This is why you should start your business as a LLP

What type of entity shall I form? Private Limited Company or Limited Liability Partnership (LLP)?? Of course a private limited company…right? It is the most flexible form of business, easy compliance, gives you scope to expand, more trustworthy for banks and financial institutions, INVESTORS PREFER IT.  Balderdash!

 

 

• Limits on taking loans from members and outsiders, hell lot of secretarial practices, auditing.How is private limited flexible and easy to comply with?
• Some of the biggest players in the service sectors are LLPs. How is it difficult to expand?
• Trustworthy for banks and financial institutions? I do not need a bank loan!
• Yes, investors do prefer private limited companies but I have no plans to approach investors!

I am planning for a small-scale bootstrapped business. I have expansion plans but do not desire to go for an investment. So, why do I need to form a company? Very true! Sometimes we fail to judge our requirements and just flow with the tide! This is a very wrong approach which often lays the stepping stone wrong for a start-up. Every business is unique and has its own specifications. Your choice of entity should be based on your business objectives and future plans. Businesses having no motive to secure investments from Venture Capitalists or such parties can easily opt for a LLP. There is no requirement to go for a private limited company.

WHY SHOULD YOU CHOOSE TO START A LIMITED LIABILITY PARTNERSHIP (LLP)?

Easy to Form:

The documentation involved in starting a LLP is much simpler compared to that of a private limited company. Forming a private limited company requires execution of numerous documents like affidavits, declarations, Memorandum and Articles and so on. This can be curbed in a LLP. Accordingly, the start-up process becomes hassle free.

Lower Cost of formation:

Apart from the relaxation of filing of various documents, the fee structure for starting a LLP is also flexible. The minimum fee for starting a Private Limited company is Rs. 15270 (including Government fees and Taxmantra fees). Whereas the fees for starting a Limited Liability Partnership is a bare minimum of Rs. 10250 (including Government fees and Taxmantra fees).

No Limit on Maximum Number of Members:

For a LLP, there is no limit on the maximum number of members. In a private limited company, on the other hand, there is a ceiling of a maximum of 200 members.

Audit is Not Compulsory:

Every private limited company has to compulsorily get its books audited. Hence, even if there is no business or the business is incurring losses, audit of such books has to be done. Audit, on the other hand, is the sole property of a Practicing Chartered Accountant. Even the next door CA would charge you a bare minimum of Rs. 5000 for this. Another element of cost added. For a LLP, however, audit is not compulsory till:

• The contribution of the LLP exceed Rs. 25,00,000
•   The annual turnover of the LLP exceeds Rs. 40,00,000

No Tax on the Share of profits from LLP:

For a private limited company, if the owners decide to withdraw profits from company, an additional tax liability in the form of DDT @ 17.647% (basic rate) is payable by company. In case of LLP, there is no such tax and profits can be easily withdrawn by the partners. Hence, what we find is that for certain kinds of businesses, a LLP becomes the most obvious and flexiblechoice.

_____________________________________________________________________________________________________________________________

 ________________________________________________________________________________________________________________________________