Limited Liabilities Partnership Firms and its comparison with other forms of business organization structure.

 

 

A detailed Article on Limited Liability Partnership Firm & Its comparative analysis with other forms of business organisations

A Limited Liability Partnership (LLP) is a form of business organization that combines the features of a partnership and a company. It is registered under the Limited Liability Partnership Act, 2008 in India and has a separate legal identity from its partners. The liability of each partner is limited to the extent of his or her contribution to the LLP and the actions done by him or her in the course of business. Unlike a partnership, an LLP has perpetual succession and can continue its existence irrespective of changes in its partners.

 

An LLP has several advantages over other forms of business entities, such as:

 

- No minimum capital requirement: An LLP can be formed with any amount of capital and the contribution of each partner can be in cash or kind.

- Ease of formation and management: An LLP can be formed by filing an incorporation document and an LLP agreement with the Registrar of LLPs. The LLP agreement defines the rights and duties of the partners and the management of the LLP. An LLP does not need to hold annual general meetings or file annual returns unless its turnover exceeds Rs. 40 lakhs or its contribution exceeds Rs. 25 lakhs.

- Tax benefits: An LLP is taxed as a partnership firm and not as a separate entity. The profits of an LLP are taxed only in the hands of the partners and there is no dividend distribution tax or minimum alternate tax applicable to an LLP. The partners can also claim deduction for interest, salary, commission or remuneration paid to them by the LLP under section 40(b) of the Income Tax Act, 1961.

- Flexibility: An LLP has the freedom to design its own internal structure and governance as per the LLP agreement. The partners can decide how to share profits, losses, management rights and responsibilities among themselves. An LLP can also admit new partners or change existing partners without affecting its continuity or legal status.

 

However, an LLP also has some disadvantages, such as:

 

- Lack of awareness: Many people are not aware of the concept and benefits of an LLP and may prefer to opt for a more familiar form of business entity like a sole proprietorship, partnership or company.

- Limited access to funds: An LLP may face difficulties in raising funds from external sources like banks, financial institutions or investors as they may not have confidence in the credibility and stability of an LLP. An LLP cannot issue shares or debentures to raise capital from the public.

- Regulatory compliance: An LLP has to comply with various provisions of the LLP Act, 2008 and the rules made thereunder. For instance, an LLP has to maintain proper books of accounts, audit its accounts if its turnover exceeds Rs. 40 lakhs or its contribution exceeds Rs. 25 lakhs, file annual statements of accounts and solvency with the Registrar of LLPs, inform the Registrar of any changes in its partners or registered office, etc.

 

An LLP can be compared with other forms of business entities on various parameters, & Tabulated as given hereunder:

 

 

 

 

 

