Limited Liability Partnership (LLP) advantages

September 2, 2009 at 10:28 am | Posted in Legal, limited liability partnership, LLP, Private limited company | 9 Comments
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Here is a useful article by Sharda Balaji, Founder, NovoJuris Services. NovoJuris is taking care of CS services for LifeMojo/iStrait.

“An LLP is indeed advantageous because of comparatively lower costs of formation, lesser compliance requirements, easy to manage and run and also easy to wind-up and dissolve, no requirement of minimum capital contributions, partners are not liable for the acts of the other partners and importantly no minimum alternate tax (as of date). But, LLP cannot raise money from the public,” stated Balaji, adding, “One other factor that is interesting is that, books of accounts have to be audited if the contribution is above Rs 25 lakh or if annual turnover is above Rs 40 lakh.”

Read the complete article here:  http://dqchannels.ciol.com/content/space/109082902.asp

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Private limited company Vs Limited liability partnership Vs Partnership firm

May 13, 2009 at 4:14 pm | Posted in Company incorporation, Legal, Startup | 17 Comments

Sharda Balaji from Novojuris, wrote a very informative post on pluggd.in on the least understood and most young type of a commercial organization, called Limited liability partnership (LLP).  She also tells the various diff between a Private limited company, a  Limited liability partnership and a Partnership firm in a tabular form. Check out the article here:

http://www.pluggd.in/limited-liability-partnership-llp-company-comparison-297/

Limited Liability Partnerships will be possible in India

January 20, 2009 at 12:08 pm | Posted in Entrepreneur, India, Legal, Startup | Leave a comment

The Parliament of India has passed the Limited Liability Partnership (LLP) Bill 2008. Lok Sabha (Lower House) granted its assent to the Bill on December 12, 2008 which was earlier passed by the Rajya Sabha (Upper House). The LLP Rules have been placed on the website of the Ministry of Corporate Affairs:

http://www.mca.gov.in/MinistryWebsite/dca/actsbills/pdf/LLP_Act_2008_15jan2009.pdf

Here is a wiki entry explaining the salient features:

http://en.wikipedia.org/wiki/Limited_liability_partnership#India

Hope it will give a good option to the entrepreneurs and startups to go for a limited liability and still stay away form the overheads of a private limited company.

limited-liability-partnership-india

Professional Tax in Karnataka India

December 15, 2008 at 5:54 pm | Posted in Finance, Legal | 4 Comments
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I see a lot of questions over paying the professional tax for a company and for the employees. Here is a very useful document which gives you the criterion and slabs for paying the professional tax in Bangalore/Karnataka, India. Hope it will help.

Professional Tax in karnataka India

Cheers!

Private Limited Company versus Partnership Firm… which one I should go for?

November 12, 2008 at 2:45 am | Posted in Legal, Partnership firm, Private limited company | 69 Comments
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In my last post, I shared my experience on Incorporating a Private Limited Company in India. Here I am going to mention the difference between a private limited company and a partnership firm, their advantages and disadvantages and which one you should go for.

Here we start with the difference between the two:

employee_team

Entity:

A company has a legal entity, separate from its shareholders or also called  members. Members represent the company. Creditors and Debtors of the company are of the company alone and they can’t proceed against the members personally.

A partnership firm has no legal entity separate form the members. It dies upon the death of a partner or upon separation between them. Partners are responsible for each and every debt or credit directly.

Liability:

In a company, the shareholders have a limited liability (That’s why it is called private limited or public limited). Individually, all the share-holders have the liability to the extent of the amount of the shares held by them for which they haven’t yet paid for. So once you have paid up the price for the shares to the company, your liability is over. You are not bound to pay anything towards the debts, which the company has incurred.

In a partnership form each partner has an unlimited liability and is personally liable for all the debts of the firm.

Registration and Legal Formalities:

It takes one day to register a partnership firm. While a company registration is a 2-4 week long process. See my previous post on the process and cost of company incorporation. Company incorporation is much more expensive too.

There are many legal formalities in case of a company which are on-going too. For example, The external auditing of the accounts of a company is a legal necessity, but in case of a firm until the annual turn-over doesn’t cross 40 lacs, audit is not necessary.

Management and Control:

All the partners of a firm are entitled to take part in the management. But in case of a company the board of directors, elected by shareholders, control and manage the business.

Every shareholder doesn’t have to worry about the management of the company. Only majority voting power (>50%) is needed to control the most operations of a company (in a few very important cases >75% is required).

While in case of a firm, consent of all partners is required to carry out any important decisions  etc.

Winding up:

A partnership firm can be wound up at any time by any partner if it is at will, without any legal formalities.

Winding up a company is a long and painful legal process. Remember that a company is a legal entity. So when law gives birth to a company, only law can kill it.

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So, here are some of the advantages and disadvantages of incorporating a company versus a partnership firm.

Advantages of Incorporation:

1. Separate legal entity and Limited liability, as described above.

2. Ease of operations, because not every member is required to run the company.

3. Adds credibility to your existence.

Disadvantages of Incorporation:

1. Formality and expenses, throughout its life.

2. Painful to wind-up, if required.

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Overall I would say,

When you are just starting your venture, go for a partnership firm. Once you see a certain level of stability/growth and you need credibility in the market, go for a company incorporation. In B2B deals especially, I have seen the customers being worried if you are not a registered company.

Note: No VC would invest in a partnership firm (No one wants to take unlimited liability). You will anyway have to form a company before your first investment.

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Namit from Lifemojo has mentioned an interesting comment in my previous post.

