Proprietorship vs Partnership vs Pvt Ltd vs LLP, what to do. ? Advantages vs Disadvantages, what to make for a Startup / New Venture ?
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
What are the Advantages… ?
You may say … Looks Great. Ok. Feels Big, OK, Get visiting card of a Director….hmmm…. anything else ?
What are the Disadvantages ? Did you think about it ?
You must read this before you go ahead
First, Closing down the company ?
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
TDS starts at first first professional payment in case of a LLP , a company and a Partnership.. but you are EXEMPT from TDS net as a payee.. till you have last year turnover over Rs 1 crore… so, you are surely free for first year.. maybe for many many years
So, 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 )
Need some latest masala ?
so, even the smallest of thing = TDS is not easy
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 or pay a penalty of Rs. 100 per day of delay in filing Form 11.
So, daily penalty of Rs 100 per day for TDS return non filing alone. 100 days = 10000 Rs, …and 365 days= about Rs 36,500 penalty for one year one form (Form-11) return alone (.. .no maximum limit = unlimited
Need some latest masala ? https://fastlegal.in/blog/llp/reduced-late-fee-for-llps/
- Completely Removed Rs. 100 Per Day Late Filing Fee and Introduced Rs. 10 ( for Small LLP’s ) Rs. 20 ( others) per day after a delay of 300 Days.
- Per day Late only for Form 8 and Form 11
- 2, 4, 6, 10, 15, 25 Time’s of Normal Filing Fee Applicable based of Number of Days for Small LLP’s
- Small LLP Concept Introduced
- Up to 50 times of Normal Fee applicable to other than Small LLP’s based on Number of Days daily
Higher Late Fee ( Old Rules)
- Rs. 100 Per Day applicable to all types of LLP’s
- No Upper Limit ( Delay of 100 Days costs Rs. 100*100= 10000/- )
- All LLP forms are included in Rs. 100-day system.
A delay of 100 days for Small LLP having a Capital of Rs.1 Lakh will cost Rs. 50*10 = 500 Plus Rs. 50 = Total Rs. 550, resulting in savings of Rs. 9450
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.
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
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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.