Sr No	Basis	LLP	Sole Proprietorship	Partnership	Private Limited
01	Governing Law	An LLP is governed by the LLP Act, 2008 and the rules made thereunder.	A sole proprietorship is governed by the general laws applicable to contracts and torts.	A partnership is governed by the Indian Partnership Act, 1932 and the common law principles.	A private limited company is governed by the Companies Act, 2013 and the rules made thereunder.
02	Registration	An LLP has to be registered with the Registrar of LLPs by filing an incorporation document and an LLP agreement.	A sole proprietorship does not need any registration unless it is required by any specific law.	A partnership has to be registered with the Registrar of Firms if it wants to sue or be sued by third parties.	A private limited company has to be registered with the Registrar of Companies by filing a memorandum and articles of association.
03	Number of partners/member	An LLP requires a minimum of two partners and there is no maximum limit on the number of partners.	A sole proprietorship can have only one owner.	A partnership can have a minimum of two partners and a maximum of twenty partners (ten in case of banking business)	A private limited company can have a minimum of two members and a maximum of two hundred members.
04	Minimum capital	An LLP does not have any minimum capital requirement.	A sole proprietorship does not have any minimum capital requirement.	A partnership does not have any minimum capital requirement unless it is specified by any law or agreement.	A private limited company has to have a minimum paid-up share capital of Rs. 1 lakh.
05	Suffix used in name	An LLP has to use the suffix 'Limited Liability Partnership' or 'LLP' at the end of its name.	A sole proprietorship can use any name as long as it is not misleading or identical to any existing business name.	A partnership can use any name as long as it is not misleading or identical to any existing business name.	A private limited company has to use the suffix 'Private Limited' or 'Pvt. Ltd.' at the end of its name.
06	Perpetual succession	An LLP has perpetual succession and can continue its existence irrespective of changes in its partners.	A sole proprietorship ceases to exist on the death or insolvency of the owner.	A partnership dissolves on the death, retirement, insolvency or expulsion of any partner unless the partnership agreement provides otherwise.	A private limited company has perpetual succession and can continue its existence irrespective of changes in its members.
07	Legal identity	An LLP has a separate legal identity from its partners and can own property, enter into contracts, sue and be sued in its own name.	A sole proprietorship does not have a separate legal identity from its owner and the owner is personally liable for all the debts and obligations of the business.	A partnership does not have a separate legal identity from its partners and the partners are jointly and severally liable for all the debts and obligations of the firm.	A private limited company has a separate legal identity from its members and can own property, enter into contracts, sue and be sued in its own name.
08	Common seal	An LLP may have a common seal if it decides to do so by a resolution of the partners.	A sole proprietorship does not have a common seal.	A partnership does not have a common seal.	A private limited company has to have a common seal and affix it on all its documents.
09	Liability of partners/members:	The liability of each partner in an LLP is limited to the extent of his or her contribution to the LLP and the actions done by him or her in the course of business.	The liability of the owner in a sole proprietorship is unlimited and he or she is personally liable for all the debts and obligations of the business.	The liability of each partner in a partnership is unlimited and he or she is jointly and severally liable for all the debts and obligations of the firm.	The liability of each member in a private limited company is limited to the extent of his or her shareholding in the company.
10	Agreement	An LLP is governed by an LLP agreement which defines the rights and duties of the partners and the management of the LLP. An LLP agreement can be oral or written but it is advisable to have a written agreement to avoid disputes.	A sole proprietorship does not have any agreement as there is only one owner.	A partnership is governed by a partnership deed which defines the rights and duties of the partners and the management of the firm. A partnership deed can be oral or written but it is advisable to have a written deed to avoid disputes.	A private limited company is governed by a memorandum and articles of association which define
11	Ownership of assets	An LLP owns all the assets acquired in its name and can dispose them as per its discretion.	The owner of a sole proprietorship owns all the assets acquired in his or her name and can dispose them as per his or her discretion.	The partners of a partnership own all the assets acquired in the name of the firm and can dispose them as per their consent.	The members of a private limited company do not own the assets acquired in the name of the company and cannot dispose them without the approval of the board of directors.
12	Principal/agent relationship	Each partner in an LLP is an agent of the LLP and can bind it by his or her acts done in the course of business unless he or she has no authority to do so or exceeds his or her authority.	The owner of a sole proprietorship is both the principal and agent of his or her business and can bind it by his or her acts done in the course of business.	Each partner in a partnership is an agent of the firm and can bind it by his or her acts done in the course of business unless he or she has no authority to do so or exceeds his or her authority.	The members of a private limited company are neither agents nor principals of the company and cannot bind it by their acts.

 

Conclusion: Each of the forms of business organization has its own relative merits and demerits. What is best of these, shall depend on case to case basis and choice shall depend on subjective factors. Having said that, while the sole proprietorship gives absolute control over the management of the business, it may not be suitable for the medium to large businesses, it might be most appropriate for micro level businesses. Partnership forms of business organization, might be best suited for small to mid level businesses, as it brings larger and capital and diverse experience from the partners. However, these two form of forms of business organisations bring higher risk due to the fact that liability is unlimited. The other two LLP and Limited companies reduces risk but increases the compliance.

