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Opening a bank account for LLP

There will be some requirements to be fulfilled after online LLP incorporation.  Some of the important requirements are opening a bank account in the name of the LLP, Income tax return, annual compliance of an LLP with MCA. Opening a current bank account is mandatory for every type of entity. It allows receipt or payment of money for business transactions.

Advantages of a Current Account for an LLP

Advantages of the current account are as under:

  • Ease of carrying on business:

A current account makes banking easy. It has more benefits than a saving account. Banks provide many facilities to the current account holder. It also provides value-added services without any additional cost. It provides 24*7 banking, internet banking, doorstep banking, which are very important to run a business smoothly.

  • Easy to manage personal and business transaction:

A current account is for business transactions. Hence, it segregates personal transactions and business transactions. It is useful to record transactions and maintain books of accounts. It will show the true position of the LLP in terms of profit or loss. 

  • Increases creditability:

The lenders always check the credit rating of the LLP before giving any loans. Hence the bank statement of pure business transactions can denote the true rating. Often, a letter of credit or guarantee is needed so getting it from a bank with a current account increases creditability.

  • Professionalism:

In any business, professionalism is a basic requirement. Having a current account shows that the business is operational. Carrying out transactions through the current account increases goodwill of the LLP. 

  • Overdraft facilities:

Every business needs some credit in day to day transactions. In a current account, the bank easily provides overdraft facilities.  Hence in case of shortage of funds, overdraft facility can be availed. Bank may charge some interest, but short term requirements will be met.

While opening a current account all the terms and conditions must be specified for operating the account. After opening a current account, all the partners must deposit the agreed amount of capital in the bank account. After this, business can be started.

The need for a current account

A current account is a first step of post registration compliance for an LLP. It is necessary for every type of firm. A business involves huge transactions daily and with a current account, any number of transactions can be done. It is a non-interest bearing account. Hence it is helpful to carry out business smoothly without restrictions on the number of transactions.

Documents required to open a current bank account for an LLP.
  • Certificate of incorporation of LLP
  • PAN of LLP
  • Registered office address proof
  • PAN and address proofs of all partners of the LLP
  • LLP agreement
  • Board resolution
  • Any other document as specified by bank
Conclusion

The process of opening a current account is easy and fast. Hence it must be opened as soon as the LLP is incorporated, to start the business quickly. A current account is also mandatory for other business registrations such as GST, IEC, etc. So one must open a current account in the name of the LLP to avail all the advantages. An LLP must also need to take care of mandatory post compliances for an LLP.

The post Advantages & document checklist for opening a bank account for an LLP appeared first on LegalWiz.in.

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It is well known that all business must protect their IPs in order to grow. A company may have multiple intellectual properties i.e. Patents, Trademarks, Copyrights, Trade Secrets etc. It is important to secure the IP ’s at the right time to earn maximum profits. This article discusses the key benefits of trademark registration that can help your brand prosper.

Before we dive straight to the point its important know;

What is a trademark?

A trademark is something that helps consumers distinguishes your business from other companies. It can be a logo, slogan, word etc.

Here are some reasons why trademark registration is important for your business:

•    Trademark works like your PR

Trademark is a tool that puts your company out in public. It becomes the brand’s identity. TM is the face of the company. A company’s reputation, services/products are determined by its presence in the market.  For example, in the fashion industry, a trademark / a brand name becomes an incentive for people to choose that brand over the others. If your registered trademark can strike a chord with customers and they believe in offered quality, your brand is bound to grow.

•    It’s an asset for the company

Once the brand has made a niche in the business, its value propels. The brand’s value will increase with business reputation. Hence online trademark registration helps you to monetize that value in the future and secure it from possible infringement. However, trademark registration is possible only if the brand name is unique. hence getting a trademark search before applying for TM is a must

•    Helps you market your brand better

The consumer markets have gone global, and hence the need to be unique and distinct has increased. The recognition a brand gets through the tradename or its unique trademarked design like the coca cola bottle creates an impact on the consumer’s psyche. It helps to make a mark and increase brands visibility.

•    Open avenues for business expansion

Once the registration is complete and your trademark is safe. You have the flexibility to go forward with expansion from one industry to another. In the future, if you plan on selling your business to another corporation, having a registered trademark adds to the company’s value. This allows you to enjoy the fruits of the hard work you have put into building the brand.

