Choosing the Optimal Structure for a US Business Expanding into India: LLP or Company? India Business Setup Services for American Companies & US based Investors

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Introduction to India Business Entry for American Companies:
There are various business structures such as Sole proprietorship, Partnership, Company, and Limited Liability Partnership in the Indian Market. A company can further be classified into 3 types – a one-person company, a private limited company, and a public limited company. Another concept that exists is that of a limited liability company. This concept is very popular in the US. However, there are no separate concepts of Limited Liability Company in India, and the concept of an LLC is very similar to that of a Private Limited Company. In this article, we will understand which business structure suits best for US entrepreneurs from New York and California.

LLP and a Company in India: What American Companies should Incorporate
Although Each of these business structures is governed by different legislations, there are certain similarities between an LLP and a company, such as:
1. The Liability of its members or partners is limited. The personal assets of the members or partners cannot be attached to the business’s debts. Liability is limited to the extent of the unpaid amount of the shares held by the member or to the extent of the capital brought in by the partner.
2. The concept of perpetual succession exists in both Limited Liability Partnerships and Companies. The business continues to operate irrespective of any changes in management/ownership. The company or the LLP is treated as a separate legal entity.

LLP Vs. Company: A step by step guide to businesses incorporation in India by US based Businesses
The following are the common differences between the two business structures:
1. Governing Laws: LLPs are governed by the Limited Liability Partnership Act 2008, and companies are governed by the Companies Act 2013.
2. Tax benefits: Compared to companies, LLPs enjoy certain tax benefits. Companies have to pay tax on the profits earned, and when the profits are distributed among the members in the form of dividends, they are taxed again as dividend distribution tax. In the case of an LLP, tax is to be paid only on profits earned by the LLP but not when they are distributed among the partners.
3. Management and Control: A company is managed and controlled by many people, such as owners, directors, management teams, shareholders, etc. On the other hand, an LLP is managed and controlled by the partners only.
4. Raising funds: An LLP cannot raise funds from the public by issuing shares. It can only issue debentures. On the other hand, a company can issue Equity shares, preference shares, debentures, etc.
5. Statutory Compliances: Compared to LLPs, companies have many compliances and rules to adhere to. They are governed by relatively strict laws requiring more compliance and annual filings.

Which is the best? A decisive Approach for US Companies who want to register their Businesses in India
Various factors must be considered before opting for a business structure. One key factor is the nature of the business. If your business is not a large-scale industry and you plan to settle in the market without any intentions to expand or grow immediately, then an LLP would be a great idea. An LLP with fewer compliances and other benefits can help you settle your business easily.
If your business is large and you aim to expand in the near future, it is better to incorporate a company. A company allows you to raise funds from the public, which will help you grow your business without worrying about capital and liability.
Any US business which wants to enter into the Indian Market shall consider the following factors without fail:
1. Nature of business
2. Long-term plans/goals
3. Desire to raise investment from the public
4. Dealing with statutory compliances
5. Flexibility in business management

Conclusion:
As seen above, it is clear that each of the business structures has its own advantages and disadvantages. If the US entrepreneur wishes to have a flexible business with fewer compliances and small investments, then LLP is the best choice. If you want to make a large capital investment and raise funds from the public, then a company is the best option.
In the above article, there is one common factor that makes one of the many differences between the two businesses: compliance. For any business, it is very important to comply with the applicable rules and regulations. It is very difficult for any US entrepreneur to know and understand all the compliance requirements for any business. Therefore, it is important to hire a local expert who is well-versed in all the laws and compliances. A legal advisor can guide you from the start, i.e., from choosing the best business structure to making sure that all the statutory compliances are met/completed.

FAQs on India Company Registration for US Citizens:
1. Which business structure is most frequently opted for by foreign individuals or entities?
Ans: The private limited company is the most widely used type because of its versatility and limited liability protection.

2. Can I convert an LLP into a private company in the future?
Ans: Yes, an LLP can be converted into a Private Limited Company by adhering to a certain legal procedure as explained by the Companies Act 2013.

3. What are the taxation benefits enjoyed by an LLP as compared to a company?
Ans: Limited Liability Partnership is not taxed same as the companies are. In companies, there is double taxation, i.e., tax on profits and tax on dividends. In LLPs, there is no tax on profits shares among the partners as it is not treated as a dividend. This attracts investors towards LLP.

4. What business structure is best suited for a small scale industry/business?
Ans: For a small scale industry/business, in other words, for a small businessman in the US who wishes to enter the Indian Market, it is better to opt for a Limited Liability Partnership. With less complications and relatively more benefits, LLP can help you enter and settle into the Indian Market easily.

5. Which business structure is better for raising more investment and having huge capital?
Ans: Companies are the best structure if you wish to have a huge capital. A company can raise funds from the public by issuing Equity and preference shares. Whereas, LLP can acquire funds through debts/loans only.

6. Key factors to be considered by US entrepreneurs when choosing a business structure in India?
Ans: Nature of business, Tax implications, Annual filings, statutory compliances, short-term and long-term goals, etc., are some of the key factors that influence the selection of a business structure.
Authored by: Adv. Anant Sharma & Inayat Ahmed

 

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