Odissa Government announces incentives for Investment in specified sectors.

 Govt of Orisa (Odisha) has announced incentives for Investment in the state. In the scheme, capital subsidy is being given upto 20% for priority sector and 30% for thrust sector( of the investment in p&m, no upper cap).Power tariff subsidy of Rs.2 for seven years and Rs. 2 for ten years for priority and thrust sector. 100% SGST reimbursement (upper cap being 200% of Investment in P&M. 100% reimbursement of employer contributions in EPF/ESI for 5 years and seven years respectively for priority and thrust sectors respectively.

Note: Thrust Sector: Aerospace and Defense|Automobile & auto components | Mechanical and Electrical Capital Goods( Equipment Manufacturing)

priority Sector: Ancillary & downstream in Metal Sector| Rare Earth Mineral based value added products| Speciality Steel & its Products.

Protection mechanism available to exporters against credit risk.

 

            How Exportes can protect themselves against credit risk

One of the main protection available to Indian exporters against default by overseas buyers is the export credit insurance provided by the Export Credit Guarantee Corporation of India (ECGC), which is a government-owned enterprise that offers various credit risk insurance covers to Indian exporters and banks. ECGC covers both commercial and political risks that may cause non-payment or delayed payment by the foreign buyers. ECGC also provides information on the creditworthiness of foreign buyers and the country risk ratings to help Indian exporters assess the risks involved in exporting to different markets. ECGC also offers export factoring facility for MSME sector, which is a package of financial products that includes working capital financing, credit risk protection, maintenance of sales ledger and collection of export receivables from the overseas buyers.

 

Some of the export credit insurance covers offered by ECGC are:

 

- Standard policies: These are suitable for exporters who export on short-term credit (up to 180 days) on a regular basis. They cover various types of losses such as insolvency of the buyer, protracted credit by the buyer, non-acceptance of goods by the buyer, non-payment due to war, civil war, revolution or any other disturbances in the buyer's country, etc. The percentage of cover ranges from 60% to 90% depending on the type of policy and the country of export.

- Specific policies: These are suitable for exporters who export on medium or long-term credit (more than 180 days) or who export capital goods or projects. They cover various types of losses such as insolvency of the buyer, protracted credit by the buyer, non-payment due to war, civil war, revolution or any other disturbances in the buyer's country, termination or frustration of contract due to any reason beyond the control of the exporter or the buyer, etc. The percentage of cover ranges from 65% to 85% depending on the type of policy and the country of export.

- Bank policies: These are suitable for banks and other financial institutions that provide pre-shipment and post-shipment finance to Indian exporters. They cover various types of losses such as insolvency of the exporter, credit by the exporter in repaying the loan, non-realization of export proceeds due to commercial or political risks, etc. The percentage of cover ranges from 60% to 90% depending on the type of policy and the country of export.

 

Apart from ECGC cover, some other protection mechanisms available to an Indian exporter are:

•   Export credit insurance from private insurers: Some private insurance companies also offer export credit insurance to Indian exporters, covering the risks of non-payment or delayed payment by the foreign buyers due to commercial or political reasons. The premium rates and coverage terms may vary depending on the insurer and the product.

•   Letter of credit (LC): A letter of credit is a document issued by a bank or a financial institution on behalf of the importer, guaranteeing the payment to the exporter upon the presentation of specified documents within a stipulated time. A letter of credit reduces the risk of non-payment by the importer as the bank or the financial institution assumes the obligation to pay the exporter.

 • Advance payment: An advance payment is a partial or full payment made by the importer before the shipment of goods or services by the exporter. An advance payment reduces the risk of non-payment by the importer as the exporter receives the payment before delivering the goods or services. However, an advance payment may not be feasible or acceptable for some importers who may prefer other modes of payment.