•    Exclusivity

Registration makes your brand one of a kind. Similar marks cannot be filed or used. If someone does, you have the right to sue and claim for damages.  Hence it brings clarity and avoids any confusion among the consumers.

The consumers identify the products and services through the trade name. This helps in creating a market reputation and the trademark becomes the face of the company.

•    Rights and legal protection

Registration gives the owner the right to sell, license, and make money out of the brand exclusively. The right to sue the infringers is the most important right of a registered trademark owner.   one can be sure of the infringement claims. Once the trademark is recorded, one may require proper legal evidence in order to defend a trademark publicly.

•    Increases credibility and trust among the consumers

Registration gives the client an idea that the company is concerned about brand building and serving authentic, quality products.

•    Help you make your brand global

 Trademark registration in India helps the domestic traders in getting exposed to the global market through the International Trademark System. Non-Resident Indians and foreigners are eligible to register a trademark in India. Once the notional phase is complete, one has option to go for international registration under Madrid protocol

•    Right to use the registered symbol

Registration allows using the registered symbol beside your trademark for goods and services listed in the registration.

Any company that wishes to prosper and grow should invest in IPR.  It helps the company thrive in so many ways if its structured and managed aptly. Trademarks are the most effective as they are the once’s the consumers are directly connected to. The impact a trademark makes can help companies to create goodwill and a reputation with the customers on a personal basis.

Are you such a company who are planning to invest in their IP? Contact Legalwiz.in for any IPR related query. For online registration of trademark call on 1800-313-4151, professionals at LW will be happy to help you.

The post Know How Trademark Registration Can Impact Your Business appeared first on LegalWiz.in.

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A Trademark helps to differentiate goods or services. It gives an identity to products and services. It gives the right to ownership of such products and services. The question is whether only a registered trademark gives the ownership right? Or an unregistered trademark holder also owns such rights and to what extent? The difference between unregistered and registered trademark will help to clarify.  

What is an unregistered trademark?

Any mark such as a word, symbol, logo, device that gives identity to goods or services but is not registered with the Trademark Act is an unregistered trademark. Unregistered trademarks have limited rights of protection as compared to registered trademarks. It does not have infringement rights but is protected under common law. They can prevent others from using a similar trademark under the law of Passing off.

What is a registered trademark?

Any brand name or logo registered under the Trademark Act is a registered trademark. Registering a trademark will add value to products and services. Such trademark is an asset of the owner. It has a statutory right against infringement. It is always better to have a registered trademark. The validity of a registered trademark is 10 years from the date of application. The owner has to renew it every 10 years.

The difference can be further understood from the following:

A. Validity

A registered trademark is valid all over India. There is no need to prove its existence or goodwill in the market. But in unregistered trademark, one has to prove its noteworthy existence in the market. It helps to claim the goodwill of the brand name. Also, they are limited to a particular city or region only, since they are not well known enough. Hence it is difficult to prove their valuable existence outside their region.

B. Protection

Both registered and unregistered trademark get different protection under a different law. One of the advantages of registered trademark is that it is protected under the Trademark Act. Further, the registration of a trademark is valid for a class or classes within which it is applied. Hence the protection is available in such a particular class or classes. So no one else can use a similar brand name for any goods or services of the same class. While in unregistered trademark the person is not protected for any particular products or services. Hence there is a possibility of usage of similar brand name for the same products or services. Hence the chances of taking illegal benefit of other’s brand name are higher.

C. Right to sue others

A registered trademark owner can sue any person for using their trademark. It must be used in the ordinary course of business. In unregistered trademark, the owner can take protection under common law, where the burden of proof is more. The owner of an unregistered trademark has to prove how the use of a trademark by the other person causes damage to the goodwill of their products or services. If unable to prove it, then one cannot claim such a trademark.

D. Use of sign

If the trademark is registered then the owner can use the “Ò” symbol on its brand name. It increases the authenticity of products and services. Such products or services will be considered as products or services with quality.  The unregistered trademark can use the “Ô” symbol on its brand name. It shows that the brand is not registered and it does not have any legal protection.

Conclusion

The differences mentioned above will ensure a proper decision whether to register a trademark or not. An unregistered trademark does not have any statutory right. Hence a registered trademark is always advantageous.

