No matter in what form of online business you are in, it is always recommended to complete the dirty things first. Lot of people take it lightly and then fall prey to unnecessary future problems. I’m talking about obliging to the local government regulations. In lots of countries there is still not much awareness about various regulations related to online business specifically blogging, affiliate marketing, online training etc. Even the best Chartered Accountants find it very confusing.
This is my true story, like any new blogger even though knowing that I need to pay taxes on my online income and as per law it is my duty to complete all the compliance, I thought will do it later.
And one day something bad happened…
“I realized my mistake when I had to apply for a loan and my income was not reflecting in my ITR. My family CA scolded me for this carelessness, as the income figures being reflected in my PayPal account were big.”
Then I started reading a lot about what is the way out now and found that lot of people worldwide have faced troubles due to this silly mistake. I always knew that I am earning income so I need to pay taxes on that no matter in what form the income is coming to me but it was just carelessness that I kept on delaying it.
Now I knew that I need to register a company or at least open a Current Account, but I thought lets complete it once for ever so my research started. As mentioned above it was hard to find a consultant in a developing country like India who can guide me on various legal and taxation aspects of my business. I was earning through four different modes
- Advertisement revenue from Blogging.
- Paid link placements on my site.
- Affiliate marketing commissions.
- Online training revenue.
- Sales from e-books.
- Salary from Job (Not any More)
The main mistake which I was doing again was that I was searching for a cheap chartered accountant. I then contacted one of my close friend who was running an IT startup and was also doing some online training etc through whom I was able to find a person knowledgeable in these aspects.
Since I have gone through this phase and I know that a lot of you who have just started with blogging couple of months back, would also be curious about the same, so I wanted to write this article to help you all.
When we do the research, we get confused in two options at the end, that whether I should form a private limited company or limited liability partnership. Technically speaking a limited liability partnership has many advantages over others when it comes to registering a company which is mainly into services and not manufacturing. LLP actually is a combination of advantageous of a private limited company and a partnership company.
Although a partnership would be much cheaper to form because it can be used without registering as well. However when you actually go and try to register it you will find lot of agents will charge you approximately 15 thousand rupees for it. On the other side registering an LLP is much cheaper because it can be done online.
The following comparison chart would be able to guide you better
|Partnership||Limited Liability Partnership|
|Quicker to form, unless you need to get it registered||Takes slightly longer, because of all the formalities and processes involved|
|Can be terminated quickly||Much more stable and not easy to terminate|
|Registration is not mandatory||Registration is mandatory but possible online|
|Needs a minimum of 2 Partners||Also needs a minimum of 2 Partners|
|Liability of Partners is unlimited. Even the personal assets of the partners can be annexed to pay of the debts of the Partnership firm||Liability of the Partners is limited. Only the amount contributed by the Partners to the firm can be used to pay off the debts of the Partnership firm|
|Ideal for hobbies, very small enterprises or people looking to test the waters||For people more serious and convinced about the business opportunity, this is the safer option|
From the above chart it is pretty obvious that a partnership has some limitations. A knowledgeable and educated consultant who is not greedy would always recommend you to form a limited liability partnership. Drafting documents, entering into contracts with investors is much easier for a LLP although even lot of investors do not understand this and they prefer private limited companies.
Unlike other forms, thee is no minimum capital guarantee requirement for a LLP and it can be formed with the least available money you have. There is no compulsory audit requirement for a LLP if it’s annual turnover is below 40 lakhs rupees. In the case of LLP profits can be easily withdrawn by partners without paying any dividend distribution tax.
You can even form a partnership and it is not mandatory to register it, but God forbid if something bad happens to your business and you fall into a legal trap then your life would be hell. As in this case you will have to fight the case as an individual and not as a company. Even the burden of getting it registered is bigger than a LLP.
No mandatory requirement to get it registered is the only reason people try to form partnerships because they want to stay away from regulations, however the fact is that touts and agents have overly rated the complications with regards to forming a LLP due to some of their personal interests. A partnership might seem an easier route from a regulatory point of view but keep in mind that formalities like tax registration, PAN/TAN card, opening a bank account, getting an IEC etc. have to be followed. Also if your income is above the text limit you will have to file returns irrespective of whether you have formed a simple partnership or a LLP.
I have been there, done that, hence I would always recommend you to go for the LLP route. I’m not an accountant or a consultant hence I will recommend that you consult an educated and experienced chartered accountant because your future plans for your business could be different than mine.