• Bank guarantee: A bank guarantee is a document issued by a bank or a financial institution on behalf of the importer, assuring the exporter that the bank or the financial institution will pay a specified amount to the exporter in case of credit or non-performance by the importer. A bank guarantee reduces the risk of non-payment by the importer as the bank or the financial institution acts as a guarantor for the exporter

Commercial wing of Indian Embassies also play a very important role safeguarding interests of the Indian Exporters.

The role of Indian Embassies in providing protection to exporters against credit risk is mainly to assist and support the exporters in case of any trade disputes, frauds or non-payments by the foreign buyers. Some of the ways in which Indian Embassies help the exporters are:

Providing information and guidance on the legal and regulatory framework, dispute resolution mechanisms, arbitration and mediation facilities, etc. in the host country.

Contacting the embassy of the buyer’s country or any other diplomatic presence the country has in India to seek their intervention and cooperation in resolving the trade dispute or recovering the payment.

Contacting the Chamber of Commerce or other trade associations of the host country to help in following up with the crediting buyer or taking legal action against them.

Providing consular services such as attestation of documents, issuing certificates of origin, etc. to facilitate the export documentation and procedures.

Coordinating with the Export Credit Guarantee Corporation of India (ECGC) or other export credit agencies to provide export credit insurance or other financial support to the exporters.

It shall be clear from above that fairly elaborate mechanism is available for protecting exporters from credit risk, It shall be clear from above that fairly elaborate mechanism is available for protecting exporters from credit risk, Still sometime some exporter tend to ignore this protection mechanism and indulge in highly risky transactions

 It has been seen that exporters get into deals without proper due diligence or without  taking suitable cover that result in loss. One such case was observed where a company from Dubai started importing rice from Indian exporters and paid a reasonably good price. The exporter visited the office of the importer in Dubai and satisfied themselves with the genuineness of the party. The buyer initially imported small quantities and made the payment. After sometime one fine day they ordered one ship load of rice and as usual there was not any insurance cover or any Letter of credit. When the payment was not received on time and follow-up also did not yield any result and later calls went unanswered, the exporter decided to visit the office of the buyer. He was shocked when he reached the office of the buyer he had last visited. There was no office! everything there had vanished. 

Conclusion:

The exporters should take proper cover either in the form of Letter of credit, Bank Guarantee, ECGC Cover etc. Services offered by Indian embassies can also be availed where ever applicable.

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MSME Samadhan: A Scheme to Resolve Delayed Payment Issues for MSMEs

 

MSME Samadhan: A Scheme to Resolve Delayed Payment Issues for MSMEs

Micro, Small and Medium Enterprises (MSMEs) are the backbone of the Indian economy, contributing to 29% of the GDP and 48% of the exports. However, one of the major challenges faced by MSMEs is the delayed payment from their buyers, which affects their cash flow, working capital and growth prospects.

To address this issue, the Government of India launched MSME Samadhan in 2017, a portal for delayed payment monitoring system for MSMEs. The word samadhaan means solution. The portal aims to provide a mechanism for MSMEs to file their grievances related to delayed payments and seek redressal.

How does MSME Samadhan work?

MSME Samadhan is governed by the Micro and Small Enterprise Facilitation Council (MSEFC), which is established under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. The MSEFC has the power to conciliate and arbitrate disputes between MSMEs and their buyers and pass awards for recovery of dues.

MSMEs can register on the portal and file their applications online against their buyers who have defaulted on payments beyond 45 days from the date of acceptance or deemed acceptance of goods or services. The portal also allows MSMEs to track the status of their applications and view the details of pending and disposed cases.

The portal also displays the name and contact details of the buyers who have defaulted on payments, along with the amount due and the date of filing. This serves as a public notice and a deterrent for such buyers.

The portal also facilitates the MSEFCs to monitor and dispose the cases online in a time-bound manner. The MSEFCs are required to examine the applications within 15 days and issue notices to the parties for conciliation or arbitration. The MSEFCs are also required to pass awards within 90 days from the date of reference.