The post Want to know the Difference Between Unregistered and Registered Trademark? appeared first on LegalWiz.in.

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There’s a lot of buzz around startups for a decade and there are people turning to entrepreneurship overnight. Call it a fad or real passion, but it all boils down to how well you can implement your idea and be consistent about it. The general perception is that startups are glamorous and make you famous. But wait, there’s some reality checks to be done. Falling short on delivering on your own expectations is disappointing, but it is better to take precautions by making sure you know the realities.  

Expectation #1:

I have a brilliant idea and there’s a fair amount of tech stuff involved. There are plenty of fundings made in this space so it won’t be that tough.

Reality #1:

It is thrilling to merge technology with anything that you offer but that will not turn you into a millionaire overnight. Gone are the booming days of dotcom revolution and now with so much of competition around, the bankability of an idea can put investors at sixes and sevens. Starting and registering a new business is surely a step in the right direction but then expectations attached to it can be wrong. That is like building a house of cards which is bound to crumble. What matters more than just the idea is a resilience and staunch courage; be prepared to rack up occasional debts and still make your ends meet.

Expectation #2:

You’d start thinking not to stay committed to a monotonous schedule that a day-time job offered. It may start with thought to do all those little things you always wanted to do in free time and probably visit a place or two that you would, by taking paid leaves at work. So, no more taking leave approvals!

Reality #2:

Let’s get it straight, you will be working more than you ever had. Ever. Period!

There will be countless things left to do & finish and you may often feel running out of time to check that list off.

Plenty of newbies entering the entrepreneurial arena find it difficult to establish a suitable working ecosystem to free themselves from their own small involvement. Initially, though, you can’t escape such situations because you know that the business is built around you. It will require your unvarying attention and even micro-management in some cases.

This happens if you commit a mistake initially by designing a business that is an extension of the founder and not an entity separate from the founder. And you’ll have plenty of operational errands to run; bill payments, keeping customers satisfied and even tapping on every possible opportunity that comes your way.

Expectations #3

I am like friends with my investors! They are my pals! They will understand me and my business decisions because our relationship is beyond money. We share a great rapport; drinks and hugs on weekends. We can’t have fights because our friendship matters more than anything else.

Reality #3:

Well sure, but with a twist. It’s more like friends with benefits; jolly when people are around, morose when things get sour in terms of business.

You only love each other for the money that is involved in the business – both ways. For you will love them when their investments will help you grow business and they will reciprocate till your business helps their money grow. The answer lies in keeping them satisfied with timely returns and build trust. Trust is built over time and you’ll have to prove your worth and their trust in you as well. That’s when you will have a long term relationship – with trust.

Expectations #4

The traditional office spaces will be a thing of past and that human interaction is a highly overrated thing. It just requires proper planning to get and control a virtual team – just leverage the internet. That way I can get natural talent at a cheaper rate from any corner of the world working exclusively for me.

Reality #4

Definitely, a revolution in the form of the remote workplace is doing rounds since past couple of years. There are already a few solutions available in the market that makes the remote working experience smooth. Nonetheless, there’s an old saying you can modify: “keep your friends close, your enemies closer, and your core team the closest”.

Distilling it further, keeping offices least virtual during the initial days will really benefit the business. This is because the emergencies may arise anytime and you will have to take certain decisions on the floor. You might not always have the luxury of Skype calls. There is no way you can replace the physical presence of a team. Building your A-team is the essential part which plays a larger role to define the future of your startup.

Being on floor real-time will also help you supervise the team collaboration and impact. This motivates the team as well, enabling team to run smoothly and cohesively. You may well witness a few signs of things happening in a jiffy on a floor which you’d miss during a short Skype call.

Expectation #5

I came up with the idea and I helped to raise the fund as well. Then why should I give up my share of equity to tech partner? I should be retaining the majority stake in the company and he should be happy with whatever the company has to offer as a part of the equity.

Reality #5

Here’s an interesting story about the idea:

It was not Thomas Edison who invented the light bulb first. He actually worked to make it commercially viable. There were many others chasing to be the 1st one to create a commercial light bulb. But we all know who did it first.

Hence, though ideas are important…executing ideas is the key.

