LLC (Limited Liability Company) is a business structure that has become popular worldwide. In India, LLCs can be registered as Limited Liability Partnerships (LLPs) and Private or Public Limited Companies.
LLCs can be defined as legal entities where the investors/ owners are protected against business debts, as it is treated as separate entity.
Flexible operating procedures, easy management and legal recognition of being a business entity are a few reasons contributing to the popularity of limited liability companies.
What Are the Different Forms 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.
What are the Key Benefits of an LLC?
Let us explore the key benefits of opening an LLC:
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.
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?
Can Be 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.
There Are Quite a Few 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.
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.
Start-ups and emerging businesses have massive growth potential, especially if they leverage the technology offered by RazorpayX. This all-in-one neo-banking platform is an efficient alternative to traditional banking facilities.
Frequently Asked Questions
Why do different types of businesses exist?
Different business structures cater to different business goals. Moreover, the difference in business structures helps to fulfil different financial requirements of consumers.
Can an established company invest in an LLC?
Well-established corporations, partnerships and individuals can invest in an LLC if they wish to. It will help the business raise capital for growth and development. Legal advisers recommend carefully crafting an operating agreement to address various probable situations. This document will be beneficial for individual investors.
What are the documents necessary to start an LLC in India?
Listed below are some of the crucial documents necessary to start an LLC in India: PAN details of the company Shareholder agreement Founders’ agreement Non-disclosure agreement Certificate of incorporation NOC (No Objection Certificate) TIN (Tax Identification Number)
How long does it take to register a company in India?
If one has all the documents in place, registering a business in India will take around 8 to 10 business days. However, it might require more days if the authorities raise objections and require more documents. Remember that GST registration would require an extra 5 to 7 working days.
What are examples of some famous LLCs globally?
Examples of a few famous LLCs are as follows: Sony eBay Blackberry Nike Pepsi-Cola