Adithya Sivaraman
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In this article I will be discussing three forms of business in India and comparison of the same with each other so that those who are deciding to start a new business can compare the same with each other. These three types are as follows :-
1. Limited Liability Partnership (LLP)
2. Private Limited Company
3. One Person Company (OPC)
| Sr.No | Basis of difference | Limited Liability Partnership (LLP) | Private Limited Company | One Person Company (OPC) |
|
1. |
minimum Capital contribution |
No requirement of minimum contribution |
NO MINIMUM PAID UP CAPITAL REQUIREMENT is required to start a Private Company – As Per Companies (Amendment) Act, 2015 |
NO MINIMUM PAID UP CAPITAL REQUIREMENT is required to start a Private Company – As Per Companies (Amendment) Act, 2015 |
|
2. |
Maximum Paid Up Capital And Turnover |
No Such restriction as to the Capital |
No Such Restriction |
Interestingly, Companies Act, 2013 prescribes MAXIMUM PAID UP CAPITAL AND TURNOVER FOR A COMPANY
Where the Paid up capital of a OPC exceeds 50 Lakh AND Its average annual turnover during the relevant period exceeds 2 Crore Rupees, It shall CEASE TO BE ENTITLED TO CONTINUE AS A OPC |
|
3. |
Minimum No of Persons required |
An LLP requires a minimum 2 partners |
The minimum is Two Members |
As the Name Signifies Only One member |
|
4. |
Maximum No of Persons |
No Limit fixed by the Act |
Maximum permissible is 200 |
Maximum and Minimum Is One |
|
5. |
Registration Cost |
Low as compared to Private Ltd Company |
High as Compared to LLP |
High as Compared to LLP |
|
6. |
Requirement of compulsory Audit |
A Limited Liability Partnership is required to get the audit done only in the following case :- •The contributions of the LLP exceeds Rs. 25 Lakhs, or •The annual turnover of the LLP exceeds Rs. 40 Lakhs |
All limited companies, whether private or public, irrespective of their share capital, are required to get their accounts audited |
All limited companies, whether private or public, irrespective of their share capital, are required to get their accounts audited |
|
7. |
Dividend Distribution Tax (DDT) |
Dividend Distribution Tax (DDT) not applicable |
If the owners to withdraw profits from company, an additional tax liability in the form of DDT @ 15% (plus surcharge & education cess) is payable by Company |
If the owners to withdraw profits from company, an additional tax liability in the form of DDT @ 15% (plus surcharge & education cess) is payable by company |
|
8. |
compliance burden |
Limited Liability Partnership is required to file only two, namely, the Annual Return & Statement of Accounts and Solvency. |
There are about 8 to 10 regulatory formalities and compliances are required to be duly completed and submitted by a Private limited company |
Quite Less as Compared to a Normal Private Limited Company |
|
9. |
CSR Contribution |
Not Mandatory |
Mandatory, If it fall within the limit specified under Section 135 |
Not Mandatory as its Turnover itself Cannot exceed 2 Crore Rupees |
|
10. |
Foreign Direct Investment (FDI) |
FDI in LLP under automatic route is NOT permissible. Further FDI in LLP through Government route is allowed to only those sectors where 100% FDI is allowed under automatic route under the FDI policy.
Foreign company or individual can invest in LLP in India but it requires prior government approval.
|
FDI is allowed as per the Sectoral cap prescribed, by the Ministry of Finance |
Not Possible |
|
11. |
External Commercial Borrowing (“ECB”) |
LLP is not allowed to raise External Commercial Borrowing (“ECB”). Thus LLP cannot take commercial loans from its foreign partners, FII’s (Foreign Institutional Investors), banks from outside India, any financial institution outside India or any other entity outside India.
|
ECB is allowed |
ECB is allowed |
|
12. |
Preparation of Cash flow statement and other Complex accounts |
No such necessity |
Books of Accounts of a Private Limited Company includes Cash Flow Statement |
OPC is Exempt |
|
13. |
Who Can Incorporate / Form |
Two Partners; One of Whom shall be Designated Partner. |
Two or more individuals, Body Corporate etc. |
Only a Natural Person who is an Indian Citizen and Resident in India shall be eligible to incorporate a OPC No Person shall be eligible to Incorporate more than ONE OPC
|
|
14. |
Restriction on Loan to Partner/ Director |
No such restriction |
Loan to director is allowed subject to following conditions: No Body corporate has invested any money in the company Borrowings of the company from Banks OR Financial institution OR ANY BODY CORPORATE is LESS THAN TWICE its PAID UP CAPITAL or 50 CRORE RUPEES, WHICHEVER IS LOWER The company is not in default in repayment of such borrowings subsisting at the time if making transactions under this section |
Same as Normal Private Company |
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Business Model- Pooling money from investors to invest in share market like hedge funds.
(For starting this business, a bank current account linked with d-mat and trading account is required.)
Queries regarding Individual Current Account:
1. Can I start this business on a small level with Individual Current Account?
2. Is there any legal problem with this business structure?
3. Will I have to pay income tax on receiving money from investors to invest in share market?
4. What should I treat investors’ money as?
5. How much should be the AUM so that I can decide about other business structure?
Some business structures for starting this business are mentioned below (in order of difficulty to start and operate):
A. Individual Current Account
B. Current Account in the name of Sole Proprietor Firm
C. Current Account in the name of Partnership Firm
D. Current Account in the name of Limited Liability Partnership Company
E. Current Account in the name of Private Limited Company
Queries regarding business structure:
6. Which business structure is most suitable for this business from legal and tax perspective to start on a small level?
7. What are tax liabilities and benefits for Company, Investors and Owner in each of the above mentioned cases?
8. If a company sells shares 3 years after purchase, then does it have to pay income tax on notional profit after every year or on actual booked profit after 3 years? What about taxation of dividend income from shares?
9. Are there any legal, tax or other risk associated with these above structures?
10. Is there any eligibility criteria for owner and company to start this business?
11. Is license required from SEBI or RBI to start this business on a small level?
Queries regarding Partnership or LLP business structure:
12. Which among partnership and LLP is a better choice?
13. How much AUM and how many investors would be appropriate to start partnership or LLP?
14. Can an employee of private company or MNC become a silent or limited investment partner from legal perspective? Will limited partners have to file return showing capital gains as business income?
15. What are the legal requirements to be fulfilled when a new limited partner comes in or when an existing partner brings additional money or redeem existing money? Will it not become tedious and complex task for a small level business?
16. Can I register partnership or LLP at Ranchi address and run the business in Mumbai? Will I and other limited partners have to go to Ranchi to make necessary changes in case a new partner comes in, etc.?