Techies see themselves as valuable assets these days and they do have all the potential to add significant value to the startup. A good, capable developer is easily snapped up by other companies and therefore, the one whom you trust can be the most valuable asset in your team. Giving even a bit more than 50% will have your business reaping the best possible advantages. Or imagine giving less and then seeing the app you just developed disappearing from the app store itself.  An idea way out is to have a mutual agreement at the beginning itself with all the clarifications put on paper.

If you are an entrepreneur now, I am sure you must have had a few things in your head while starting up. What were those expectations? Were you right expecting it? If no, what was your reality when you actually started making money? Do share your thoughts in the comments.

The post Being an Entrepreneur Today – What Does it Mean?<br>Startup: Expectations vs Reality! appeared first on LegalWiz.in.

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MCA has come up with a new update which mandates every specified company to file a new form INC-22 A –ACTIVE. Here is all about new form ACTIVE- (Active Company Tagging Identities and Verification)

Applicability

Every company registered on or before 31st December 2017 has to mandatorily file new eform INC-22 A with the particulars of the company along with its registered office. The company who have filed the form will be marked as “ACTIVE Compliant”.

Due Date

The form must be filed on or before 25th April 2019. The fee for filing form is Nil if filed within the due date. If the form is not filed within the due date, the Company will be marked as “ACTIVE- non-compliant”. Further, MCA will charge late filing fees.

Requirements to file form

To file such form the company must have fulfilled the following requirements otherwise the company will not be able to file form INC-22 A. 

Exemptions

Following companies are not required to file form.

Consequences

If the form is not filed by the company then other than late filing fees and change of the company’s status, the company will not be able to carry on the following activity.

Bottom line

Be compliant with all the filing with MCA to avoid penalties. Hence, file the form INC-22 A within the due date with MCA to keep the status of the company as an “Active Compliant”. This amendment will be applicable from 25th February 2019.

The post MCA introduced a new eform- INC 22 A (ACTIVE) appeared first on LegalWiz.in.

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Which one should you choose and go for?

It is best to decide the ideal business structure before starting a new business. This decision is taken based on many factors like how many people start it. If it is two or more, then registering a Private Limited Company or a Partnership firm serves a better option. Consider the aspects that can impact your business and also the problems you wish to avoid before locking down on any of the options.

Here is an overview for both the business entities:

For a new business, the partnership structure is the simplest and most basic structure. To register a partnership firm is advisable but not a compulsion. It will have a partnership agreement with the objectives, responsibilities, and duties of partners written in it. This will also have an exit strategy for partners with clarity on the allocation of shares for each partner.

On the other hand, Private Company is a little complex but has its own set of perks. Firstly, it creates a separate legal identity which limits the liability of involved members. But then, it is compulsory to register a Company to start a business.

Advantages a Partnership has over a Company:
  1. A simple agreement between two or more people is the only pre-requisite to start a partnership firm. For the Company, there are a few procedural formalities to be fulfilled.
  2. A company is managed by the directors and members with actions governed by organizations like RBI, MCA, SEBI etc. While it is only the partnership agreement that governs the partners. This is why the flexibility and freedom to take decisions is higher. 
  3. Termination of a partnership firm is easier than the Company. It is so because of the agreement which is valid only between the partners regarding the closure is enough. Company closure will require everyone to follow a proper winding up procedure has to be followed.
  4. The company holds a greater amount of credibility compared to other business structure due to its high compliance requirement. Moreover, it is governed by statutory bodies like MCA and SEBI that keep a check upon the business from time to time it. Raising funds is easier internally and even from external sources.
This table will help you gauge and decide which structure is suitable for your business.
  Private limited Company Partnership firm
1. Act Companies Act, 2013Indian Partnership Act, 1932
2. Registration Requirement Mandatory to set up business as a Private Limited Company to comply with the Act. Both registered and unregistered partnerships are legal, but the registered entity is preferred.  
3. Number of members Requires minimum two and max 200 shareholders  It is formed with minimum 2 partners, but not exceeding 50
4. Separate Legal Entity Private Company is a separate entity with an ability to own assets in its name. A partnership firm has no separate identity from its partners.  
5. Liability Protection Liability of members is limited to the extent of the unpaid value of shares subscribed.      Partners are jointly and severally liable to pay the debts of the Partnership Firm
6. Statutory Audit An auditor must be appointed within 30 days of incorporation. Statutory audit not applicable. Tax audit may be applicable based on turnover
7. Ownership Transferability Ownership can be transferred through shares if shareholders give their consent   Ownership is not transferable easily, clause of partnership deed should be referred
8. Uninterrupted Existence Any change in members or directors does not affect the company’s existence. Change in partner leads
to dissolution or formation of another partnership firm.
9. Foreign Participation Foreign nationals can invest under the Automatic Route Foreign nationals cannot be made partner with
10. Tax Benefits A comparatively moderate Tax is levied as the tax rate for small companies is reduced to 25%    The tax levied is 30% of the business profit on which is on a higher side.
11. Statutory Compliances High compliance that includes annual filings. Also, it must comply with plenty of other compliance requirements. Compliance is much less except for filing a separate ITR there are no other mandatory compliances
Bottom Line:

The above table and its preceding information can help you take the right decision regarding choosing the right business structure for your business. Prior to finalizing the structure, it is recommended to render business professional services to take stay sure.

One should always have a fair and transparent view of both – pre and post-compliance requirements. The information about annual compliance is given in our blogs: Annual Compliances for Companies – Important Due Dates

It is always better to have an overview of both the pre and post-compliance requirements. The information about annual compliance can be found here.

Not sure which structure would work for you ?

The post Private Limited Company or Partnership firm? appeared first on LegalWiz.in.

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Browse the Internet, and you will definitely come across scores of business ideas. Each one appears more tempting than the other. Thus, it is must to know when a business idea is worth it. It would need some effort on your part.

If you want to open a business and have enough resources such as money and skills, continue to read. Here I will discuss how to know when a business idea is worth pursuing.

Why Should You Know?

It is important to know whether a business idea is worth pursuing several reasons. Globally, between 60 per cent and 90 per cent of businesses flounder and fail due to a variety of reasons. Shortage of money, low demand for a product or service, and no market research can cause a business to fail.

As a businessperson, it is important to make sure your business does not lose due to these reasons. So, here are some ways to know when a business idea is worth pursuing.

Uniqueness of Business

Most startups or business ventures are copycats of successful enterprises in other countries. You cannot be sure about being successful in India by copying a foreign example.

Businesses that serve Indians by understanding spending habits and other factors can succeed. A great example is the RedBus, which is a brainchild of four Indian entrepreneurs. RedBus became a runaway success due to its uniqueness.

You will know when a business idea is worth pursuing when it is unique. Yet it can meet the demands of several people, regardless of how much money they spend and where they stay.

Demand & Supply

Demand and supply in the local market is an excellent way to know when a business idea is worth pursuing. There are several great business ideas that require minimal investment. Yet, they are set to become great hits because there is ceaseless demand for the product or service.

In such instances, your business idea could be a copycat. Yet, existing suppliers cannot suffice market demands. In India, a food truck or snack stall or making herbal beauty and skincare products can be successful. This is because the demand is far greater than the supply.

Ability to Go Online

Any business idea that provides you with the ability to go online is worth pursuing. The reason is simple. Founder of Microsoft says: “If your business is not on the Internet, then your business will be out of business.”

According to Statista, some 329.1 Indians are projected to buy goods and services online by 2020. These statistics show that your business has to be online too. That is if you wish to get any respectable slice of the proverbial market pie.

A business idea is worth pursuing when it can go online, due to several reasons. An online business enables you to spread into newer markets rather quickly. A sizeable part of sales and profits occur online. Brand development becomes easier when your business has the ability to go online. 

Passion

Another way to know when a business idea is worth pursuing is your own passion. Because your success will also depend upon your relentless passion. You may not have the necessary education or even expertise in some business. Here, your passion can compensate for these deficiencies.

There are several success stories where passion is the sole reason for success. Most such entrepreneurs began with little or negligible skills in that trade. Yet, they were passionate about the field that led to success.

Passion for business will also help you rise above the times when you feel the business can fail. Almost every successful entrepreneur or businessperson has been through this phase of self-doubt. Yet, if you are passionate about it, the business idea is worth pursuing.

Swift Turnarounds

Also, find whether you are able to turnaround your business swiftly. This means you can innovate your business, its operations and other functions rapidly. A business idea is worth pursuing only if it offers ease to innovate and turnaround quickly.