What are the benefits of MSME Samadhan?

• MSME Samadhan provides several benefits for MSMEs, such as:
• It enables MSMEs to file their complaints online without any physical visits or paperwork.
•  It reduces the cost and time involved in resolving disputes through legal channels.
• It ensures timely recovery of dues from buyers and improves the cash flow and working capital of MSMEs.
• It enhances the confidence and credibility of MSMEs in the market.
• It helps MSMEs to access credit facilities from banks and financial institutions.

What are the eligibility criteria for MSME Samadhan?

• To avail the benefits of MSME Samadhan, MSMEs need to fulfill the following criteria:
• They should be registered as an MSME under Udyam Registration Portal or Udyog Aadhaar Memorandum (UAM).
• They should have supplied goods or services to a buyer who is not an MSME.
• They should have not received payment from the buyer within 45 days from the date of acceptance or deemed acceptance of goods or services.
• They should have filed their application within three years from the date when payment became due.

How to register and file an application on MSME Samadhan?

MSMEs can register and file an application on MSME Samadhan by following these steps:

·        Visit https://samadhaan.msme.gov.in/MyMsme/MSEFC/MSEFC_Welcome.aspx

·        Click on “Register here” link under “New Entrepreneur”.

·     Fill in the details such as name, email, mobile number, Udyam Registration Number or UAM Number, PAN Number etc. and create a password.

·        Verify your email and mobile number through OTP.

·        Login with your email and password.

·        Click on “File Application” link under “Entrepreneur Corner”.

·        Fill in the details such as buyer’s name, address, GSTIN, amount due, date of supply etc. and upload relevant documents such as invoices, delivery challans etc.

·        Submit your application and note down your reference number.

·        You can track your application status by clicking on “View Status” link under “Entrepreneur Corner”.

What if the dispute is not resolved at the facilitation council:

Where the parties could not reach solution even with the mediation of facilitation council, the matter is referred to Arbitrator within the meaning of Arbitration and conciliation Act 1996

 Merits and Demerits of the Scheme:

 Merits

·        It enables MSMEs to file their complaints online without any physical visits or paperwork.

·        It reduces the cost and time involved in resolving disputes through legal channels.

·        It ensures timely recovery of dues from buyers and improves the cash flow and working capital of MSMEs.

·        It enhances the confidence and credibility of MSMEs in the market.

·        It provides a deterrent for buyers who default on payments by displaying their name and contact details on the portal.

Demerits

·        It requires MSMEs to have a valid Udyam Registration Number or Udyog Aadhaar Memorandum Number to file an application.

·        It does not cover delayed payments from other MSMEs or government entities.

·        It does not provide any interest on the refunded amount.

·        It does not guarantee the enforcement of the awards passed by the MSEFCs.

·        It does not address the root causes of delayed payments such as poor contract management, lack of transparency, or disputes over quality or quantity.

What are some other schemes for MSMEs?

Apart from MSME Samadhan, there are some other schemes for MSMEs launched by the Government of India, such as:

·      MSME Sambandh: It monitors the procurement of goods and services by Central Public Sector Enterprises (CPSEs) from MSMEs and ensures timely payments.

·  MSME Sampark: It connects MSMEs with potential employers, mentors, incubators and investors through a digital platform.

·     MSME Champions: It provides guidance, grievance redressal and support to MSMEs through a network of control rooms and call centers.

·  MSME Udyam Registration Portal: It simplifies the process of registration of MSMEs and provides them with a unique identification number.

Conclusion

MSME Samadhan is a scheme that aims to resolve the delayed payment issues faced by MSMEs and provide them with a quick and easy mechanism for filing their grievances and seeking redressal. It also helps MSMEs to improve their cash flow, working capital and growth prospects. MSMEs can register and file their applications online on the portal and track their status. MSME Samadhan is one of the many schemes launched by the Government of India to support and promote the MSME sector in the country.

 

 

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