners are only liable to pay taxes on their partnership’s income and not as individuals.
- Flexibility in adding and removing partners.
LLPs also have the ability to structure an ownership group that is different from the employees guiding day-to-day operations as governed by the partnership deed.
LLPs are also curtailed by certain disadvantages such as:
- Liable for acts or omission of a partner.
The partnership is liable for the acts or omissions of a partner who is acting in the ordinary course of the business. The court stated that Car & General v Marende t/a Marende & Co. Advocates & Another [2003] Vol. 2 E.A. 384 stated that every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner.
- Liable for an employee’s negligence.
Partnerships are also liable for acts or omissions of their employees who are performing their duties in the ordinary course of business. This is a risk factor that can only mitigated by implementing strict rules of procedure and protocol while dealing with clients for the business.
How can Netsheria help?
We, at Netsheria International have excellent and experienced corporate and commercial lawyers who will help you in setting up your preferred business vehicle by for example drafting and/or reviewing your Partnership agreement to ensure that you have the appropriate vehicle for your business needs. Contact any of our team today or book an online consultation www.netsheria.com
