A Limited Liability Partnership can save you a lot of money and time if you dare to get into business without VC funding. Save on fixed costs, tax and – most of all – on compliance fees.
Most businesses we discuss in the start-up world are private limited companies. All these businesses have received funding, and would probably have not existed had they not received it. But, let’s face it, not all businesses want, need or even get funding from VCs. Just 1% of incubated start-ups get funding. So why not look to other business types, particularly if they help you save both time and money? Let’s examine the case for starting an LLP.
Of the business types that give you limited liability, the LLP is the cheapest. By picking it over a private limited company, you’re saving Rs.5000 immediately. Moreover, it takes fewer days to get started. And unless you want to raise funding, it does not reduce your opportunity in any way.
With a private limited company, you need to pay Minimum Alternate Tax (MAT), Divident Distribution Tax (DDT) and wealth tax of 1% on all profits over Rs. 1 crore. There are savings on all three with the LLP. Now, let’s say you’re an advertising agency with no need for funding. Rather than start a private limited company, you could incorporate an LLP and save on all these taxes.
An LLP must have an auditor only if it has a turnover over Rs. 40 lakh or a capital contribution over Rs. 25 lakh. A private limited company, on the other hand, must appoint one within 30 days of receiving the incorporation certificate. Auditors, if you’re wondering, don’t come cheap, either. Expect to shell out Rs. 15,000 to Rs. 20,000 on even an inexperienced one. If you have an LLP, you could put this money into your business.
Mandatory Compliance Costs
The compliances that private limited companies need to meet are huge, and begin on the date of incorporation. Over the first year itself, you will end up spending Rs. 15,000 at even a small CS firm. The better ones are more expensive, of course. On the other hand, an LLP will only cost you Rs. 2500 in compliance fees. There’s more: you would also need to invest time in managing this effort. This money and effort could go into building your business.
Job Works Costs
A private limited company needs to intimate the Registrar of Companies (RoC) when it makes any change to its structure. Occasionally, these changes can involve a lot of effort, requiring a meeting of the board and filling in forms you would need a CS to go over. With an LLP, there is no such need. A declaration to the RoC would suffice.
All in all, the LLP structure could help a variety of businesses, from web development shops to digital marketing agencies, run more efficiently. Do consider it if you’re thinking of starting up.
[Hrishikesh Datar is Founder & CEO of Vakilsearch.com, which specialises in LLP registration.]