As any startup, one of the first things I did was to try and figure out what kind of a legal entity my company should be. Ruling out proprietorship and a partnership was a no-brainer due to liability issues. It then became a choice between a company (Private Limited) and an LLP (Limited Liability Partnership).
LLP seemed like a great choice. It had the benefit that really mattered – limited liability – and it had none of the baggage (at least from a startup’s perspective) that came with a company – constituting a board, conducting prescribed board meetings along with necessary paperwork and audit. An LLP sounded great because I felt like we would have fewer distractions and we could just focus on building a great product.
The catch – creating an LLP in India is not easy – not at the time of writing this post, at least. Three months passed and I had no clue how much more time the LLP registration process would take. My sense of the situation – The LLP entity was introduced in India only recently (in 2009) and the process for setting it up is relatively new. As a result, the various stakeholders involved in this process – MCA (Ministry of Corporate Affairs) as well as the CAs who typically facilitate this process are still figuring their way around the process. It also appears that while the process is mostly online for both companies and LLPs, in the case of companies, the regional ROCs (Registrar of Companies) help move the process along while in the case of LLPs, ROCs are not engaged and the process is mostly run from a centralized black box.
My DIN approval got done a week after I asked my accountant to switch over to a company registration. I understand the company incorporation will be done in another week. Based on my experience, I would recommend a company for Indian startups:
- The process is super fast
- The overheads (meeting paperwork, audits) can be easily be outsourced
- An LLP cannot be converted to a Private Limited. If you plan on growing big (that’s kinda the point, right?!), you will anyway have to form a Private Limited some day.
- You need to be a company if you are looking to be funded.
Consider the fact that the CA has a lot to do (monthly filings, end of year audit) with a company, while he is needed only once end of the year for a LLP – no wonder the CA’s not interested in getting it done pronto!!!
But I agree, LLP is better than a proprietary firm but not a replacement for a Pvt Ltd.
There does seem to be a conflict of interest as far as the CAs are concerned. It all boils down to the relationship you have with your CA. Mine came through a reference and seems reliable. But you never know…
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Are there any restrictions or requirements on the registered office locaiton?
I am not the expert on this, so you should check with a Company Secretary. However, here is what I was told by my CS:
i) You definitely need to have a registered office with address proof.
ii) If you are working from home and you own it, a lease agreement needs to be formed between you as an individual and the entity you are forming.
iii) I was not able to get a resolution for a situation where you work from home but you’re renting it.
@Param
Regarding the third point, well if u work from home and you r renting the place, then u need to get a NOC from the owner and form an agreement…
if u r renting u need to form an agreement…and obtain an NOC…if u r using ur relative’s home for instance just get the NOC as there is no agreement between you and them as you are not paying any rent to them….you r just using that place as ur registered office an NOC is essential…
@tpc..
it all depends actually..my cousin just recently formed an LLP….got the incorporation done within a month 🙂
Good to know. Thanks!