Blog

Frequent Topics

testamentary succession land registration property boundaries land survey gis maps cadastral maps bhu naksha digital land records 1908 online cadastral maps business structure real estate maps registration act power of attorney in new delhi divorce process real money gaming #indiancourtmarriages #courtmarriageprocedure #legalmarriageindia #marriageformalities
Advantages of LLP Registration
Company

Advantages of LLP Registration

A recent trend has been that many entrepreneurs are opting for Limited Liability Partnerships. However, what exactly is a Limited Liability Partnership? Before answering this question, there’s a need to discuss the reasons for the emergence of LLPs. Earlier, there were only two types of organizations:

  1. Limited Liability Organizations i.e. Companies
  2. Unlimited Liability Partnerships i.e. Partnership/ Proprietorship

Both of these types of organizations have advantages and disadvantages. The owners of a company have limited liability compared to Partnerships/Proprietorships, which are easy to form and operate, whereas, partnerships provide more flexibility and less compliance. The rapid expansion of the service sector created an environment and demand for a new type of organization. As a result, the concept of Limited Liability Partnership was developed, which combines the advantages of both corporations and partnerships.  

Also, read How to Convert Partnership Firm to LLP? Process and Benefits. 

WHAT IS LLP?

A LLP is a limited liability partnership. This type of entity has the features of both, a private limited company and a partnership. While the compliances are far lesser than that of a private limited company, the liability is limited.

FEATURES OF LLP:

  1. LLP merges the benefits of a company's limited liability with the flexibility of a partnership.
  2. The LLP does not depend upon its partners for its existence. It can continue to exist even if the partners change. It can enter into contracts and hold property in its name.
  3. The LLP is a distinct entity that is liable to the full extent of its assets. Still, the partners' liability is limited to their agreed-upon contribution to the LLP.
  4. Furthermore, no partner is liable for other partners' independent or unauthorized actions, so individual partners are protected from joint liability resulting from another partner's wrongful business decisions or misconduct.

TAXATION OF LLPs IN INDIA

Taxation for LLPs is same as that of partnerships. Tax will be levied on the LLP but the partners will be exempt from tax. Furthermore, because LLPs are taxed similarly to Partnership Firms, no tax is levied on the conversion of Partnership Firms into Limited Liability Partnerships.

The Income Tax Return must be signed and verified by the designated partner or any other partner in the absence of the designated partner.

You may also read Income Tax Verification: The checking of your filed taxes. 

LLP REGISTRATION PROCESS

A LLP must be registered on the Ministry of Corporate Affairs (MCA) portal. A LLP must be registered under the Limited Liability Partnership (LLP) Act to be a legally valid entity.

Step1- Obtain Digital Signature Certificate (DSC)- Before beginning the registration process, you must obtain the digital signatures of the designated partners of the proposed LLP. All LLP documents are filed online and must be digitally signed.

Step2- Apply for Director Identification Number (DIN)- You must apply for the DIN of all designated partners or those who intend to be designated partners in the proposed LLP. The application for DIN allotment must be made in Form DIR-3.

Step3- Name Approval- The LLP-RUN (Limited Liability Partnership-Reserve Unique Name) form is used to reserve the name of a proposed LLP, which is processed by the Central Registration Center under Non-STP.

Step4- Incorporation of LLP- The incorporation form is FiLLiP (Form for Incorporation of Limited Liability Partnership), which must be filed with the Registrar of the state in which the LLP's registered office is located. The form will be a combined form. Fees in accordance with Annexure 'A' must be paid. If an individual who is to be appointed as a designated partner does not have a DPIN or DIN, this form allows them to apply for one.

Only two people will be able to make an application for allotment. FiLLiP can also be used to make a reservation application. If the applied-for name is approved, this approved and reserved name will be used as the LLP's proposed name.

Step5- File Limited Liability Partnership (LLP) Agreement- The LLP agreement governs the partners' mutual rights and duties and the LLP's and its partners' mutual rights and duties. The LLP agreement must be filed online in Form 3 on the MCA Portal. Form 3 of the LLP agreement needs to be filed within 30 days of incorporation. A stamp paper is needed to print the LLP Agreement. Each state has a different value for Stamp Paper.

You may like reading Service Agreement Vs Contract - How They Compare & Differ?

ADVANTAGES OF LLP

Like a corporation, a separate legal entity-  LLP has its legal entity. The LLP differs from its partners. An LLP has the ability to sue and be sued in its own right.

Limited liability of the partners- The LLP's partners have limited liability. Their liability is to the extent of their contribution. This means that they are only obligated to pay the amount of their contributions and are not personally liable for any losses in the business. If an LLP becomes insolvent at dissolution, only the LLP's assets are liable for debt repayment. Because the partners have no personal liabilities, they are free to conduct themselves as credible businessmen.

Low cost and Low compliance- In comparison to incorporating a public or private limited company, the cost of forming an LLP is low. The LLP's compliance requirements are also minimal.

