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Holding company or Partnership entity???

Jonny (PMT) (35 Points)

28 December 2010

Hi fellow members

wish you all a very merry xmas and a happy new year!

I'm the principal director of our private limited company and we're looking towards forming a new company for carrying out a different business. The new company will be jointly run by me and the second director.
we dont wish to include the third director in this company. As such, is it advisable to form a partnership between director 1 & 2 and start the new company or should we make a holding company of our parent company?

We intend to use the revenue generated from our principal private limited company to fund this new entity.

what is the best course to choose?

thank you!

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5 Replies

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 28 December 2010

Considering the fact that you intend to use the revenue generated from your principal private limited company to fund the new entity, it is advisable to form the new company as a subsidiary company.

If you form a Limited Liability Partnership the compliance formalities will be less as compared to a subsidiary company but routing of funds to LLP may pose a problem.

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ankit jain (CS trainee) (152 Points)
Replied 28 December 2010

Ms. Jayashree,

Would you please elaborate it little bit more? What kinda problem may be posed for funding in case of LLP?

Thanks in advance

Jonny (PMT) (35 Points)
Replied 31 December 2010

am eagerly awaiting for the solution, kindly revert jayashree ma'm

is it advisable to form a separate entity or form a subsidiary of the principal company?
what kind of problems would be faced if we choose the LLP form?

tnx

Vinay B L (Company Secretary) (140 Points)
Replied 31 December 2010

Dear Mr. Jonny and Ankit Jain,

There are many advantages in formation of a Company when compared with formation of LLP. As the name it self indicates the advantage of formation of LLP is, it is having a limited liability. The same purpose will be served even in formation of Company.

But credibility and image wise Company is always better. Suppose you go to a client and say yours is a partnership firm and think you say yours is a company. The image differs!!

Business will always have natural growth. In future you may think of converting your company into public company, in such a case track record of the company will be of great use.

Totally I suggest you to go for formation of a company than partnership firm.

Other members' views are solicited.

Thanks and Regards

VINAY B L

Charu (nil) (122 Points)
Replied 31 December 2010

Hi,

I agree with the views expressed by Mr. Vinay. Forming of Pvt .Ltd Co, in this case will be benificial. The private ltd companies have clear cut set of rules and regulations prescribed under the Companies Act, whereas, the LLP is rather a new concept as yet.

Ms. Jayashree is right to point out that routing of funds is rather easier in case of Holding company, whereas, there are no such prescribed rules yet in case of LLP.