05/11/2015

AdvantageTaxationLimitedLiabilityPartnershipsORPrivateLimitedCompany

AdvantageTaxationLimitedLiabilityPartnershipsORPrivateLimited
Company?
AL OK PAT NI A
FE BRUARY 1 4 , 2 0 1 3

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FromthetimeLLPhascomeintoexistencewekeepgettingqueryastoHowLLPisdifferentfromPrivateLimitedcompanyfromthepointof
Taxation.
Inthisarticle,wehavetriedtoaddressthisissuewiththeanalyticflowchartandmathematicalexample,astohowthesetwoentitiesaredifferent
fromeachother.

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GeneraloverviewofLimitedLiabilityPartnershipsandPrivateLimitedCompany:
TheLimitedLiabilityPartnershipAct2008waspublishedintheofficialGazetteofIndiaonJanuary9,2009andhasbeennotifiedwitheffectfrom
31March2009.However,theActhasbeennotifiedwithlimitedsectionsonly.TheruleshavebeennotifiedintheofficialgazetteonApril1,2009.
ThefirstLLPwasincorporatedinthefirstweekofApril2009.
InIndia,AnLLPistreatedlikeanyotherpartnershipfirm.
Nopartnerwouldbeliableonaccountoftheindependentorunauthorizedactionsofotherpartners&thereisnojointliabilitycreatedbyother
partners.
LLPshallbeabodycorporateandalegalentityseparatefromitspartners.Itwillhaveperpetualsuccession.
IndianPartnershipAct,1932shallnotbeapplicabletoLLPsandthereshallnotbeanyupperlimitonnumberofpartnersinanLLPunlikean
ordinarypartnershipfirmwherethemaximumnumberofpartnerscannotexceed20.
LLPActmakesamandatorystatementwhereoneofthepartnerstotheLLPshouldbeanIndian.
Provisionshavebeenmadeforcorporateactionslikemergers,amalgamationsetc.
TheActalsoprovidesforconversionofexistingpartnershipfirm,privatelimitedcompanyandunlistedpubliccompanyintoaLLPbyregisteringthe
samewiththeRegistrarofCompanies(ROC).
Aprivatelimitedcompanyisavoluntaryassociationofnotlessthantwoandnotmorethanfiftymembers,whoseliabilityislimited,thetransferof
whosesharesislimitedtoitsmembersandwhoisnotallowedtoinvitethegeneralpublictosubscribetoitssharesordebentures.Someadvantages&
disadvantagesarementionedbelow
Theliabilityofitsmembersislimited
Thesharesallottedtoitsmembersarealsonotfreelytransferablebetweenthem.
Itenjoyscontinuityofexistencei.e.itcontinuestoexistevenifallitsmembersdieordesertit.
Sharesarenotfreelytransferable
Openinvitationtopublictosubscribetoitssharesdoesnotallow
CertainlyLLPmodelismuchmoretaxadvantageouscomparedtoaprivatecompany,whichwehavetriedtoexplainbywayofa
mathematicalexample.
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ToConcludeThus,thereisnodoubtthataLLPstructurehasbettertaxplanningoptions,however,thatshouldnotbeonlycriteriaforastartup
whileselectingthebestlegalentities.
YoucanalsocheckourotherarticleonthistopicWhatsbestforyourStartup?LLPorLimitedCompany?AnAccountantsPerspective
StartupsandotherbusinessesfeelfreetovisitTaxmantra.comforcomprehensiveaccounting,legal,regulatory,taxationandothercompliance
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relatedassistance.Alokcanbereachedoutatalokpatnia@taxmantra.com.

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