Proprietorship vs Partnership vs Pvt Ltd vs LLP, what to do. ?

Advantages vs Disadvantages, what to make for a Startup / New Venture ? Expanding MSME unit ?

Want to open a new Company or LLP ? What are the Advantages and Disadvantages ?

Query in your mind ? What to do ?

So, You have thought of a new idea. Good

and want to start New Joint Venture ? Good

or a New Startup Idea ? Very good

Advantage and Disadvantage

When is Company/LLP better?

When a Private Limited Company is the better choice

• Limited liability with strong ring‑fencing of personal assets.
  “In a private limited company, shareholders’ liability is limited to the amount they invest; personal house, car, and other assets are normally protected from business losses and legal claims.”

• Separate legal entity and perpetual succession.
  “A company has a separate legal personality; it can own property, enter contracts, sue and be sued in its own name, and it continues even if any director or shareholder retires or passes away.”

• Much easier to raise equity capital and bank finance.
  “Banks, NBFCs and investors generally prefer a company structure; shares can be issued to angels, VCs or strategic investors and secured loans can be raised more easily compared to proprietorships or partnerships.”

• Higher credibility with customers, vendors and government authorities.
  “Having ‘Private Limited’ in the name increases perceived stability and governance; many large OEMs, MNC customers and government tenders insist on dealing only with corporate entities.”

• Clear shareholding structure and flexibility in ownership changes.
  “Entry and exit of investors or co‑founders is simpler: shares can be transferred or new shares issued without disturbing day‑to‑day operations, unlike re‑drafting partnership deeds or dissolving firms.”

• Easier ESOPs and employee ownership plans.
  “Employee stock option plans and sweat equity are possible only in a company format, helping attract and retain senior talent in fast‑growing startups.”

• Better suited for scalable, technology and brand‑driven businesses.
  “If the vision is to build a brand, scale nationally/internationally, or eventually list the company, the private limited form is normally the only practical route.”

So, while proprietorship or partnership may be fine to test a very small idea, if you already see clear potential for growth, external investors, bank funding, or building a strong brand, then starting directly as a Private Limited Company gives a solid platform. Less personal risk, more credibility, and easier fund‑raising are three very big plus points of the company form.

When an LLP is the better choice ? 

• Limited liability with partnership‑style flexibility.
  “LLP gives you the comfort of limited liability, like a company, but keeps the internal relationship between partners flexible through the LLP agreement.”

• No minimum capital requirement 
  “There is no strict minimum capital requirement for forming an LLP, and overall compliance cost is typically lower than a full‑fledged company, which makes LLP attractive for professional or service/  small businesses.”

• Lower ongoing costs. ROC returns are many more… MSME return, DPT-1 Return, various ROC Returns. whereas only 2 returns in a case of LLP.
• Simpler governance compared to a company.
  “Board meetings, complicated resolutions and heavy secretarial work can be avoided; partners can design their own decision‑making process in the LLP agreement.”

• Tax efficiency for certain professional setups.
  “For closely‑held consulting, legal, CA, architecture or similar firms, LLP can be tax‑efficient because profits are taxed at the LLP level and there is no dividend distribution tax.” There is No Double Tax… Dividend is not taxed again.. Single Tax in LLP. whereas company pays it twice. There is no second level of dividend tax in the hands of partners as in the case of company shareholders, where profits are first taxed in the company and later again when distributed as dividends . This risk is also significantly reduced if the new business is run as a division of the same company, instead of as a separate company receiving loans from the first

• Perpetual succession with fewer formalities.
  “Like a company, LLP also enjoys perpetual succession; partners may change but the LLP continues, while compliance is lighter than in a company.”… Proprietorship… does not.. Partnership also not sufficient on this point.

So you know the Advantages… ?

You may say … Looks Great. Ok. Feels Big, OK, Get visiting card of a Director….hmmm…. anything else ? Yes or No.

What are the Disadvantages ? Did you think about it ? 

You must read this before you go ahead

First, What is the method of “Closing down” the company, if required. ?

