Navigating the world of business entities in India can be complex, with several structures to consider such as the Private Company, Limited Liability Partnership (LLP), Liaison Office, and Branch Office. These entities differ in various aspects, including their definition, governance, management authority, membership requirements, and permitted activities. Understanding these differences is crucial when deciding the most suitable structure for your business operations in India.
A private company is governed by the Companies Act 2013, requires a minimum of two directors and members, mandates statutory audits, and has no restrictions on local borrowing. Unlike a private company, an LLP, as per the Limited Liability partnership Act 2008, doesn’t mandate minimum board meetings or statutory audits unless certain financial thresholds are exceeded.
Liaison offices and branch offices are both governed by the Foreign Exchange Management Act, 1999, and RBI Guidelines, with operations connected to their parent company situated abroad. However, they differ in certain key areas. A liaison office, for example, cannot engage in business activities in India or generate any income. Conversely, a branch office can conduct activities similar to those of its parent company but cannot borrow locally without prior RBI approval.
Comparison between Private Company, Limited Liability Partnership, Liaison Office, and Branch Office
| Basis | Company | Limited Liability Partnership | Liaison Office | Branch Office |
| Meaning | “Company” means a company incorporated under Companies Act, 2013 or any previous company law. | A limited liability partnership is a partnership in the partners have limited liability. Therefore, it can exhibit elements of partnerships and corporations. | A Liaison Office can undertake only liaison activities i.e., it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot have any income in India. | Companies incorporated outside India and engage in manufacturing or trading activities are allowed to setup Branch Offices with specific approval of the RBI. Normally, the Branch Office are engaged in the activity of the Parent Company. |
| Governed By | Companies Act 2013 | Limited Liability partnership Act 2008 |
Foreign Exchange Management Act, 1999 (“FEMA”) and Reserve Bank of India (“RBI”) Guidelines | Foreign Exchange Management Act, 1999 (“FEMA”) and Reserve Bank of India (“RBI”) Guidelines |
| Directors/ Designated Partner/ Management Authority |
Minimum Directors -2
Maximum Directors -15 |
Minimum Designated Partners-2 Maximum Designated Partners – Not Applicable |
Authorized representative | Authorized representative |
| Members required | Minimum Members -2
Maximum Members-200 |
Minimum -2
Maximum-no limit |
Parent Company situated abroad | Parent Company situated abroad |
| Meetings | Minimum 4 board meetings required to be conducted during financial year having 120 days gap between 2 meetings.
General meeting of shareholders once in a year mandatorily. |
No Such requirement in case of LLP. | No Such requirement. | No Such requirement. |
| Statutory audit | Mandatory | Required if partners contribution exceeds 25 lakhs and annual turnover exceeds 40 lakhs. | Not Applicable | Applicable in case of Turnover exceeding Rs. 4 million. Non-Compliance would be liable to a penalty @ 0.5 % of the total turnover or Rs. 0.1 million whichever is less. |
| Minimum required | No minimum share capital required. | No minimum share capital required. | Net worth Greater than or equal to USD 50000 or its equivalent. | Net Worth Greater than or equal to USD 100000 or its equivalent. |
| Borrowing | There is no restriction on local borrowing. External Commercial Borrowings in reference to guidelines issued by the RBI. | There is no restriction on local borrowing. | Not allowed | The Branch Office is not allowed to borrow locally without the prior approval of RBI. |
| Payment of Dividend | Dividend can be paid after payment of Dividend Distribution Tax | Distribution of profits are allowed. | Cannot pay Dividend. | Dividend paid to Parent is tax free. |
| Time limit of approval | Until the company decides to close down | Until the LLP decides to close down | Normally 3 years from the date of approval | Normally 3 years from the date of approval |
| Permitted Activities | 1. Representing the parent company / group companies.
2. Promoting of export / import from / to India. 3. Promoting of technical/ financial collaborations between parent / group companies and companies in India. 4. Acting as a communication channel between the parent company and Indian companies. |
1. Export/ import of goods. 2. Rendering professional or consultancy services 3. Carrying out of research work, in areas in which the parent company is engaged. 4. Promoting of technical or financial collaboration between Indian companies and parent or overseas group company. 5. Rendering of technical support to the product supplied by parent/group companies. |
Conclusion: Each business structure comes with its unique characteristics and regulatory requirements. Choosing the right structure depends on your business goals, scale of operations, and the level of control you wish to have. Understanding these differences can help you make an informed decision that aligns with your business’s needs and goals. In all cases, it is advisable to seek professional guidance to understand the legal and tax implications of each structure.
Author Bio
