February 09, 2024 at 06:43 AM
Starting and running a start-up demands strategic and efficient approach. Start-ups who want to choose an LLP structure for their business seek more than just going through a LLP registration process for start-up, they would also like to have a cost-effective and streamlined solution, to achieve this the key is to optimize the process of forming it. In this blog, we would be discussing about the efficient strategy for a start-up that chooses its business to have an LLP business structure , as to why choose this business structure as well to make the registration process efficient and cost-effective
Start-ups when they are in the initial stages of business formation they arent that big, majority of the start-ups in the country are not profit-making since day 1 of their incorporation or day 1 of them doing and operating their business. Hence, it is very important from the perspective of start-ups to make this LLP Registeration Process cost- effective as well as streamlined.
The Indian economy has been growing leaps and bounds, in the last decade, with majority roles being played by entrepreneurs , merely starting a business and choosing the product and how to make it profitable isnt all thats involved in making a start-up successful choosing the business structure is a very important decision that needs to be taken.
LLP is a separate legal entity distinguished from its partner, it has is separate partner different from those of its partners. It is able to buy, rent , own paroperties. One can make business related specific purchases in the name of LLP, and procure taxing benefits. This can help start-ups save money in many ways.
LLP has multiple taxing benefits, there no tax to be paid unless it has not reached a turnover of 40 lakhs, its taxing structure is same as that of a partnership business. The taxes are filed separately by the individual partners. This benefit of taxation helps start-up in being cost-effective in the initial days , when they are trying to be profitable.
In an LLP, there is limited liability of the partners unlike that of a partnership business , the liability in an LLP is to the extent of capital contribution made by its partners, in a partnership business there unlimited liability. In limited liability, the personal assets of the partners are safe, but in an unlimited liability the personal assets are not the same.
An LLP is only made with the motive of making profit, it cannot be made with the motive of charity, doing non-profitable business and pro-bono work. It does not have to comply with CSR activities like that of a private limited company which is governed by the Companies Act, 2013. The prime focus of a start-up to survive in the market must be to make profits as soon as possible so to attract investors, hence this business structure suits more towards start-ups
An LLP is suggestive with start-ups because, start-ups need time to make profit, generally they arent profitable since the first day and this mode of business structure also doesnt compel a minimum capital to start a business like that of a private limited.
An LLP has perpetual mode of succession, it is unbothered by the change in partnership structure it can continue it existence upon the change in partnership structure or the members who are partners in the business.
Because in the initial phases of as start-up there is very much high chance of change in partnership or change in the structre
An LLP must have atleast two partners when it is registered, this is added in the registration process so as to add expertise of another person in business which helps in growing the business. It continues its existence , for a period of 6 months after one partner has passed away or has quit, during that time the liability falls on the sole surviving partner.Atleast, one of the two partners must be an Indian citizen and must be able to incorporate a company in India.
Note: All the filling and the process of registration takes place digitally.
Now, after the registration process we would be discussing the cost of registration, the category of the costs, as well as the other expenses that add up when registering for an LLP,
Category of costs are- Government fees, Stamp Duty, Professional Advisory Fees, Compliance cost.
Costs incurred during registration are- DSC obtaining cost at the time of registration, Reserving LLP name fees, obtaining incorporation certificate fees
Additional costs incurred are- Stationary costs for things used during this time, Registered Office cost, Legal and Consultation fees, Training Cost and Foreign Capital Contribution Cost, if one seeks capital contribution from foreign entities.
Compliance Costs- Additionally there are other costs which would be there like , income tax filling and auditing cost as well as the cost associated with seeking professional help with these complainces
Now, we would be looking at examples of start-ups who were successful and profitable by incorporating this structure of business, and also these start ups would be known to a larger audience of people.
Companies that were startups who were LLPs in their initial stages: Zomato , Swiggy, MakeMyTrip, Ola, Nyka, Meesho, Unacademy. The above named companies were registered as an LLP in their initial stages.
It is very beneficial in nature, it has the flexibility of partnerhsip as well as that of private limited companies.
Profit sharing depends upon the terms specified in the LLP Agreement.
Yes, it can be converted depending upon the decision of the designated partners.
Income Tax filling, as well as auditing every year is the additional compliance that needs to be followed.
Penalties, as per the time delayed and the thing for which it is delayed are charged.
An LLP can operate in multiple states, but additional registrations may be required in those states to comply with local regulations.