What if, the business idea does not work ?

or, What if you and your new friend / Partner cannot work together due to any reason ?

or, What will happen if you are in LOSSES ?  and there is no Hope of revival in near future ?

Answer to the first set of three questions is …

the Company can be given birth in a week / month… but takes many months/even a year to close down.

Source : https://www.compliancecalendar.in/close-llp

This site also says.. every year Tens of Thousands of Companies and LLP are made but … this site and we ourselves know that average 70% don’t start business or dont continue beyond the first 2 years

Second, Big Risk of being DisQualified and removed from your own Main company ?

What if, the New Company / LLP is not able to file its Annual return ? due to any reason ?

Effect : You will stand Disqualified from all your other companies also .. including your running “existing businesses”.

Want evidence ? see this …

Source : https://cleartax.in/s/director-disqualification-removal-disqualification

• Where he/she is the director of a company that has either –
• a. Failed to file the annual returns for 3 years running
• b. Failed to pay interest on/repay the deposits for over a year
• c. Failed to pay any dividend that was declared for over a year
• d. Failed to redeem debentures or pay interest on debentures for over a year

In short, if your this new Company does not file its return due to mis-up between the partners… you become disqualified to remain director of your main business also.

Can you afford this Risk ?

What is the Probability.. that new business will not work ? ….

you might say it will work 100%… but market past shows that only 30% work and 70% do not work. So, better get somebody else in the family to become the Director till the company becomes of a significance and can be seen as a working company.

Can the procedure to close the LLP or Company be done with single party signatures ?

Of Course not. Both Parties , or say 100% of the Partners  , Directors, and shareholders must sign  the MOU for “closure”.

So, you are in a problem. Yes.

Sad part is that if both parties are not on talking terms,… and other party has nothing to lose…

Reasons ? maybe he has got a job somewhere, or he has left India for job outside India…. or ….. he does not want to pay for the LLP / Company closing expenses……he just wants to tease you …. 

in this case, you are saddled for life.

Daily rate penalty starts in all laws : GST, TDS, ROC, and Income Tax.

Let us see TDS first

In proprietorship/individual cases, many TDS obligations start only after crossing specified turnover/receipt limits in the previous year; therefore very small businesses often have lighter TDS compliance compared to LLPs/companies

https://taxguru.in/income-tax/section-201-consequences-non-compliance-tds.html

Wheres, in case of a LLP or Pvt Ltd company, the TDS starts at first first professional payment

So, Risk of daily penalty of  Rs 200 per day for TDS return non filing alone. 100 days = 20000 Rs, …and 365 days= about 73000 Rs penalty for one Quarter TDS return alone (subject to max of TDS ) … But for non filers… you will not be a non filer.. but … are you organised properly ? Better be.

Need some latest  masala ?

https://timesofindia.indiatimes.com/city/mumbai/film-producer-gets-3-months-ri-for-delay-in-depositing-rs8l-tds/articleshow/69065185.cms

so, even the smallest of thing = TDS is not easy

If you think that this is procedural and can be taken care of. then ok… Else, reach a level of Rs 5 crores p.a. before going in for a company format or LLP format… (usually)

LLP Returns last date ?

LLP Form 11 Annual Return Due Date

Form 11 is due on 30th May of each year. … just 60 days… that is very tight time schedule…..

All LLPs enrolled under the limited liability act, of 2008 need to yearly furnish two forms- Form 11 and Form 8.

Annual Return: Form 11 is needed to be submitted within 60 days of the closure of the fiscal year which is 30th May of each year. (Fiscal year closes on 31st March.)

Account and Solvency Statement: within 30 days from the expiry of 6 months LLP form 8 is needed to be submitted from the closure of the financial year which is 30th October of each year.

Filing of LLP Form 11 is a mandatory annual compliance for all LLPs, irrespective of turnover or profit or business activity. Hence, even a LLP that has no activity must file LLP form 11  

Earlier the late fee was Rs 100 per day without upper limit; from 1 April 2022, the new slab‑based late fee for Small LLPs and others applies, as explained in the linked article

Need some latest  masala ? https://fastlegal.in/blog/llp/reduced-late-fee-for-llps/

The new amended rules will be applicable from the 01st day of April 2022. as per this site

but why go into all this ?