Worldwide, many companies ran into huge losses or failed because they could not a turnaround. So, their product and service offerings took a body blow from competitors. Regardless of whether a business is small or large, rapid turnarounds are necessary.

Delegation of Authority

A business idea is only worth pursuing when you can delegate authority over who runs it. Opening a business where delegating responsibilities is impossible is not even worth considering. You are not a supernatural being to run a business round the clock. Find a business where duties and responsibilities can be easily given to staff or a relative.

Delegating responsibilities has its own inherent benefits. You are able to develop a second line of command, should you need to leave for any reason. Also, you are developing the core capabilities vital to the success of your business. Highly centralized businesses, regardless of how small, usually exhibit retarded growth. Decentralized ones flourish faster.

Other Considerations

There are several other things to know when a business idea is worth pursuing. Any business that can get excellent word-of-the-mouth publicity is worth pursuing. So are business ideas that help to improve people’s lives rather than focusing on profits.

Always follow your gut instinct to know whether a business you are considering is worth following. A lot of great businesses were born when ordinary people attempted to fill a much felt void. Unless you can do that, no business idea is worthy to pour your money and efforts into.

In Conclusion

When opening a business, your investments are much more than money. Hence, investing every resource needs to be done with astuteness. These suggestions will help know whether any business idea is worth pursuing or not.

The post How to Know When a Business Idea is Worth Pursuing appeared first on LegalWiz.in.

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Ministry of Corporate Affairs has taken a vital step to safeguard the micro and small sector businesses. Such businesses were incurring debts due to unpaid or delayed receipts of goods and services provided by them. To find and reduce such debts MCA has introduced a new form in which all specified companies have to file the return with MCA who has made delay in payment to the Micro and small business.

What is MSME Form I?

It is the new form introduced by MCA. Such form is for the filing of half yearly return for the outstanding payments to Micro or Small Enterprises.

Applicability

Every specified company has to file details of all outstanding dues to Micro or small enterprises suppliers existing on the date of notification within 30 days from 22nd January 2019.

Specified company

All companies including Public, Private and One Person Company who get supplies of goods or services from Micro or Small enterprises and whose payment is due or not paid for more than 45 days are included in the specified company. All such specified companies have to file this form.

Definition of Micro and Small Enterprises

According to the MSME Act, the micro and small enterprises include the following enterprises.

  • Company
  • LLP
  • Partnership firm
  • Sole Proprietorship firm
  • HUF
  • Association of Person
  • Co-operative Society, etc
Sector Micro Small
Manufacturing- Investment in plant & machinery does not exceed Rs. 25 Lakh More than Rs. 25 Lakh but does not exceed Rs. 5 Crore
Service- Investment in equipment Does not exceed Rs. 10 Lakh More than Rs. 10 Lakh but does not exceed Rs. 2 Crore
Due Date for filing form MSME I

The form MSME-I is to be filed twice every year. But the first time it is to be filed within 30 days from the date of notification which is 21st February 2019. After that half yearly return is to be filed every year.  The due date is 31st October for the months April to September and 30th April for October to March of every year.

Exceptions

This form is not to be filed in the following cases.

  • An enterprise which falls under the definition of medium enterprises (Manufacturing sector- Investment in plant & machinery is more than 5 crore but does not exceed 10 crores and Service sector- Investment in equipment is more than 2 crore but does not exceed 5 crores).
  • If the payment is made within 45 days and there are no pending dues to such enterprises for more than 45 days.
  • In case of pending dues for more than 45 days to enterprises other than Micro and Small. 
Penalty

In case of non-filing of form or filing incorrect information, the MCA shall charge a penalty to both- the Company and Directors or Authorized person.

Conclusion

All such companies to whom this form is applicable shall file the form within the due dates to avoid hefty penalties. Hence, start finding your suppliers who are Micro or Small enterprises and registered under the MSME ACT and whose payment is due for more than 45 days.

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LLP was introduced a decade ago. But, it has not successfully received wide acceptance from targeted segments. Some misconceptions are still prevailing in general about this structure. Today, I am going to clear up many such misconceptions.

Myth 1: LLP has higher tax liability than Partnership

LLP is a corporate structure. So, many assume that the tax liability is much higher compared to the general partnership. This becomes a common reason for lending upon Partnership and not LLP.