No requirement of minimum capital contribution- The LLP can be formed without a minimum capital requirement.

DISADVANTAGES OF LLP

Penalty on non-compliance- The compliance that LLP must adhere to is minimal. However, if these compliances are not completed on time, the LLP will be fined heavily. Even if the LLP has no activity during the year, it must file annual returns with the Ministry of Corporate Affairs (MCA). If it fails to file the returns, the LLP will face severe penalties.

Winding up and dissolution of LLP- A LLP must have a minimum of two partners. The LLP will be dissolved if the minimum number of partners falls below two for six months. If the LLP cannot pay its debts, it may be dissolved.

Difficulty to raise capital- The LLP, unlike a corporation, does not have the concept of equity or shareholders. Angel and venture capitalists do not prefer to invest in a LLP.

One Person Company: What It Can Provide And What It Can Not
Company

One Person Company: What It Can Provide And What It Can Not

One Person Company (OPC) is a popular business structure that provides a unique blend of advantages and limitations. In this comprehensive guide, we'll delve into what an OPC entails, the benefits it offers, and the constraints it imposes on entrepreneurs.

 

What is a One Person Company (OPC)?

One Person Company (OPC) is a relatively recent addition to the corporate structure in many jurisdictions. It allows a single entrepreneur to operate a corporate entity, enjoying the benefits of limited liability while being solely responsible for managing the business. This structure combines the flexibility of a sole proprietorship with the advantages of a corporate entity.

 

Advantages of One Person Company (OPC)

  1. Limited Liability: One of the key benefits of OPC is limited liability. This means that the liability of the owner is limited to the extent of their investment in the company. In case of any legal issues or debts, the personal assets of the owner are protected.

  2. Separate Legal Entity: An OPC is recognized as a separate legal entity distinct from its owner. This separation ensures that the company can enter into contracts, own assets, and sue or be sued in its own name.

  3. Easy Formation: Forming an OPC is a relatively straightforward process compared to other corporate structures. It requires only one person to act as both the shareholder and director, simplifying the incorporation process.

  4. Perpetual Existence: Unlike a sole proprietorship, which ceases to exist upon the death of the owner, an OPC enjoys perpetual existence. This means that the death or incapacitation of the owner does not affect the continuity of the business.

  5. Access to Funding and Investments: Being a corporate entity, an OPC can easily attract funding from investors and financial institutions. This access to capital can facilitate business growth and expansion.

 

Limitations of One Person Company (OPC)

  1. Single Owner Restriction: As the name suggests, an OPC can have only one shareholder. This restriction limits the ability to raise capital through equity funding or to share ownership with partners.

  2. Compliance Requirements: While the formation of an OPC is simpler compared to other corporate structures, it still involves certain compliance requirements. These include annual filing of financial statements, maintenance of statutory registers, and adherence to regulatory norms.

  3. Tax Implications: Depending on the jurisdiction, there may be specific tax implications associated with operating as an OPC. It's essential for entrepreneurs to understand these tax obligations and plan their finances accordingly.

  4. Limited Scope of Business Activities: Some jurisdictions impose restrictions on the business activities that can be undertaken by an OPC. Certain industries or sectors may require additional licenses or permissions, which could be challenging for a single-owner entity to obtain.

  5. Succession Planning Challenges: While an OPC enjoys perpetual existence, succession planning can be a challenge in the absence of clear provisions for transfer of ownership. Unlike a traditional company with multiple shareholders, transferring ownership of an OPC may involve complex legal procedures.

 

Conclusion

One Person Company (OPC) offers a compelling option for solo entrepreneurs looking to enjoy the benefits of limited liability and corporate structure. However, it's essential to weigh these advantages against the limitations inherent in this business model. By understanding the nuances of OPC, entrepreneurs can make informed decisions about whether it's the right fit for their business aspirations.

 

 

  1. What is a One Person Company (OPC)?

    A One Person Company (OPC) is a legal business structure that allows a single individual to operate a corporate entity with limited liability.

  2. How is an OPC different from a sole proprietorship?

    Unlike a sole proprietorship, where the individual owner and the business are not separate legal entities, an OPC offers limited liability to the owner while maintaining a distinct legal identity for the company.

  3. Can an OPC have more than one owner?

    No, by definition, an OPC can have only one shareholder. It is designed specifically for solo entrepreneurs.

  4. What are the compliance requirements for an OPC?

    Compliance requirements for an OPC typically include annual filing of financial statements, maintenance of statutory registers, and adherence to regulatory norms prescribed by the relevant authorities.

  5. Is it easy to convert from a sole proprietorship to an OPC?

    Yes, in many jurisdictions, it is relatively easy to convert from a sole proprietorship to an OPC. However, specific procedures and requirements may vary depending on the laws of the jurisdiction.

  6. Can an OPC be converted into a different business structure, such as a private limited company?

    Yes, depending on the regulations of the jurisdiction, an OPC can usually be converted into a different business structure, such as a private limited company, if the owner wishes to expand the business and bring in more shareholders.

