What is Limited Liability Company?

LLCs or Limited Liability Companies are businesses where the owners are protected against business debts or financial losses as the business is treated as a separate entity from the owners. Rather, the liability is assumed by the company as a whole rather than its partners, owners or investors. 

Types of LLCs in India

LLCs in India can be formed as:

• Limited Liability Partnership

An LLP (Limited Liability Partnership) has features of both a partnership and a company. As per regulations, two partners have to be there to register an LLP. An important feature is that the liability of the partners is limited to the extent of their contributions in the partnership. 

Read more: Limited liability partnership

• Private Limited Company

Any business entity formed as per the regulations of the Companies Act 2013, where the shares are held privately and cannot be freely transferred to the public.  A private limited company can have a maximum of 50 shareholders, while a minimum of 2 must be there at the time of incorporation. 

• Public Limited Company

It is a type of entity defined in the Companies Act 2013 as an entity whose shares can be held by the general public. The shares can be traded on stock exchanges or subscribed through Initial Public Offering (IPO). A public limited company is formed with a minimum of 7 shareholders.

Steps to Register LLC in India

What are the Key Benefits of an LLC?

Let us explore the key benefits of opening an LLC: 

• Limited Liability

The company’s shareholders will have limited liability if the LLC faces legal proceedings for debts or other problems. The liability is limited to the unpaid amount for their shares. 

This prevents members and owners from being personally liable for the LLC’s operations. As the company is a separate entity, one cannot sue the LLC’s owners for the business’s activities.

• Separate Legal Entity

The law considers an LLC to be a separate legal entity, i.e. its existence is not tied up with that of its shareholders. In other words, it can collect assets, take on debt and work under its name separately. Furthermore, it can also own immovable properties such as buildings or real estate. This means that their owner’s personal assets are always safeguarded.

• Perpetual Existence

LLCs have perpetual existence, i.e. they will continue existing as a separate legal entity even after the deaths of their shareholders. This is primarily because shares get passed on to the beneficiaries or nominees after the current shareholders die.

• Transferability of Shares

Shareholders can transfer their ownership to any person of their choice. The buyers will receive the same transferability benefit, so they can sell it off anytime. This is a vital advantage that allows an LLC to have a perpetual existence.

• Immense Growth Potential 

LLCs have immense growth potential as these are separate legal entities and can formulate and act upon their development strategies. These business entities can accumulate assets and acquire loans for expansions. It is also not dependent on its shareholders’ creditworthiness or capabilities, which is beneficial for its overall growth.

What are the Limitations of Forming an LLC?

• Time-consuming and Expensive 

Acquiring a DSC (Digital Signature Certificate) and DIN (Director Identification Number) may be tedious. Moreover, preparing the MoA (Memorandum of Association) and getting the directors’ consent can be quite time-consuming. 

There are several expenses of running an LLC in India. Examples include payment to auditors, financial advisers and tax professionals. Add to this the expenses required for filing ITR (Income Tax Returns), GSTR (GST Returns) and arranging annual meetings.

• Complex Compliances

LLCs need to maintain detailed financial and audit reports. These companies need to maintain records of meetings and ensure that their account books are correct. Failure to comply with these rules may result in hefty penalties. 

Considering the advantages of forming an LLC and doing away with the complications, businesses can explore the RazorpayX business banking platform. 

• Company records are public

A public company is required to make certain disclosures and report their finances to SEBI the stock exchanges. This extreme transparency may be detrimental to the company as it might reveal sensitive information to competitors.

Additionally, excessive transparency can lead to increased scrutiny from investors, regulators, and the public, which can put pressure on the company to meet high standards and expectations.

• Extra costs

Once you have registered your company as an LLC, you may have to shell out extra money for an accountant, since accounts become more complicated and regulated for LLCs. There may also be extra costs pertaining to taxes, legal fees, and compliance requirements.

LLC Taxation in India

Corporate Income Tax for LLCs

• Corporate Tax: Corporate tax is paid on the company’s taxable income. This is calculated after deducting COGS, G&A and other expenses. The corporate income tax rate depends on the turnover earned by the company. For example, companies with turnover up to Rs 400 crore are liable to pay tax of 25% on taxable income.

Capital Gains Tax

• • • Short-Term Capital Gains: Gains from the sale of assets held for less than 36 months are generally taxed as short-term capital gains.
    • Long-Term Capital Gains: Gains from the sale of assets held for more than 36 months are generally taxed at a concessional rate or may be exempt, subject to certain conditions.

Goods and Services Tax (GST):

• • • • LLCs are generally required to register for GST and pay GST on the supply of goods and services. The GST rate varies based on the nature of the goods or services.

Other Taxes:

• • Professional Tax: Depending on the state, LLCs may be subject to professional tax on the salaries of their employees.
  • Minimum Alternate Tax (MAT): If the effective tax rate of a company is lower than the MAT rate, the company is required to pay MAT.

Documents Needed to Open LLC in India

Why Should LLCs Opt for RazorpayX?

Here is a list of the reasons why an LLC should consider RazorpayX: 

• RazorpayX offers completely digital banking solutions to businesses and accelerates the growth of businesses with the power of automation.
• It offers a single dashboard for tracking invoices, paying and reconciling taxes seamlessly, scheduling payments, viewing smart financial reports, and performing easy vendor payments.
• Collateral-free corporate cards enable startups and new ventures to access credit easily. 
• A smart dashboard promises a smooth user experience while managing inflows and outflows.
• Business owners can access their current accounts at their convenience via desktop, laptop, mobile or even smartwatches.
  
  
  Explore RazorpayX!

Start-ups and emerging businesses have massive growth potential, especially if they leverage the technology offered by RazorpayX. This all-in-one business banking platform is an efficient alternative to traditional banking facilities.

Frequently Asked Questions