Entrepreneur's World #3

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Entrepreneur's World #3

  1. 1. #3The previous article highlighted the various statutory registrations required for a soleproprietor and a Partnership firm to carry on business. A Company and an LLP (LimitedLiability Partnership) also require such registrations with a few variations indocumentation.This article contains a few pointers to differences between the 2 forms of organizationwhich are relevant for entrepreneurs to decide depending on their line of businessactivity, operational flexibility, funding needs, kind of market they are catering to etc.CompanyA Company is an association of individual persons and/or other companies, whoprovide some form of capital. A Company is an artificial person created by incorporationunder law, having common seal and perpetual succession. An incorporated companyenjoys perpetual (continuous) life until it is wound up in accordance with law.Limited Liability PartnershipLLP is a corporate business vehicle that blends professional initiative and operationalflexibility, providing the benefit of Limited Liability to its partners. A limited liabilitypartnership provides the internal flexibility of a partnership i.e. by allowing the partnersto adopt whatever form of internal organization they prefer while at the same timelimiting their liability with respect to the LLP to their individual contributions.Some of the important aspects (not an exhaustive list) about the above form oforganizations are as below:Aspect Company LLPRegulated by Companies Act, 1956 and Limited Liability Partnership Act, Articles of Association and 2008 and LLP Agreement between Memorandum of Association of partners. the Company.Existence This is a traditional form of This form of business organization organization which is in was introduced recently in India in existence from a number of the year 2008. years.Members A private limited company must Minimum of 2 Designated Partners is have 2 members and can have a must and there in no maximum members up to 50 and a public cap on the number of partners. limited company should have a minimum of 7 members and can
  2. 2. #3 have any number of members.Tax Domestic Companies are taxed LLPs are taxed at the flat rate of at a all inclusive rate of 32.445% 30.9% (Base rate: 30%+Cess of 3% (Base rate: 30% + Surcharge on Base rate) 5% on Base rate + Education Cess 0.96%)Audit Audit of accounts is mandatory LLPs with the turnover of more than for every company. Rs.40 lakh or having contribution of Rs. 25 lakh or more should carry out audit of their accounts.Residential It is not mandatory to have a At least one resident DesignatedStatus of Indian resident member in case Partner is required to constitute anMembers of the Company. All the LLP. It is not possible to form an members of the company could LLP with all the designated partners be non residents. being non-resident.Meetings • It is mandatory for a There is no legal requirement to hold Company to hold at least 4 any meeting. It is the prerogative of Board meetings in a year i.e. the partners whether to hold the a meeting of Board in each meeting or not. quarter. • It is also mandatory for a Company to hold 1 Annual General Meeting every year.FDI There is no approval required FDI is allowed in LLPs operating in for a foreign individual or entity sectors /activities where 100% FDI is to invest in Indian Company allowed through automatic route. An unless the investment to be NRI or a Person of Indian Origin can made attracts sectoral caps invest in LLP without any prior (limits specified by the approval. However a non-resident Government of India) in terms of other than these 2 (say a foreign Foreign Direct Investment company) requires prior RBI Policy. approval for investing in an LLP in India.Filing with Company has to file a number of Only a limited number of forms areROC documents and forms with ROC. required to be filed by LLPs. They For e.g., Accounts and Annual include “Annual Statement of Return Forms every year as accounts and Solvency” & “Annual also event based forms Return” to be filed every year and (allotment of shares, change in such other event based documents directors, charge creation on (change in partners, change in borrowings etc.) contribution etc.)Liability of Limited to the amount of capital Limited to the amount of capital
  3. 3. #3Members nominal value of shares contribution. acquired.The only place where success comes before work is in the dictionary. – Vidal Sassoon

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