Business Structure in India from which an entrepreneur could choose for establishing a business or company. Private limited companies and Limited Liability Partnerships are two business structures. Private Limited Company registration have been in existence for a much longer time. Limited Liability Partnership Structure was introduced in 2008 in India. So, the Pvt. Limited Companies are in existence much longer than the LLPs and enjoy wider recognition. LLP and Private Limited Company have same features but with many differences.
Features of Limited Liability Partnership(LLP)
Minimum Two Partners can establish Limited Liability Partnership (LLP) by an agreement. No minimum capital is required for establishing an LLP. Liability of the members is limited to the part of the Contributions to LLP. All partners are responsible for there own acts and are not responsible for any act of the partners. The Partners have to manage the business. LLP are suitable for the startups, traders and small to medium sized businesses which do not require much external funding.
Features of Private Limited Company
Minimum of two members can form a Private Limited Company. This type of Company is Privately held Business which could have maximum of 200 members. No minimum capital is required and only two directors are required for establishing these type of company. The members have a limited liability at the time of loss or closing of the company. It is limited by the shares which are held by them. Its suitable for the businesses which have a significant turnover and require external funding.
LLP vs Pvt Ltd Advantages and Disadvantages
The Advantages of Registering a Business as LLP are as follows:
- LLP are much easy to start and manage as it has some formalities.
- Less cost of Registration while compared to the company registration cost.
- Its a Corporate body which has a different legal existence from the partners.
- Death of any partner does not affect the existence of LLP. It function on the basis of Perpetuity.
- It could be started with a Minimum amount of capital
- The partners have limited liability.
Disadvantages of LLP are:-
- Penalty of Non Compliance of LLP is too extensive.
- If the number of Partners goes below Two which means if there is only a partner, The LLP would be dissolved.
- Its difficult to raise fund/capital from Venture capitalists, angel or equity funding as investors can’t be shareholders of LLP.
Advantages of Registering a Business as Private Limited Company are:-
- No minimum Paid Up Capital required for establishing Private Limited Company
- The members have Limited Liability
- Seperate legal Entity from the members
- Perpetual Succession
- Raising funds Easily
Disadvantages of Private Limited Company are:-
- Members of Pvt. Ltd are limited to 200
- Restricting the transfer of share of the members.
- It cannot issue prospectus for inviting public for company shares.
Difference Between Pvt Ltd and LLP
The Differences between a Limited Liability Partnership and Private Limited Company is:-
Limited Liability Partnership V. Private Limited Registration Process
Registration Process of LLp and Private Limited Company are same with some difference. LLP are registered with Ministry of Corporate Affairs as per Limited Liability Partnership Act,2008. It is registered with MCA under Companies Act, 2013. LLP and Private Limited Company Registration Application is filed in the Registrar of Companies and The Ministry of Corporate Affairs Portal
Designated partners of LLP shall acquire the Designated Partner Identification Number (DPIN) for registering the LLP. Directors of company shall acquire the Director Identification Number for registering a Private Limited Company. Limited Liability Partnership shall file and register the LLP while the Private Limited Company shall file the SPICe+ form for registering the company. The name of LLP shall contain the word ‘LLP’ while the name of Private Limited Company shall end with ‘Pvt. Ltd’.
Governing Document of LLP is LLP Agreement between the partners. The LLP Agreement is registered with Ministry of Corporate Affairs, but its not a public document. A company’s governing documents are Memorandum of Association (MOA) and Article of Association (AOA). The MOA and AOA are public documents, so any third party can acquire them by paying a prescribed fee to the Ministry of Corporate Affairs.
Government Fee for Limited Liability Partnership is generally less while compared to the registration fee of Private Limited Company. Documents also need to be notarised on Non judicial Stamp Paper are less for LLP registration while compared to Private Limited Company registration.
Limited Liability Partnership V Private Limited Ownership
As there are no clear distinction between management and the owners of LLP. The partners in the LLP owes and manages the Limited Liability Partnership business. Any Partner in LLP is both i.e. manager and owner. Whereas, in a Private Limited Company the management is different from Owners.
Board of Directors manage the company business. As, Shareholders do not participate directly in the company management. Its a clear difference between Owners and Management. Shares of Private Limited Company can’t trade public as the Article of Association restricts this. Although these shares can be transferred easily.
LLP vs Pvt Ltd Membership and Directors
There shall be minimum two designated partners in LLP. As, there is no limit on maximum number of Partners. LLPs do not any director. In a private Limited company , the minimum number of members is two and maximum is 200. There shall be Minimum two directors and Maximum 15.
Limited Liability Partnership V. Private Limited Compliance
Limited Liability Partnership do not need Board meetings or Annual General Meeting as the owners manage the business. As the Directors are managing Private Limited Company, they should conduct atleast minimum of Four Meetings every year. It shall conduct Annual General Meeting in six months of end of the Financial Year.
Statutory Audit is not required for LLP. A LLP shall get the accounts audited when the annual turnover exceeds Rs.40 Lakhs and capital contribution exceeds Rs.25 Lakhs. The Mandatory audit for a Private Limited company irrespective of the turnover.
LLP shall file the statemnt of Accounts and Solvency with the annual returns to the Registrar of Companies in the Form 8 and 11 for Limited Liability Partnership. A Private Limited Company shall file the annual financial statement and the annual return with Registrar of Companies (ROC) in form AOC 4 and MGT 7.
LLP vs Pvt Ltd Funding
LLPs cannot raise funds from Venture Capitalists (VCs) or angel investors since they will need to be partners in the LLPs to invest. They can raise funds and investments from financial institutions, such as banks. Fast-growing businesses that require funding from VCs will have to register as Pvt Ltd companies since they can make the VCs or angel investors as shareholders of the company.
LLP vs Pvt Ltd FDI
Foreign Direct Investment is allowed for LLP when particular conditions are fulfilled. Foreigners could invest in LLP only with approval of Reserve bank of india (RBI) and Foreign Investment Promotion Board (FIPB). FDI is allowed in Private Limited Comapny under automatic route and approval route.
Limited Liability Partnership V. Private Limited Taxation
LLP shall pay around 30% fixed rate tax on the total income. When the Income exceeds than Rs.1 crore the income tax amount is increased with surcharge of 12%. The private limited company earns less than Rs.400 crore it shall pay a tax of 25 %. When Company’s annual revenue is more than that it shall pay a tax of 30%. Private Limited Companies can choose between the new rate of 22% for existing companies and 15 % for new companies.
A LLP and Private Limited Company have a lot of similarities, but they are different in many aspects. As, when an entrepreneur needs external funding and requires a better turnover, a Private Limited Company is the better business structure. When there are two or more person who want to start and conduct a business in partnership firm as LLP gives several benefit to partners such as having limited liability, succession of perpetuity and separate entity.