Namit: “I hope the Limited Liability Partnership would be a better choice for Indian Startups once the bill gets passed.”

So there is something already proposed in Indian parliament called “Limited Liability partnership”, which will have the advantages of both. Cool 🙂

Incorporating a Private Limited Company in India

November 9, 2008 at 10:31 am | Posted in Company incorporation, Entrepreneur, Legal, Private limited company, Startup, Strategy | 58 Comments
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Lot of early entrepreneurs and wanna-be entrepreneurs have a basic question in their mind on How do you incorporate a Private Limited Company? What are the various requirements, formalities, costs, check-lists, processes associated with it?

Here I am writing my experiences while incorporating ‘iStrait Software Solutions Pvt Ltd’, in Bangalore (Karnataka). LifeMojo is the name of the product we have, whereas iStrait is the company name.
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Please note that the information here might not be correct. Its just what I know 😉

In India, a private limited company incorporation, with an authorized capital of Rs 1 lac, will cost you about Rs 15k + the CS professional fee, which varies between 5k-10k. The whole process takes 2-4 weeks.

The Rs 15k here includes Rs 4.8k, which you pay as a tax/duty for the authorized capital of Rs 1 lac.  Rs 1 lac is the minimum authorized capital you need to commit to incorporate the company. It also includes the charges for DIN, Digital Signatures and all the paper work, which is mentioned below in details.

You do not need to invest the entire Rs 1 lac immediately. However, It is the total liability from all the share-holders towards the company, which you can pay anytime later.

Steps for incorporating a company:

1. Get at least 2 directors

Please note that there is no relation between the directors and shareholders. They might be same people or entirely different people. Shareholders appoint directors, who run the company.

You need at least 2 people who will become the first directors of the company. Later, others can be appointed as additional directors. Before becoming a director you need to get a DIN (Director Identification Number). For this required documents are: Address proof, Photo ID Proof, PAN Card and 3 photos.  It costs around Rs 1000 per DIN. As I am writing this article, all the DINs in India are issues from Noida, Delhi. The application is physically couriered to Noida and you get your DIN dispatched from there.

Along with this, at least one of the directors needs to obtain a Digital Signature. This process can go parallel with getting the DINs. A digital signature will cost you around Rs 2500. It is used for uploading various documents to ROC (Registrar of Companies) website.

2. Get a name

You need to think of a name for the company and inform your CS with a list of preferences you have. The CS will get the name blocked/approved as per the availability.

To check the availability, go to http://mca.gov.in/ > “Other Services”  > “Check Company Name”. The law says it should be non-abusive, non-offensive and blah-blah. By the way, “iStrait Software Solutions” and “iStrait Technologies” are treated as two different names.

Ideally, keep the company name different from the product/website name you have. The reason is that the product/website names keep changing. You might even change your business or your domain. But the company stays!

Yes, this adds to a little bit of confusion amongst who hear about you. In our case, it was like “So what is iStrait and what is LifeMojo? Are these two different companies?” But the solution to this is that you never brand/market/advertise yourself with the company name. Always use your product name. Carry your product name on your business card, t-shirts, website etc. Use the company name only on legal/financial documents and in the footers 🙂

The well known job-portal http://www.naukri.com is a product of “Info Edge India Ltd.”. Not many people have heard about the exact company name. They always market themselves by the product name.

3. Get it registered

Once the name is approved and the DINs/Digital Certificates are ready, you need to apply for company registration. You need to provide a registered office address. For a software kind of company (non-polluting) an apartment as a registered address is also OK. But, you need to put a small board once the company is incorporated, as there might be address verifications etc. when you will go for various things like Bank Account, Service Tax number etc.

This is mostly an online process. Here are couple of terms you should know, while applying for registration:

1. MOA (Memorandum of Association): This is a document your CA will prepare, which will have the basic details of a company and the activities with in which the company can function. There will be certain primary objectives and a lot of secondary objectives. Usually the CS guys will put literally every possible business in India in this document, so that you have a scope of changing your business later 😉
Better have a look at the MOA of a company similar to you.

2. AOA (Articles of Association): This is a document which will have rules relating to the management of company’s internal affairs. There are standard templates available for this as well.
You get certificate of incorporation from the ROC, mailed at your registered address…..and you are done! You can commence your business and use the company name as a legal entity.

4. After company registration

– Get your company PAN card.

– Get a rubber stamp. Get letter heads with your company logo. You can chose whatever logo you want. ROC has nothing to do with that.

– Get a current bank account in the name of the company. Try your best to incur all expenses from the company account and receive all the cheques in the name of the company only.

– If you provide any service, you need to charge a service tax and pay it to the state-government. You should get a service tax number before that. Service tax is to be paid to govt on a monthly basis and filed half-yearly.

– If you sell/ship a product, you need to charge VAT and pay it to the state-government. Again, you should get a VAT number before that. Getting a VAT number is quite tedious process as compared to Service Tax number.

– Get a Shop & Establishment License from the state-government. You need to file yearly returns with them.

– If you pay more than 20k per financial year, to a vendor, you need to deduct Tax at source (TDS). This has to be paid to the government on monthly basis and filed quarterly.

– Deduct TDS from your employees’ salary as well (if taxable).

– Pay professional tax for your company and your employees. (Rs 2500 per year for the company and for the employees, it depends on their salary (Usually, Rs 60-200 per month))

PS: Following all these processes prevents you from lot of trouble you might get in future and adds credibility to your company.

Write to me at himanshu[at]lifemojo[dot]com or drop it here itself, if you have any query/comment.

Cheers and all the best!

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