Similar problem in Income Tax, for non filing of income tax returns.

Deemed Dividend

There is a risk of Deemed Dividend, if one Private Limited business is funding a second business… sometimes promoters end up risk of Section 2(22)(e).. Deemed Dividend…. Loan to related party… This is also reduced to ZERO, if the new business is a unit of the same existing profit making company.

So, LLP and Partnership count better in this ground

for risk reduction

So ordinary “Proprietorship” , and “Partnership” gives Freedom, to start and to close

Rule 1 : Start as a Propreitorship / Partnership, and upgrade to a Company or LLP… when you reach a critical cut off point of Turnover

say Rs 10 Crores p.a. or even Rs 5 crores p.a.

so usually, dont Saddle yourself with making a LLP or Company if you are small at this point of time.

Idea 2 : Start ths new business as a “Division” of the existing Business .. as Unit 2 of your main company…. 

this way, same GST number, same TDS number, same PAN, Same CIN, same IE code, same Bank, same limits…

and no extra return , no much extra formality,

Just accounts can maintained separate… you know the Profit and Loss account of that new division separately .

If there is a Loss, it gets adjusted in the first existing running business.

If there is a Need of Funds,  the first existing running business funds it. No need to take out money, pay tax on Dividend, and then invest into 2nd company.  Single unit helps.

There is a risk of Deemed Dividend, if one business is funding a second business… sometimes promoters end up risk of Section 2(22)(e).. Deemed Dividend…. Loan to related party… This is also reduced to ZERO, if the new business is a unit of the same existing profit making company.

So, again, Start new business entity as a Unit of your existing Company. …. Do not create a new entity….unless you reach a critical cut off point of Turnover

Contact us page click here

www.mlgassociates.org and www.mlgassociates.in

Proprietorship vs Partnership vs Pvt Ltd vs LLP, what to do. ? Advatanges vs Disadvantages, what to make for a Startup / New Venture ? Hope this comparison was well taken in positive light.

So, Each situation is different.

Each solution has its up’s and its Down’s

What works for Anil, May not work for Sunil, and What works for ABC may not work for XYZ.

Hence, do discuss with your friends, Family and your friendly CA, for more guidance in these aspects, and what works for you better.

MLG, Helping you Make your Business Better

Interplay of TDS 194Q and TCS 206(1H) — 100% Clarity

Attention is drawn to this line  in last para of 206(1H)

hence, TCS is SUBORDINATE to TDS

RBI portal for Udhgam – Portal to search for your Missing Fixed Deposits and Bank accounts

On 17th August 2023, the Governor of the Reserve Bank of India (RBI), introduced a Centralised Web Portal named UDGAM (Unclaimed Deposits – Gateway to Access information).

This initiative, created by the RBI, aims to assist the general public in conveniently searching for their unclaimed deposits in various banks through a single platform.

The creation of a centralized web portal to locate unclaimed deposits was declared by the Reserve Bank of India in its Statement on Developmental and Regulatory Policies on April 06, 2023. With the continuous rise in the volume of unclaimed deposits, the RBI has been conducting public awareness initiatives regularly to raise awareness about this issue.

Moreover, these efforts by the RBI aim to motivate the general public to identify and contact their respective banks to reclaim their unclaimed deposits. The introduction of this web portal will assist individuals in recognizing their unclaimed deposits or accounts and empower them to either retrieve the deposited amount or reactivate their deposit accounts at the banks they are associated with.

The creation of the portal has been a collaborative effort involving Reserve Bank Information Technology Pvt Ltd (ReBIT), Indian Financial Technology & Allied Services (IFTAS), and the banks participating in the initiative. Initially, the users will have the capability to retrieve information about their unclaimed deposits for seven banks that are currently accessible on the portal.

The search feature for the remaining banks will be progressively integrated into the portal, with full availability expected by October 15, 2023.