  7. What are the tax implications of operating as an OPC?

    Tax implications for an OPC vary depending on the jurisdiction. It's essential to understand the tax obligations, including corporate taxes, income taxes, and other applicable taxes, and to plan finances accordingly.

  8. Can an OPC raise funds from investors?

    While an OPC can attract funding from investors and financial institutions, it may be limited compared to other corporate structures due to the single-owner restriction. However, avenues like loans and grants are still available.

  9. Are there any restrictions on the business activities that an OPC can undertake?

    Some jurisdictions impose restrictions on the types of business activities that can be undertaken by an OPC. Certain industries or sectors may require additional licenses or permissions, which could pose challenges for a single-owner entity.

  10. What are the key considerations for succession planning in an OPC?

    Succession planning in an OPC involves determining how ownership and management will transition in the event of the owner's death or incapacitation. It's crucial to have clear provisions in place to facilitate a smooth transfer of ownership.
Structuring your Startup as a LLP - To Do or Not To Do
Company

Structuring your Startup as a LLP - To Do or Not To Do

Every startup wants an entity that has maximum return and minimum liability. An LLP or a limited liability partnership is such an entity in which few or all the partners have liabilities limited to the capital contribution they put into the business. The personal assets and income of a partner are protected from legal action by the creditors. LLPs are basically a flexible legal and tax entity that allows the partners to benefit from economies of scale by working together and leveraging individual expertise while also reducing their liability for the actions of other partners.

In India, such partnerships are governed by the Limited Liability Partnership Act, 2008, and it makes it mandatory for at least one of the partners of LLP to be Indian. There is no requirement of minimum capital under this Act. It is mandatory for the LLPs to audit their accounts only if the contributions of the LLP exceed INR 25 lakhs, or their annual turnover exceeds INR 40 lakhs.
 

Registration

The Registrar of Companies is responsible for registering and controlling the LLPs. 

  1. In order to incorporate an LLP, the digital signatures are to be obtained from the respective partners. 
  2. An application should be made to obtain the Director Identification Number (DIN) or Designated Partner Identification Number (DPIN). 
  3. A Digital Signature Certificate (DSC) has to be acquired from a licensed Certifying Authority, and the same has to be registered on the portal of the Ministry of Corporate Affairs.
  4. Thereafter, a new user's registration should be made, and the person should apply for the name of LLP by filing Form 1. Any of the partners or designated partners may submit the form by appending the digital signatures and paying the required fee. 
  5. Form 2 relating to the incorporation of LLP has to be filled up after the approval of the name. Registration fees prescribed in Annexure A of the LLP Rules, 2009, should be paid. 
  6. The Registrar will then register the LLP within 14 days after perusing all the relevant documents and compliance with relevant provisions of the LLP Act. A certificate of incorporation will be issued as per Form 16. 
  7. After this, the person has to apply for a Permanent Account Number before the National Securities Depository Limited (NSDL).
  8. An agreement has to be filed within 30 days of the incorporation of LLP along with the information in Form 3 and Form 4. 


Advantages of an LLP Company

There are a lot of advantages in setting up an LLP company. 

  1. The organization and management of the internal business is easier and more flexible. 
  2. There is no maximum limit on the number of partners an LLP may have.
  3. The LLP agreements can be tailor-made in accordance with the needs of the partners.
  4. The funds can also be raised and utilized depending upon the needs of the partners. 
  5. No minimum capital limit required. 
  6. The cost of formation is lower as compared to other entities such as private limited company, OPC, etc. 
  7. No additional tax liability, such as dividend distribution tax is payable by the partners in LLP if they want to withdraw the profits. In the case of LLP, the provision of 'deemed dividend' under income tax law is not applicable, and no dividend distribution tax is payable as under section 40(b). LLPs are not required to audit their accounts compulsorily unless their contribution exceeds INR 25 Lakhs, or the annual turnover exceeds INR 40 Lakhs. LLPs only have to submit the Statement of Annual Return & Statement of Accounts and Solvency due to which they face a lower burden of compliance. 

Those who reac this Article also consulted a Startup Expert on LLP 


Disadvantages

However, there are also certain disadvantages in registering as an LLP. One should know them before taking a decision.

  1. In an LLP, funds cannot be raised from the public. Since it does not have the concept of equity or shareholding like a company, angel investors, HNIs, venture capital, and private equity funds do not invest in an LLP as shareholders.
  2. An LLP has to rely on funding from promoters and debt funding.
  3. It is mandatory for an LLP to file an income tax return and MCA annual return each year irrespective of their activity.
  4. In case of failure to file Form 8 or Form 11 (LLP Annual Filing), a penalty of Rs.100 per day, each form is applicable, and there is no cap on this amount.
  5. All the LLPs are taxed at a rate of 30%, even if they have different turnovers. 

Limited Liability Partnerships or an LLP is an alternative form of a legal entity that operates based on an agreement and offers flexibility without imposing detailed legal and procedural requirements.