CS Deepak Pratap Singh

Till the introduction of Limited Liability Partnership Act, 2008, entrepreneurs’ running business on small/medium scale had only following options as form of organisation i.e. Partnership /Private Limited/ Public Limited/ Proprietorship concerns. In case of Partnership and Proprietorship concerns the liabilities of Partners or Proprietor is unlimited. Their assets may also be seized in case of fraud / loss in the concern. Now with promulgation of Limited Liability Partnership Act, 2008, we have got new form of doing business, a Partnership, with limited liability such as Private/ Public Limited Companies. “LLPs” have separate identity apart from their partners, have perpetual life and can acquire assets on its name. The liability of partners is limited to the extent of contribution. In case of LLPs a partner is liable for his own wrongful act i.e. an act, which is not supported by the “LLP”.

NOW LETS’ COMPARE LLP, PARTNERSHIP AND COMPANY;

Sr. No.ParticularsPartnershipLLPCompanyRemarks
1LiabilityEvery partner is liable jointly with all other partners and also severally for all acts of the firm done while he is a partnerA liability of partner is limited to the extent of his contribution. A partner is personally liable for his own wrongful act i.e. act, which is not authorised by LLP or for fraud on his partLiability of Shareholders is limited to the extent of his shareholding in the company.LLP and Company has advantage on Partnership.
2Taxation1. Income Tax[30%+3%ED]

2. No Surcharge on IT

3. Profits will be taxed in the hands of partnership Firm and not in the hands of partners.

4. MAT is not applicable.

5. Remuneration of partners will be taxed in the head of “Income from Business or Profession”.

1. LLPs will be treated at par with partnerships for the purpose of Income Tax [30%+3%ED].

2. No Surcharge on IT.

3. Profits will be taxed in the hand of LLPs.

4. MAT is not applicable.

5. Remuneration of partners will be taxed in the head of “Income from Business or Profession”.

1. Effective Tax including ED and Surcharges will be [33.99%]

2. DDT is applicable on distribution of Dividend.

3. MAT is applicable.

5. Directors remuneration is taxable under Salary.

In this case there is advantage to LLPs and Partnerships
3Perpetual SuccessionIt does not have perpetual succession; death of one partner can dissolve it.LLP has perpetual succession; it means LLPs may exist even though there are many changes in partners or members.It has perpetual succession, member may come and go but company does always exist, except some circumstances.Advantage to LLP and Company
4InvestmentPartnership is not allowed to invest in other shares of other company or LLP in Firms’ name.LLP can invest in shares of other company or LLP in its own name.Company can invest in shares of other company or LLP in its own name.Advantage to LLP and Company
5Legal ProceedingsOnly registered Partnership Firm can sue third party or it can be sued.LLP is a Legal Entity, which can sue or can be sued.Company is a Legal Entity, which can sue or can be sued.Advantage to LLP and Company.
6Bank FinanceBanker does not prefer this form of business due to less protection.Since registration of charges in this case not available, bankers do not have sufficient protection.Banker enjoys sufficient protection.Advantage Company.
7CompliancesThere is minimum compliance under Partnership Act.There are minimum compliances under LLP Act.Too much compliance under Companies Act.Advantage LLP and Partnerships.
8Information available in Public DomainSince Balance sheet and Profit & Loss account is not required to be filed with the Registrar of Firms, these information are not available.Statement of Accounts and Statement of Solvency is required to be filed with ROC within 30 days after end of 6 months form end of financial year.Annual Accounts, Annual Returns, Various event based forms are required to be filed with ROC.Advantage to Partnership Firms.
9Related Party TransactionsThere no restriction on contracts with related parties.In LLPs also no such restrictions on these types of contractsThere are restrictions related to Related Party TransactionsAdvantage to LLP and Partnership.
10LiquidationSimple ProcessWill be done according to provisions of LLP Act, 2008Will be done according to provisions of Companies Act, 2013Advantage to Partnership.
11Foreign Direct InvestmentNRIs/PIO can invest on non repatriation basis subject to conditions. Other than NRIs/PIO required RBI’s permission.10th November, 2015, 100% FDI is allowed for business operating in sectors/ activities, where 100% FDI is allowed, through Automatic Route and there is no FDI-linked performance conditions have been prescribed.The Goverment has allowed 100% FDI in Private Limited and Public Limited Companies through Automatic Route in some Sectors/ operations in which 100 % FDI is allowed through Automatic Route.Advantage to Company.
12Identity of promotersIdentities of promoters are not verified by any Government Agencies.Designated Partners are required to have DPIN and well identified.Directors are required to have DPIN and well identified.Advantage to Company.
13Cost of FormationLeast cost of formation up to Rs. 5000/-Minimum Fees to be paid Rs. 5000/- and professional FeesHigh fees as compared to LLPs/ PartnershipsAdvantage to Partnership.
14Restriction of having nameThere is no restriction in this case.Name of existing LLP and company cannot be provided.Name of existing LLP and company cannot be provided.Advantage to Partnership.
15ConfidentialityAll documents and deeds are confidential and not available for outsiders.LLP Agreement, Incorporation documents, returns etc., are in public domain.The MOA/AOA, incorporation documents, Annual Accounts, Annual returns, various forms are in public domain.Advantage to Partnership.
16Registration of ChargesNot required in this caseNot requiredRegistration, Modification and Satisfaction registration is required.Advantage to LLP and Partnership.

Now on considering above comparisons, a private limited/public limited company has edge over LLP in case of getting of finance. Bankers are supporting that type of business, which provides them security. But, when we see cost of compliances, ease of doing business and filing of documents, maintenance of records, we find LLP is the best option of doing a business.

(Author can be reached at cs.deepakpsingh@gmail.com)

More Under Income Tax

Posted Under

Category : Income Tax (20875)
Type : Articles (10816)
Tags : CS Deepak Pratap Singh (41) LLP (169)

Search Posts by Date