Click here if you want to make a private or public limited company. LLP - Steps to form LLP is attached below on bottom of this page as pdf file  Advantages and disadvantages of LLP in India If you have non-residents shareholers, then subject to below disadvantages of LLP, mainly in below situations, an LLP could be better from point of view of repatriation of profits:- 1. If shareholder is not director, then, you cannot give director remuneration to that shareholder. For example, a non-individual shareholder in this new Indian entity. 2. Even if shareholder is a director, he does not want Tax in his own hands on director's remuneration, inspite of the fact that the new indian pvt.ltd. company getting a deduction from its taxable income as expenditure. Note- Transfer pricing provisions are applicable for a non-resident holdnig company of an Indian Pvt.Ltd. COmpany or an Indian LLP.
Updated as on 8-Sept, 2011 Advantages o Separate legal entity o Tax rate is 30% on profits of LLP. o LLP can also give loan to its partners or its related entities, unlike a pvt.ltd. company where deeemed dividend concept is a known problem. o Easy to establish (note even pvt.ltd. company now is formed only in just 2-3 days if documents are in order, due to new circular of Department of July 2011) o Flexibility, without imposing much legal and procedural requirements o Perpetual existence irrespective of changes in partners o Internationally renowned form of business in comparison to Company o No requirement of minimum capital contribution o No restrictions as to maximum number of partners o LLP & its partners are distinct from each other o Partners are not liable for Act of other partners. o Personal assets of the partners are not exposed except in case of fraud. o Easy to dissolve or wind-up o Professionals like CS / CA / CWA / Lawyers can form Multi-disciplinary Professional LLP o No requirement to maintain statutory records except Books of Accounts o Less Cost of formation (Compared to a company) o Unlike a company where Profits can be repatriated back only if company pays dividend distribution tax of 15% , an LLP need not pay this tax. o An alternate minimum tax of 19.05% (with cess) is levied in Budget 2011 if normal tax payable is lower. But similar tax is also in case of companies u/s. 115JB. o Note that withholding tax on interest or remuneration or any other sum otherwise taxable in India will be deducted by LLP before paying to foreign partner. o FDI in LLP is permitted under automatic route where 100% is permitted and there are no conditions. If there are conditions or where 100% is not permitted, for example, real estate sector, Government approval need to be sought.
Disadvantages o LLP cannot raise funds from Public o Any act of the partner without the other may bind the LLP. o Under some cases, liability may extend to personal assets of partners. o No separation of Management from owners o Status not as high as that of private limited company; General perception with banks as of today, seems that they prefer pvt.ltd. companies over LLP to give loans o As LLP is relatively newly introduced, Registration Act, yet does not recognize LLP as an entity which can hold properties. o FDI in LLP is a new concept announced just in May 2011. Hence, procedural issues may arise in compliance under Foreign Exchange Management Act. o At least 1 resident Indian is required to manage its affairs in India, unlike a pvt. Ltd. company where no Indian resident is required. o Generally, this is ideal for professionals who don’t want to be responsible for acts by other partner, but now even business entities are floating LLPs.
For any clarifications, please visit www.llp.gov.in or call me on +91-9820750784 Regards, Mr.kunjan shah , www.CAnaresh.com |