Our experience with queries and questionnaires of start up entrepreneurs and promoters has been one of a kind. In this write up, we intend to accumulate some of the generic issues that we address, and which we wish to spread some of the crucial aspects, since it is important to develop an understanding of the organization structure, before you take a decision. Be it in different ways of looking into things, the basic intention and ask point of an entrepreneur runs as : Which entity is right for my business – Pvt Ltd or LLP? So, you know what a Limited Liability Partnership is (or even if you didnâ€™t get it), but still not able to make a decision. Let us help you.
1. We are 4 partners looking to form a manufacturing company. One of us is foreigner and we are looking to invest around 1 crore. What should we go for? Private Limited Or LLP?
To go with our expert opinion, going for Private limited company would be the right option for you. Reason: Private Limited company entitles you to many benefits including FDI. Also the creditworthiness of a private limited company is more. LLP cannot hold any property, it is not considered as an entity in view of the registration act. In case of private limited company, no concern regarding foreign partner or investor is their. And for a business of your concern, the scope is much too wide. Hence, do not think twice before opting for Private limited company.
2. Me and my friend want to go for an internet start up and donâ€™t know anything about which entity to form or what to do? Also, we just need to experiment the related business field and start on a small scale. Please help.
Go for a Limited Liability Partnership. Minimum 2 partners are needed. This form is more cost effective and less statutory requirements. Reason: In case of your startup, a LLP firm can also be incorporated and would cost you lesser than the LLP. It releases you from the shackles of compliance you would face after incorporating a Pvt. Ltd. After your start up grows, you can incorporate a new Private Limited company, execute a sale agreement where in the entire business of the LLP is taken over by the newly incorporatedÂ as per your requirement of that point of time.
3. We are 3 partners and have formed a LLP, want employ a manager but are bootstrapped, and cannot pay salary. So we would like offer him equity. Is it possible?
No, Until and unless you include the employee in the partners agreement , it is not possible for you to offer him equity. Reason: The only way to offer equity to the employee is to include him in the partners agreement. In case of LLP, every partner has a vote and to pass any resolution you need vote of every partner. It is upto you to decide if you are comfortable with your employee also being a partner in your firm. And , giving him the authority to make decisions.
4. We are 2 partners, and have a product idea in our mind. We donâ€™t have any finances and looking forward to find somebody to invest in our business. In this case what organization form is apt for us?
You should go Private Limited Company, as you are thinking of raising funds from public or even from VCs. Reason: You need somebody who can invest in your idea, and this can be done from getting finance from VCs. For this, you would need to give them a share in the companies equity, which in LLP s case is not possible, because the capital element in an LLP is in the form of partner’s contribution, and not divisible in share format. For you, forming a Private limited company is beneficial for long term. We sincerely hope that this discussion will enable you to take the right turn, and has answered to the fullest the patent question : Which entity is right for my business – Pvt Ltd or LLP? For registering your LLP, please visit: LLP Registration For registering your company, please visit: Company Registration