Difference between LLP and LLC company
Since LLP started in India, in addition to incorporating a traditional limited liability company, it has become an option for entrepreneurs, business owners, and investors to start new ventures to start their business as LLPs Do it In light of this, it is important to understand the benefits of each of these structures, consider the differences between them and which business best suits the need.
Difference between LLP and LLC:
For the formation of LLP, a minimum of 2 partners is required. An entity can be a member of a corporate LLP. Whether the minimum number of shareholders required for a company is 2 and in the case of a private limited company can be up to 50 shareholders.
Steps for incorporation
To constitute an LLP, first you have to apply for a designated Partner Identification Number (DPIN) for the 2 designated partners of the LLP and obtain a digital signature for one of the proposed LLP’s partners. Whether for LLC The first step to include a company is the selection of a name for the proposed company. Then apply for the Directors Identification Number and Digital Signature.
Application to obtain name availability and name for the proposed LLP. Whether for LLC Drafting of Memorandum and Articles of Association.
Drafting of LLP agreement for LLP and filing of incorporation documents consisting of Forms 2, 3, and 4 available at government website to Registrar of Companies. Whether for LLC stamps, digital signatures, and e-filing of MOA, AOA, e-Form 1, 18, and 32 and any other documents if any under the Companies Act, 1956 as stated in the MOA with the Registrar.
Obtaining a certificate of registration of LLP and Obtaining a certificate of incorporation of LLC.
Both LLP and LLC are covered under the Registrar of Companies and both entities protect partners/members from the legal risk arising from the activities of LLP or LLC.
The biggest difference between understanding and taking over a business is the difference in taxation and the need for compliance.
Difference in taxation
Unlike countries like the UK, LLPs in India are not passed through structures but are taxed as entities. Limited liability partnerships are only subject to income tax and optional minimum tax. On the other hand, LLC is responsible for paying various taxes which are income tax, dividend distribution tax, and minimum alternative tax.
Tax levied on limited liability company
First, a company is liable to pay tax on the corporate income. A limited liability company is charged income tax at the rate of 30%.
On payment of dividends, a company is subjected to dividend distribution tax. Under the Income Tax Act, dividend distribution tax is levied at the rate of 16%.
The third type of tax applicable to a company is the Minimum Alternate Tax. Many companies charge depreciation in their books on the straight-line method. Thus, the profit shown is higher in accounts created for the purposes of company law and they can declare dividends. However, for income tax purposes, they charge depreciation on written value which is higher. Thus, for income tax purposes, they may show little profit or loss. These companies are known as zero-tax companies. However, as previously stated such companies show higher profits in their balance sheets. Such a benefit is known as book benefit.
A company has a company registration online to pay MAT on its book profit if the income tax payable on the total income computed under the Act is less than the minimum. From April 2011, MAT will be accessed at the rate of 18% as per the latest Finance Act.
Tax levied on limited liability partnership
The taxation structure for LLP is simple. LLP is only subject to income tax and optional minimum tax. Dividend distribution is not applicable to LLP. Once the profit is declared and the tax is paid by the LLP, the distributed income is tax-free in the hands of the partners. The firm is taxed at the rate of 30%.
From the assessment year 2012–13, LLP will be subjected to optional minimum tax. The purpose behind the imposition of this tax is to rationalize the taxation of LLPs with companies. As many companies converted to LLPs to take advantage of the tax benefits, the Union Budget 2011 introduced a new Chapter XII-BA under the Income Tax Act 1961, an alternative minimum tax at the rate of 18.5% on the adjusted total ( AMT) provides. Limited Liability Partnership Income. According to the new rule, when the regular income tax payable by the LLP for a particular financial year is less than the alternative minimum tax calculated at the rate of 18.5% on its adjusted total income; Such optional minimum tax will be treated as income tax liability of such LLP.
Despite being subject to AMT, LLP offers a lower tax liability than LLCs. Therefore, it is better for a startup to set up a business as an LLP rather than a freelancer and sometimes an LLC.