Well, let me clear this up. LLP is just another Partnership for tax authorities. Whether it is the tax on the firm’s income or partners’ the provisions are the same for both structures.

So, if this reason is holding you from LLP registration, let’s not stop. But, let’s not forget to consider the next point.

Myth 2: There is no Compliance for LLP

This is completely untrue. It is a corporate structure formed under the LLP Act, 2008. The same prescribes much compliance at various events. LLP must file annual returns, even if it has no transaction during the year. Also, Income Tax Return filing is a must for an LLP.

While running a business, there are many instances to change LLP agreement or any of its clauses. Any change in the LLP Agreement also requires intimation to RoC. Check out the Post Registration Compliance Checklist for an LLP.

While few follow this understanding, others believe in the next.

Myth 3: Compliance level is too high like a Company

No, that is not true. Yes, you need to file a few forms regularly.  But, the level is much lesser than a company. Unlike a company, an LLP does not need to maintain registers and conducts meetings. There is no procedural formality like meetings or resolutions unless provided.

Further, Audit attracts yearly fixed cost for the company. But in LLP, it applies after crossing any of the following limits:

  • Turnover – INR 40 Lakh
  • Capital Contribution – INR 25 Lakh
Myth 4: Partners get limited returns

I will again repeat point 2. It is a Partnership. And Returns are not termed as the dividend here. Partners get returns in following three heads:

  • Remuneration
  • Interest on capital
  • Share of profit

The partners can take home all the profit in pre-decided ratio because there is no limit for distribution of profit. LLP structure provides the flexibility to decide how and when a partner is paid. However, you must consider what is allowable remuneration to partners under Income Tax law.

While the dividend from the company is double-taxed, it is not the case in LLP. Therefore, the distribution of profit is quite cost-efficient here.

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Myth 5: LLP is ideal for investments

This does not fit to the definition of myth. Funding needs have been observed as one of the primary reasons for choosing a corporate structure. Therefore, I wanted to clear your thoughts on funding in an LLP.

It is fairly observed that a Private Company is preferred over an LLP for investments, even if both offer limited liability and many similar features. I can outline the following reasons why a company wins the race:

  • In a company, it is equity-based ownership and sharing.
  • Shares are more transferable compared to capital in LLP.
  • Further, share can also be issued at a premium. But an LLP does not stand chance for same. Therefore premium is a primary reason for investors’ attraction to the company structure.
Myth 6: Profit sharing and the capital ratio is the same

Generally, while execution of LLP Agreement, partners understand that the profit sharing ratio and capital contribution ratio must be same. The fact is that the partners are free to decide both.

Profit sharing ratio is what a partner takes home. And capital is what a partner contributes to business. Further, capital decides the ownership. Both factors are independent of each other.

Myth 7: There is no distinction between partners

If you have carefully understood what an LLP is, you will find two types of partners – Partner and Designated Partner. This distinction is not provided in Partnership but in LLP. As LLP is a separate legal identity, it needs to assign the responsibilities and obligations on a specific person. Therefore, there are designated partners appointed. Apart from prescribed responsibilities, such partners are responsible for the annual and other compliance of the LLP. Understand here how Designated Partners are different from other partners in an LLP.

Myth 8: All data is accessible to the public

This confusion is created as that is the case in a Company. However, in LLP the data of partners is reserved. Where name, DIN and other details of Designated Partners are available on the MCA portal, it is reserved for general partners.

Further, the LLP agreement is also a private document. The concern is raised because it also outlines the internal agreement between partners.

The documents such as annual returns, financial statement and other forms are made public. The banks, FIs and other parties to a contract build the business credibility based on these documents. Hence, if you find public documents as a demerit for you, you should rather consider it as a plus point.

Myth 9: LLP registration is an expensive affair

Last, but not least. If you believe that LLP is costly to set up as compared to a general partnership, it is not true. The registration cost heavily depends on the professional’s services and changes because the Government fee is fairly constant. While it is up to you to choose a professional, we are taking into consideration the Government fee for registration. The form filing fee is nearly 750-1000 INR at present for online LLP registration. The process also requires paying stamp duty for execution of the agreement. Payable stamp duty is decided based on the capital contribution and the concerned State. The basic amount payable is INR 500, however, varies based on these factors. The formation is affordable with LegalWiz.in services. Further, our customised offerings help to choose the right package in a cost-efficient manner.

