Advantages and Disadvantages of LLP Registration in Madurai

Introduction

Anyone who desires to begin the company in India faces their first essential query of which entity ought to they pick to commence their company and sincerely it’s miles one of the most important query. There are multiple alternatives available to start the commercial enterprise like private limited company, LLP, proprietorship etc. Each of the form has positive advantages based upon which the selection for deciding on one among them is taken.

In simple words, selecting the sort of company is like selecting a vehicle for an extended journey, better the automobile, more comfortable the journey. Hence, no longer to take it lightly, it is one of the base on which the whole business and structure depends.

LLP Registration in India

LLP is a rare mixture of conventional partnership and a contemporary limited business enterprise and therefore, it offers conclusive advantages of the both the entities. The concept of LLP become introduced in the 12 months of 2008 and expectedly, it has gained so much significance thereafter.

However, like every coin has two sides, LLP registrations too have a few dangers and consequently in some instances, it can not be said to be an ideal shape of enterprise. Hence, for better understanding, we’ve got summarised the instances into five motives. So, here are the five motives why LLP registration is not a very good idea.

Raising budget from the Venture Capitalist or angel buyers

If you are a begin-up or employer who’s seeking to increase budget from the angel traders or the venture capitalist, then you cannot sign up a LLP because LLP does not help funding. The prime cause in the back of this disadvantage is that the possession of LLP is classed as interest and no longer as shares and can not be provided to traders in return for the required funds.

Only a limited organisation offers this gain of raising funds in India and hence, in case you are a start-up and inclined to elevate finances, then you want to check in a private limited corporation instead of LLP.

Issuing ESOP’s to preserve good talent into the employer

“A first rate worker is like a 4 leaf clover, tough to discover and lucky to have”

Retaining a good skills is constantly a challenging assignment for the HR supervisor and it’s far even more tough for the start ups due to a high chance involved. Hence, begin-ups and other corporations frequently comes with various information schemes for employee to regularly motivating them and monetising them, every time needed.

ESOP is one of those schemes when each worker is obtainable some shares with a condition of long phrases commitment. ESOP is used as a retention device by various groups and startups.

However, if you are willing to comprise LLP, then unfortunately you may not be able to problem ESOP’s, this is due to the fact LLP registration has no concept of stocks and therefore, LLP can’t trouble ESOP’s to employee to keep exact expertise.

You cannot convert it right into a Private Limited Company

If you watched that you could start a LLP first of all and then convert the same into non-public limited company, then we’ve a bad information for you as there’s no option within the regulation to convert the LLP into a private restricted organization directly.

Also, in future if you want to convert the LLP right into a Private Limited Company, then you definitely shall need to comply with a comprehensive technique which is not usually possible.

Less trust worthy than restrained companies

Trust is one in every of the elements which drive income and which reflect within the shape of brand. Brand is some thing we can accept as true with upon and the identical is backed by using the agency guarantee.

LLP can be a aggregate of traditional partnership or a limited corporation but it’s far still seemed as partnership. So, customers see it as a partnership and not as a business enterprise which in itself is a huge disadvantage.

Forgetting due dates is a crime

Compliance below LLP could be very constrained and is a well reckoned fact. However, it’s miles a advantage until you report the entirety on time. If you forget to conform with the ordinary provision (which may be very regular), then there is a penalty of Rs.100 per day till the date of compliance. Further, there is no most cap on the amount of penalty and hence, in case you forget to conform with 10 days, then penalty could be 1000 and if it keeps for one year, then the penalty would be Rs.36,500 according to form.

LLP Disadvantages

An LLP also has various risks when as compared to a non-public limited company enterprise as underneath:

Penalty for Non-Compliance

Even if an LLP does not have any activity, it’s miles required to report an income tax go back and MCA annual go back each year. In case an LLP fails to record Form eight or Form 11 (LLP Annual Filing), a penalty of Rs.100 in step with day, in line with form is applicable. There isn’t any cap at the penalty and it can run into lakhs if an LLP has now not filed its annual return for some years.

In case of a proprietorship or partnership firm or One person company registration, there may be no requirement for filing an annual return. Hence, simplest penalty under the Income Tax Act could be applicable.

Inability to Have Equity Investment

An LLP does no longer have the idea of fairness or shareholding like a employer. Hence, angel investors, HNIs, mission capital and private fairness funds can not put money into an LLP as shareholders. Thus, most LLPs might must rely on investment from promoters and debt investment.

Higher Income Tax Rate

The earnings tax fee for a business enterprise with a turnover of upto Rs.250 crores is 25%. (Further reduced in 2019 for new groups concerned in manufacturing). However, LLPs are taxed at a 30% rate irrespective of the turnover.

Conclusion

As said, there may be various benefits or dangers associated with the quantity of shape of business. Hence, the decision have to be taken primarily based upon the cutting-edge wishes and future plans in order that one doesn’t ought to suffer at a later stage.

We “Solubilis Corporate Services” are the registered Patent attorney, Company Secretary and Trademark Attorney in Chennai, Coimbatore, Bangalore, Hyderabad, Cochin, Salem, Madurai, Trichy, Tirupur and Karur. We have the crew of well-experienced contributors to do your Company registration in Madurai, Coimbatore, Chennai, Bangalore, Hyderabad, Cochin, Salem, Trichy, Tirupur and Karur. For greater details, kindly go through our website and make a call to us. Our professionals are simply one call faraway from you. Thanks for reading!!!