New Business Setup In India: 4 Things Startups Should Know

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With the positive projections about the startups and the efforts of the government to motivate them, the number of new business setup in India is growing exponentially.

So, if you have a small business you’re doing, this is the time you take a corporate leap and organize your business. Having your company registered in India won’t only protect your business interest but also make customers feel secured in dealing with you.

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Of all types of business setups in India, it’s quite natural that most startups face a lot of dilemma surrounding Limited Liability Partnerships (LLP) or Limited Liability Company (LLC).

Regardless of the type of business you want to setup, to know who is going to share the ownership of the business is one of the major problems you need to consider before you register your company.

By the way, each business type has different implication as the system of taxation is concerned.

And to be smart enough, you have to consider how your new business setup in India will survive amidst all requirements.

For example, you need to know what system of taxation is applicable to your business option and how can you avoid coming under the grip of debts?

Four basic things to know about new business setup in India

Taking a glance at the following points can help you to understand how to carry out your plans on setting up LLP and LLC in India effectively.

So, here are the four most important things you need to know about new business setup in India:

Basics of Setting up Limited Liability Partnership in India

Setting up a limited liability partnership (LLP) in India is a form of business that provides the advantages of a limited liability company (LLC) and the smoothness of a general partnership.

The startups should make the decision based on their long-term goals and remember that the initial size of the business should be small.

If you are planning on having a new business setup in India, you have to envisage where you want to see yourself in the long run or within a period of five years.

When the business grows in size, the startups may have to incorporate more professionals in the team of management and additional stakeholders for managing the everyday affairs of the business effectively.

It is the structure and the law governing the companies that makes it easy to incorporate more stakeholders.

LLP is an ideal option as the startups run on a small scale based on a particular area.

Similarly, a company enjoys better confidence and credibility of the stakeholders, investors, and partners when compared with LLP due to its strict adherence to the legal compliance, other laws, and the Income Tax.

Procedures and Cost of Setting up a New Business in India

Whether you are setting up LLC or LLP, you must know that the latter is more cost-effective than the former as the minimum statutory fee is much lower.

Apart from this, the creation of LLP requires fewer legal compliance.

For instance, whether it is the LLP agreement or the state in which it is incorporated can be filed within thirty days from the date of registration in Form 3.

Besides Form 3, various other forms may be needed whether you are incorporating a company or LLP such as the location of the registered office, approval of the name, and the details of the directors and the partners.

In addition to this, a company requires a certain amount as paid up capital to begin when compared to LLP in which there is no minimum amount specified for paid up capital.

The LLP’s also do not need to follow the compliance such as holding statutory meetings, and the quarterly board meetings when compared with to companies.

Audit and Taxation Aspects of a New Business Setup in India

When setting up a new business in India, both the LLP and the company are taxed at a minimum flat rate. However, the LLP’s need not pay any surcharge whereas the LLC are liable to pay a surcharge of 5 % when the net income exceeds five crores.

On the other hand, the LLP must pay an Alternate Minimum Tax on the adjusted net income when the income tax on the net income of the LLP is less than the Alternate Minimum Tax.

The companies are also liable to pay the Alternate Minimum Tax on the adjusted net income at a certain rate when the book profit exceeds one crore or stays below that.

Debt Exposure and Ownership of a New Business Setup in India

In LLP, the partners have the right to manage the business affairs unlike the companies where there is no direct association between the management and ownership.

Forming an LLP is a more suitable option for the startups as the business is managed by a few partners. The partners make similar contributions and get the same salaries as the aim of the founder is to control the business affairs directly.

While planning the India entry strategy, you must remember the choice of a startup depends largely on the characteristics of the business options and the personal funding, and there is no thumb rule that makes one business better than the other.

Conclusion

New business setup In India can be a bit difficult if you don’t have the right knowledge to go about the process. Most startups face different challenges after registering their business because of the mistakes they make in the process.

To avoid making a wrong decision while choosing a business type, study the above four key factors very well. They can guide you on how to setup a limited liability partnership in India.

This post was written by Amy Jones and optimized by Star Royal City Nig. Ltd.

Amy Jones is a certified legal expert by profession and she is associated with Ahlawat & Associates. A leading best law firms in India. She loves sharing useful information about business setup, finance and law with needy people. Follow her on twitter.

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