Bottom Line

While starting a business you need to understand the structure from basics. The business structure primarily affects the manner of operations, taxability and many other matters. Therefore, choose the business structure wisely and clear up any misconception you have. I have tried to address the misconceptions, which we have come across frequently. If you still don’t find your answer, LegalWiz.in expert is just a call away.

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The post LLP in India: Myths you should not be blinded by appeared first on LegalWiz.in.

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When one wants to own a business single-handedly then there are limited options as to the form of business. One can start by registering a Sole proprietorship firm or One Person Company. One cannot change the structure of business in a short span as and when required. So it is a major decision selecting the right structure of business right at the start. Here is the guide which helps to select the right form of business in case of single ownership.

One Person Company

The Companies Act, 2013 introduced the concept of One Person Company. It is a form of business with dual benefit. One is the benefit of single ownership and the other is the corporate structure. One Person Company means a company with a single member or a single shareholder. OPC can be started with 1 director – which is not possible with a Private or Public company. Yet, the incorporation process of OPC is similar to the process of other company.

Sole Proprietorship Firm

A  Proprietorship firm means firm run single-handedly. It is not a separate legal entity. Hence the proprietor is liable for each decision. The proprietor is the sole controller of the business.  A proprietorship firm is registered in different ways as there is no specific ACT to register it.

Given below are the differences between One Person Company and Sole Proprietorship

  One Person Company Sole Proprietorship
Separate Legal Entity OPC is a separate legal entity and it can sue & can be sued. Proprietorship firm has no separate legal existence.
Liability of owner The liability is limited up to the paid-up share capital of the company. The liability is not limited up to the fund invested in the firm. If needed, personal assets can also be used to repay the amount.
Number of directors Minimum 1 director is required and a maximum of 15 directors can be there in OPC. There is no concept of a director in a proprietorship firm. The sole owner is the only person involved.
Succession The nominee of the OPC will become the member in case of death of the member. There is no perpetual succession. The firm will dissolve in case of death of the sole owner.
Registration Registration of OPC is done with Registrar of companies. It is an online process managed by the Ministry of Corporate Affairs. It can be registered under MSME, Shop & Establishment, GST, Professional Tax, IEC, etc. Because there is no specific Act for it.
Taxability It is a company and the tax rates of companies are applicable to OPC. As there is no separate existence the income will add to the income of proprietor. The proprietor is liable for tax as per the tax slab of an Individual.
Compliance As it is governed by the Companies Act, the compliance’s are more as compared to proprietorship firm. But there is less compliance as compared to other types of companies. There is no mandatory compliance other than filing an income tax return. However one has to comply with other Acts as applicable, such as GST.
Public Data The data of the OPC are available on the MCA portal. The constitutional documents such as MOA and AOA are also available in the public domain. One cannot find the data of the firm anywhere.
Creditability The creditability of OPC is more due to its transparent business structure and data is easily verifiable due to free access. Funds from banks and the financial institution can be raised easily. The creditability is very low in this type of firm. Creditability depends on the experience and performance of the proprietor.
Unique Name OPC will have a unique name. It is different from any other entity. And any other person cannot use a similar name for its business.  One can check it online through the MCA portal. One can start firm with any name. It can create confusion for the customer if the names of firms are similar.  
Constitutional documents The Company will function according to its constitutional documents. The Memorandum of Association and Articles of Association are considered its constitutional documents. It is managed single-handedly and not governed by any ACT so it will not require any such document.
Lock-in period To convert OPC into a Private limited company or Public limited company, a minimum 2 years must pass except in specified case as given in Act. No minimum lock-in period to convert a proprietorship firm to any other entity.

The differences listed above between the two forms of businesses will help to select the correct form of business.

Conclusion

The concept of One Person Company is new in India. Hence it will take some time to gain acceptance amongst entrepreneurs. For a single owner, it is the best form of business with a corporate structure. OPC also has more compliances than a proprietorship firm. The nature of business can help to decide the structure of a business.

The post OPC or Proprietorship? Which one should you choose? appeared first on LegalWiz.in.

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