LLP FORMATIONS


What is a LLP ?

Limited liability Partnerships commonly know as LLP offers combined benefits of a Partnership Firms and a Company In an LLP, a partner is not responsible or liable for another partner's misconduct or negligence. Instead, all partners have limited liability, limited to their own acts of commission or omission, similar to shareholders' liabilities in a limited company.However, unlike company shareholders, LLP partners have the right to manage the business directly. An LLP also limits the personal liability of a partner for the errors, omissions, incompetence, or negligence of the LLP's employees or other agents. An LLP should have a minimum two 'Designated Partners' who are individuals. At least one of them should be resident in India



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COMPARISONS & ADVANTAGES


COMPARISONS

One Person Company Private Limited Public Limited LLP Partnership Firm Sole Proprietorship
Minimum Persons 1 Director 2 Director 3 Director 2 Partners ( At least one Indian) 2 Partners One Individual
Minimum Shareholders 1 Shareholder 2 Shareholder 7 Shareholders NA NA NA
Minimum Capital 100000 100000 500000 NA NA NA
Legal Documents Memorandum of Association Memorandum of Association Memorandum of Association Partnership Deed Partnership Deed NA
Articles of Association Articles of Association Articles of Association

ADVANTAGES

Corporate Tax/ Income Tax = Base Tax + Surcharge* + Education Cess 25%* 25%* 25%* 30%* 30%* Slab Rate
Audit # Audit Under Company Law and Income Tax Audit If Turnover Exceeds Rs 1 Crore. Audit Under Company Law and Income Tax Audit If Turnover Exceeds Rs 1 Crore. Audit Under Company Law and Income Tax Audit If Turnover Exceeds Rs 1 Crore. Audit is not required unless capital exceeding Rs. 25 lakh or turnover exceeding Rs. 1 Crore. Turnover Exceeds Rs 1 Crore. Turnover Exceeds Rs 1 Crore.
Limited liability
Separate Legal Status
Perpetual Succession
Public Money Private Placement of Shares and Deposits Private Placement of Shares and Deposits Private Placement of Shares and Deposits
Borrowings Through Issue of Debentures Through Issue of Debentures Through Issue of Debentures Loans Loans Loans

* A domestic company is taxable at 30%. However, tax rate is 25% if turnover or gross receipt of the company does not exceed Rs. 50 crore + Surcharge + Education Cess

* Income Tax for LLPs are Exempted from Surcharge

Limited liability

First and foremost benefit of doing business via company or Limited liability is the limited liability conferred upon the company's directors and shareholders and Partners in Case of LLP. As a sole trader or partnership business, personal assets of the proprietor or partners can be at risk in the event of a failure of the business, but this is not the case for a Company. The unfortunate events like business failures are not always under an entrepreneur's control; hence it is pivotal to secure the personal assets of the businessman in the event of crises. Unlike proprietorship and partnership, if a Company or LLP becomes insolvent and is wound up, only the assets of the company or LLP are used to clear its debts. The Directors or Shareholders of the company and Partners of LLP have no personal liabilities and are not made bankrupt and are free to carry on business.

Legal Status

A company and a LLP is a legal entity, a juristic person established under their Respective Act. It has its existence separate from its directors and members and Partners in case of LLP.

Perpetual Succession

A Company and LLP has perpetual succession. It is a popular saying that the directors may come and go the members may come and go, but the existence of a company remains forever. A company once incorporated remains alive unless and until it is wound up by complying with the provisions of Law. The death, disability or retirement of any of its members does not affect the continuity of the company, irrespective of change in its membership. There is no obligation for a Private limited company to commence business/trading within any set time period after its incorporation.

Public Money

Private Limited Companies can Raise Money through Private Placements from Shares and Deposits from up to 200 Members.

Public Limited Companies can raise money through Public Placements of Shares and Debentures

Borrowings

A company enjoys better avenues for borrowing of funds. It can issue debentures, secured as well as unsecured, accept deposits from the public, etc. Even banking and financial institutions prefer to render large financial assistance to the company rather than partnership firms or proprietary concerns.

Capital

When a Limited Company is formed it must issue one or more subscriber shares to its initial members. It may increase capitalization by issue of further shares. The issued share capital of the company is the total number of shares existing in the company multiplied by the nominal value of each share.

Memorandum of Association

The memorandum of association gives the company's name, names of its members (shareholders) and number of shares held by them, and location of its registered office. It also states the company's (1) objectives, (2) amount of authorized share capital, (3)in whether liability of its members is limited by shares or by guaranty, and (4) what type of contracts the company is allowed to enter into. Almost all of its provisions (except those mandated by corporate legislation) can be altered by the company's members by following the prescribed procedures.

Articles of Association

A document that specifies the regulations for a company's operations. The articles of association define the company's purpose and lays out how tasks are to be accomplished within the organization, including the process for appointing directors and how financial records will be handled.

What Is DIN ?

DIN stands for Director Identification Number, which is mandatory for a person becoming a Director of a company. Without getting DIN you cannot become a Director for your company.

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