List of banks available in Centralised Portal State Bank of India Punjab National Bank Central Bank of India Dhanlaxmi Bank Ltd. South Indian Bank Ltd. DBS Bank India Ltd. Citibank N.A.

Read More: https://www.taxscan.in/rbi-launches-udgam-a-central-portal-web-portal-for-searching-unclaimed-deposits/312130/

TDS Not Applicable on Payments Made to HUDA on Behalf of State Government: ITAT

This was a big problem for businessmen in Haryana.

The HUDA is like a Government, in itself. It is an extension of Government for  planning, allotment, and management of Industrial land

Entrepreneurs usually mistakenly take the HUDA as Government itself. ( … it almost is , and ITAT has agreed that it is so )

Extract : 

The Delhi Income Tax Appellate Tribunal (ITAT) has ruled that TDS is not applicable to payments made to the Haryana Urban Development Authority (HUDA) on behalf of the State Government and the tribunal argued that HUDA is an executing agency, and funds for development works are released after Finance Department sanction, so TDS is not required.

The assessee, Santur Builders Pvt.Ltd, a real estate developer made payments to the Haryana Urban Development Authority (HUDA) for External Development Charges, which were deemed liable to Tax Deductions (TDS) under Section 194C of the Income Tax Act, 1961.

The assessee appealed to the Commissioner of Income Tax (Appeals), which upheld the AO’s order,

The assessee then appealed to the Income Tax Appellate Tribunal (ITAT). The assessee argued that the payments made to HUDA were not liable to TDS under Section 194C of the Act because HUDA is an executing agency for and on behalf of the State Government.

The assessee also argued that the Directorate of Town and Country Planning, Haryana had issued a clarification stating that no TDS is required to be deducted on payments made to HSVP (Haryana Shahari Vikas Pradhikaran), which is the same entity as HUDA.

The Revenue argued that the payments made to HUDA were liable to TDS under Section 194C of the Act because HUDA is a statutory body and not a government department.

The Revenue also argued that the Directorate of Town and Country Planning, Haryana’s clarification was not binding on the ITAT.

The Tribunal observed that HUDA is an executing agency for the State Government, released funds for development works after the Finance Department sanction.

Payments made to HUDA are considered payments to the State Government, and TDS is not required. The Directorate of Town and Country Planning, Haryana’s clarification is binding on the ITAT, issued by a competent authority in line with the Act’s provisions.

The Two Bench Members comprising Kul Bharat (Judicial Member) and Pradip Kumar Kedia (Accountant Member) have ruled that TDS is not applicable to payments made to HUDA on behalf of the State Government, in line with the Directorate of Town and Country Planning, Haryana’s clarification that HSVP is an executing agency for the State Government for carrying out External Development Works (EDW), and therefore, no TDS is required.

for additional details, see : https://taxguru.in/income-tax/tds-edc-payments-huda-deductible-section-271c-penalty-sustainable.html

Contact us page click here

www.mlgassociates.org and www.mlgassociates.in

What to do when you are leaving India for Job overseas ?

Are you Resident ? Non Resident ? Not Ordinary Resident ?

Query in your mind ? What to do ?

You have been living in india, since your birth. Going for Job Abroad ? What are you now ? Resident or not Resident

What does the bank Say ? what does the Chartered Accountants recommend ? What is the ICAI guidelines ? What are the Income tax Law and Rules ?

Relax. First of all, Relax, You are safe in both Conditions, Nothing to worry

See Rule 1 : 182 days or more outside India ?

If you are leaving for “employment” outside India, then …….  you get the wonderful benefit….. you become a pure “non resident”…. as soon as you do 182 days or more outside India in that year .

Means : if you leave Indian airport / Seaport etc in any month from April to August… to even upto 30th Sept , then you surely cannot do 182 days in India

and in that situation == you are validly a PURE NON RESIDENT FOR THAT YEAR

What if I leave India on 15th OCTOBER ?

or anytime between October to March of the year ? then am I a resident or non resident ?

In that case .. yes, you do not get the benefit of that “exemption” . and detailed calculation to be seen

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Contact us page click here

www.mlgassociates.org and www.mlgassociates.in