When you finish planning for your business, it is time to get into some kind
of excitement as you put the ideas into work and form a company. However, you
must have a legal entity as well for the protection of your assets, but you may
not have an idea of how it is going to be. When it comes to LLC or Limited
Liability Company, you have often heard how easy it is to set it up, but you may
still wonder if it is actually the perfect option for your business. What are
some of the pros and cons ofsetting up LLC in India? The points below can
resolve your queries.
Knowing the Basics
Of the types of business entities, some of them offer good protection against
the liabilities while the rest do not. Ideally, the LLC follows the middle
ground, thereby protecting its owner from personal liabilities. On the other
hand, it also offers you the flexibility of operating your business without the
prying eyes of the corporate world.
While setting up a business in India, you will discover that the LLC’s are
protected by the same legal options as the big corporation that is highly
guarded against personal liabilities. The owners of the limited liability
companies are taxed and categorized as sole proprietors, which implies that the
income generated from the business passes via the personal income taxes of the
members. However, the laws may be different in the states and complying with
them can be burdensome for the owner. Moreover, not complying with the
regulatory mechanisms can expose the business and your family to certain risks.
Therefore, it is extremely important to consult with law firms in India while
finalizing the decision to form your company. It is a better idea to learn as
much as you can and get information before you start your efforts.
Understanding the benefits of LLC
During a business set up in India, you must focus on the positive aspects of
starting an LLC at first. As the name indicates, the liabilities of the members
for this business prospect are restricted to their own investments. Therefore,
if your business is sued due to any reason, your personal assets such as the
real estate and bank accounts stay protected. The most you can lose is the money
you have put into the business. However, this is not comprehensive protection as
the members of the LLC can still be held for their criminal acts.
Moreover, the income from the business can be treated as your personal income
and not subject to government regulations. Apart from this, there is no limit to
the number of owners in this business structure. Furthermore, the amount of
money to be invested in the business does not need to be equal to the percentage
of ownership. Finally, the limited liability corporations do not need to have a
board of directors or need to hold annual meetings. During the India entry
strategy, you have to keep these points in mind.
Cons of LLC
The owners of these businesses need to work hard to find new investors and
capital sources due to legal bindings. To be able to file as a corporation, the
owners need to pay more fees. Besides this, some categories of businesses such
as insurance companies, banks, and medical service companies cannot function as
LLC’s. The lawyers in India are the best people to guide you whether your
business can actually function as a limited liability corporation. Often, the
difference of rules across the states can create confusion, so the owners need
to stay careful.
Summing it up
Once you go through the pros and cons of forming an LLC in India, you can go
ahead and consult a lawyer to help you to form the company and prepare the draft
of the operating agreement.