LLP is one of the easiest types of business to incorporate and manage in India. With an easy incorporation process and simple compliance formalities, LLPs are preferred by Professionals, Micro and Small businesses that are family-owned or closely-held. Since, LLPs are not capable of issuing equity shares therefore, LLP should not be chosen for any business that has plans for raising equity funds.
Post changes to FDI regulations on 10th, November 2015, 100% FDI in LLP is permitted under the automatic route. In most sectors, 100% FDI in LLP is allowed through the automatic route, and there are no FDI-linked performance conditions. In addition, LLPs will also be permitted to make downstream investment in another company or LLP in sectors in which 100% FDI is allowed under the automatic route. Therefore, FDI in LLP is now permitted, and NRIs or Foreign Nationals can start or invest in an LLP.
CONCEPT OF PRIVATE LIMITED COMPANY
A private company is a company which is owned by non-governmental organizations’ or a relatively small number of shareholders or members of a company. Usually, a private company does not offer or trade its shares to the general public on the stock exchanges, but rather the private stock of the company is owned and traded.
CONCEPT OF BRANCH OFFICE
Branch office implies an establishment set up by parent company to perform the similar business Doperations at different locations in India. As a Branch Office (“BO”) in India, foreign companies can conduct full-fledged business in India. BO can carry the same or substantially the same trading activities as carried out by their parent or group companies. However, BO is not allowed to directly carry out manufacturing activities though it is permitted to sub-contract these services to an Indian manufacturer.
|Requirements||For Branch Office|
|Net Worth||More than or equal to USD 100,000|
|Profit making track record||Immediately preceding 5 years|
|Basis of difference||Company||Limited Liability Partnership||Branch Office|
|Law Applicable||Companies Act 2013||Limited Liability Partnership Act, 2008||Companies Act 2013|
|Minimum share capital||No requirement for minimum share capital.||No requirement for minimum share capital||No requirement for minimum share capital.|
|Members Required||Minimum 2
Maximum no limit
|Directors required||Minimum 2
|2 Designated Partners Maximum not applicable||Minimum 1 Authorized Representative|
|Board meeting||Within 120 days of the previous board meeting.||Not necessary||Not necessary|
|Profit Making track record||NA||NA||Immediately preceding 5 FY|
|Net Worth||NA||NA||More than Equal to USD 1,00,000 or equivalent.|
|Permitted Activities||1.Export/Import of goods
2. Rendering professional or consultancy services.
3. Carrying out research work, in which the parent company is engaged.
4. Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
|Statutory Audit||Mandatory||Whose turnover does not exceed, in any FY, 40 Lakhs, or whose contribution does not exceed 25 Lakhs, is not required to get its accounts audited.||Mandatory|
|Managed by Directors in India.||Managed by Directors in India.||Managed by Authorized representative of parent company in India.|
|Annual Filing||Annual statement of accounts & annual return with ROC. These are filed in form AOC 4 and MGT 7.||Annual accounts and Annual returns to be filed with RoC. These returns are filed in LLP Form 8 and Form 11.||Annual statement of accounts & annual return with ROC. These are filed in Form FC 3 and Form FC 4.|
|Transferability of shares||Can be transferred easily. It can only be restricted by Article of association.||Can be transferred by executing agreement before a notary public||NA|
|Foreign Direct Investment||Eligible via automatic and government route||Eligible via automatic route||Eligible via automatic route.|
The key components of MCA21 to be launched during Fiscal Year 2021-22 are:
SMALL LLP: It is proposed to create a class of LLP called as “Small LLP” in line with the concept of Small Companies. Such Small LLPs would be subject to lesser compliances, lesser fee or additional fee and lesser penalties in the event of default. Thus, lower cost of compliance would incentivize unincorporated micro and small partnerships to convert into the organized structure of an LLP and derive its benefits.
b) Earlier: LLPs with contribution less than or equal to Rs.25 lakh and turnover less than Rs.40 lakh are treated as small LLPs
c) Proposed Amendment: Rs.25 lakh will go over to Rs.5 crores and the turnover size will be treated as Rs.50 crores.
About the Author
Author is Ruchika Bhagat, FCA helping foreign companies in setting up and closure of business in India and complying with various tax laws applicable to foreign companies while establishing a business in India. Neeraj Bhagat & Co. Chartered Accountants, is a well-established Chartered Accountancy firm founded in the year 1997 with its head office at New Delhi.