Whether you should opt for an LLP or Private Limited Company?
In India an entrepreneur can opt for a business structure of their choice from many available options. The Limited Liability Partnership (LLP) or Private Limited Company are two business structures and the choice to select one of them depends upon many factors as stated.
Registration Process
The LLP and Pvt. Ltd. Company are registered under Ministry of Corporate Affairs (MCA). LLP is registered under the Limited Liability Partnership Act, 2008 while Pvt. Ltd. Company is registered under the Companies Act, 2013. The LLP must file e-Form FILLIP to register while the Pvt. Ltd. Company must file e-Form SPICe+ to register. The governing document of LLP is LLP agreement entered between the partners while the governing document of Pvt. Ltd. Company is Memorandum of Association(MOA) and Article of Association(AOA).
Ownership
The owner and management in an LLP are the partners themselves whereas in Pvt. Ltd. Company the owner of the company are the shareholders while management control is with the board of directors.
Compliance
In LLP as owners and management are same, LLP does not have to conduct board meetings or Annual General Meeting (AGM). While in Pvt. Ltd. Company the owners and management are different hence it is mandatory for the board to conduct board meetings and Annual General Meeting every year. Statutory audit is mandatory in Pvt. Ltd. Company irrespective of turnover while in LLP audit is necessary only when the annual turnover exceeds 40 Lakhs and the capital contribution by the partners exceed 25 Lakhs.
Taxation
The rate of income tax is fixed in LLP @ 30% irrespective of its total annual income and surcharge @ 12% is added when its annual income exceeds Rs.1 crore. On the other hand, the income tax rate of Pvt. Ltd. Company varies. If the Pvt. Ltd. Company annual income is less than Rs.400 crores it has to pay income tax @ 25% and when it exceeds Rs.400 crores the Pvt. Ltd. Company has to pay income tax @ 30%.
Share of Profit/Dividend
In case of LLP Share of profit is exempt in the hands of the partner under section 10(2A) of the IT Act, 1961 whereas dividend is taxable in the hands of the shareholders as per their respective slab.
Funding
The LLPs cannot raise fund from Venture Capitalists (VC) or angel investors as they need to become partners in the LLP and hence the LLPs are dependent on financial institutions such as banks and NBFCs for funding. In case the LLP is seeking Foreign Direct Investment (FDI) it has to take prior approval of the RBI and Foreign Investment Promotion Board (FIPB). On the other hand, Pvt. Ltd. Companies have the liberty to raise fund from almost all the available resources as they can allot share, pledge shares. FDI is allowed under the automatic route in most sectors of Pvt. Ltd. Company.
Conclusion
To conclude while starting a healthcare firm you have to first define your available resources and goals. LLP are excellent business structure when you have the necessary resources to start and you run your business as compliance is very less. In LLP you are in control of your business and the issue of managing shareholders does not arise. On the other hand if you have resource crunch and want to raise resource in future then Pvt. Ltd. Company is the best option but it will put burden of compliance on you. Also you should have the skills of managing your shareholders as the shareholders are at the liberty of selling their shares to anyone without your prior permission.
Rahul Gupta
Company Secretary
Ishna Advisors India Pvt Ltd