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. Particulars Partnership LLP Company Remarks
1 Liability Every partner is liable jointly with all other partners and also severally for all acts of the firm done while he is a partner A 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 part Liability of Shareholders is limited to the extent of his shareholding in the company. LLP and Company has advantage on Partnership.
2 Taxation 1. 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
3 Perpetual Succession It 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
4 Investment Partnership 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
5 Legal Proceedings Only 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.
6 Bank Finance Banker 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.
7 Compliances There is minimum compliance under Partnership Act. There are minimum compliances under LLP Act. Too much compliance under Companies Act. Advantage LLP and Partnerships.
8 Information available in Public Domain Since 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.
9 Related Party Transactions There no restriction on contracts with related parties. In LLPs also no such restrictions on these types of contracts There are restrictions related to Related Party Transactions Advantage to LLP and Partnership.
10 Liquidation Simple Process Will be done according to provisions of LLP Act, 2008 Will be done according to provisions of Companies Act, 2013 Advantage to Partnership.
11 Foreign Direct Investment NRIs/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.
12 Identity of promoters Identities 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.
13 Cost of Formation Least cost of formation up to Rs. 5000/- Minimum Fees to be paid Rs. 5000/- and professional Fees High fees as compared to LLPs/ Partnerships Advantage to Partnership.
14 Restriction of having name There 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.
15 Confidentiality All 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.
16 Registration of Charges Not required in this case Not required Registration, 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)

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