When a limited liability partnership is formed, the primary objective is to generate profits and grow the business. In order to achieve this, the business needs to raise funds to invest in various areas of the business. However, there are some limitations on how a limited liability partnership can raise funds. In this article, we will explore the various methods by which a limited liability partnership cannot raise funds.
1. Public Deposit
A limited liability partnership cannot raise funds through public deposit. This is because public deposit is considered a risky investment and can lead to fraud and financial instability. Therefore, the government of India has banned LLPs from raising funds through public deposit.
2. Initial Public Offering
A limited liability partnership cannot raise funds through an Initial Public Offering (IPO). This is because an LLP is not a company and does not have shares that can be traded on a stock exchange. An IPO is a process by which a company offers its shares to the public for the first time. As an LLP does not have shares, it cannot raise funds through an IPO.
3. Bank Loans
A limited liability partnership can raise funds through bank loans. However, there are limitations on the amount of loan that can be taken. Banks have strict guidelines and criteria for providing loans to businesses. LLPs need to meet these criteria in order to be eligible for a loan. Moreover, the interest rates on loans are high and can increase the financial burden on the business.
4. Venture Capital
A limited liability partnership can raise funds through venture capital. Venture capital is a type of private equity that is provided to businesses that have a high potential for growth. However, venture capital comes with its own set of limitations. Venture capitalists expect a high return on their investment and may require a significant stake in the business. Moreover, venture capital may not be readily available to all LLPs.
5. Private Equity
A limited liability partnership can raise funds through private equity. Private equity is a type of investment that is made by private individuals or institutions in a business. However, like venture capital, private equity comes with its own set of limitations. Private equity investors expect a high return on their investment and may require a significant stake in the business. Moreover, private equity may not be readily available to all LLPs.
6. Crowdfunding
A limited liability partnership cannot raise funds through crowdfunding. Crowdfunding is a method of raising funds by soliciting small amounts of money from a large number of people, typically via the internet. However, LLPs are not eligible for crowdfunding as it is only available to companies that are registered as private limited companies or public limited companies.
7. Debentures
A limited liability partnership cannot raise funds through debentures. Debentures are a type of debt instrument that is issued by companies to raise funds. However, LLPs are not eligible for issuing debentures as they are not companies and do not have shares that can be traded on a stock exchange.
8. Commercial Papers
A limited liability partnership cannot raise funds through commercial papers. Commercial papers are a type of debt instrument that is issued by companies to raise short-term funds. However, LLPs are not eligible for issuing commercial papers as they are not companies and do not have shares that can be traded on a stock exchange.
9. Bonds
A limited liability partnership cannot raise funds through bonds. Bonds are a type of debt instrument that is issued by companies to raise funds. However, LLPs are not eligible for issuing bonds as they are not companies and do not have shares that can be traded on a stock exchange.
10. Foreign Direct Investment
A limited liability partnership can raise funds through foreign direct investment. Foreign direct investment is an investment made by a foreign entity in a business in another country. However, LLPs need to meet certain criteria and obtain approval from the government of India in order to raise funds through foreign direct investment.
11. Angel Investors
A limited liability partnership can raise funds through angel investors. Angel investors are individuals who provide capital to businesses in exchange for ownership equity or convertible debt. However, angel investors may not be readily available to all LLPs and may require a significant stake in the business.
12. Grants
A limited liability partnership can raise funds through grants. Grants are a type of funding that is provided by the government or other organizations for specific purposes. However, grants may not be readily available to all LLPs and may require the business to meet specific criteria.
13. Factoring
A limited liability partnership cannot raise funds through factoring. Factoring is a method of raising funds by selling accounts receivable to a third-party at a discount. However, LLPs are not eligible for factoring as they do not have accounts receivable that can be sold.
14. Lease Financing
A limited liability partnership can raise funds through lease financing. Lease financing is a method of raising funds by leasing assets from a third-party. However, lease financing may not be readily available to all LLPs and may require the business to meet specific criteria.
15. Sale of Assets
A limited liability partnership can raise funds through the sale of assets. However, this method of raising funds is limited as it requires the business to have assets that can be sold. Moreover, selling assets may have a negative impact on the business in the long run.
16. Personal Savings
A limited liability partnership can raise funds through personal savings. However, this method of raising funds is limited as it requires the partners to invest their own money into the business. Moreover, investing personal savings can be risky and may have a negative impact on the partners??? personal finances.
17. Friends and Family
A limited liability partnership can raise funds through friends and family. However, this method of raising funds is limited as it requires the partners to rely on their personal network for investment. Moreover, investing personal savings can be risky and may have a negative impact on the partners??? personal relationships.
18. Credit Cards
A limited liability partnership can raise funds through credit cards. However, this method of raising funds is limited as it requires the partners to rely on their personal credit cards for investment. Moreover, using credit cards can be risky and may have a negative impact on the partners??? personal finances.
19. Grants-in-Aid
A limited liability partnership can raise funds through grants-in-aid. Grants-in-aid are a type of funding that is provided by the government or other organizations for specific purposes. However, grants-in-aid may not be readily available to all LLPs and may require the business to meet specific criteria.
20. Invoice Financing
A limited liability partnership can raise funds through invoice financing. Invoice financing is a method of raising funds by selling accounts receivable to a third-party at a discount. However, LLPs need to have accounts receivable that can be sold in order to raise funds through invoice financing.
Conclusion
In conclusion, there are various methods by which a limited liability partnership cannot raise funds. The limitations on raising funds vary depending on the method of financing. LLPs need to carefully evaluate their options and choose a financing method that is suitable for their business needs.
