LLP Vs Private limited company – Comparison between two important forms of organisation in India
Considering registering a company in India and don’t know which one to pick? Well, there are two great options for you - A private limited company and a Limited Liability Partnership (LLP).
Both are popular choices in India but there are some key differences between the two that make them suitable for different businesses. This article will compare and contrast the two types of organisation, highlighting the pros and cons of each.
What is a private limited company?
A private limited company is a company that is owned by its shareholders. The shareholders are not liable for the debts of the company and they cannot sell their shares to the public.
It is incorporated under the Companies Act, 2013. A private limited company must have at least two shareholders and a maximum of 200 shareholders. It shall have minimum 2 directors and maximum 15 directors.
What is an LLP?
An LLP is a partnership between two or more people who are coming together to run a business in the capacity of partners but still want to enjoy limited liability. It is governed by the Limited Liability Partnership Act, 2008.
An LLP must have at least two partners and there is no maximum limit on the number of partners.
Similarities between Private Limited Company and LLP
- Limited Liability
In both Private Limited Company and LLP, the liability of shareholders or partners is limited. They are not liable for debts of the company or LLP.
- Separate Legal Entity
A Private Limited Company and LLP is considered a separate legal entity. This means that the company or LLP has its rights, responsibilities, and debts. It is distinct from the shareholders or partners.
- Minimum Share Capital
There is no minimum share capital requirement for either a private limited company or LLP.
- Registration Process
Both entities need to be registered under the Ministry of Corporate Affairs. The registration process is also very similar. While you need a Memorandum of Association (MoA) and Articles of Association (AoA) for registering a private limited company, you need an LLP agreement for LLP registration.
If you are looking to do private limited company registration online or limited liability partnership registration, we can get it done for you without hassle.
- Tax Structure
Private Limited Companies are taxed at the rate of 30% or 25% or 22% or 15% as applicable to the company while LLP are taxed at the rate of 30%.
- Perpetual Succession
Another similarity is that both entities enjoy perpetual succession. This means that the company or LLP continues to exist even in case of death, legal disability, bankruptcy, or insolvency of a shareholder or partner.
Although there are some similarities between private limited companies and LLP, there are also key differences that you should be aware of. These are outlined below.
Key Differences between Private Limited Company and LLP
Ownership and Management
A private limited company is owned by its shareholders. The management of the company is done by the board of directors who are elected by the shareholders. On the other hand, an LLP is managed by its partners who can also be shareholders.
A Private Limited Company must have the word ‘Private Limited’ or its abbreviation (Pvt. Ltd.) at the end of its name. On the other hand, an LLP can be named anything and must end with LLP.
A private limited company can raise funds easily through venture capitalists and private equity firms. On the other hand, an LLP has limited options when it comes to raising funds from external sources.
Cost of Registration
The cost of registration for a private limited company is higher than that of an LLP.
A private limited company is subject to several compliance requirements, such as capital requirements, annual board meetings, audits, and statutory filings. On the other hand, an LLP has less strict compliance requirements, which makes it a more flexible option.
Advantages of Pvt Ltd Company and who is it for?
A private limited company has many advantages, such as limited liability, separate legal entity status, and easy funding. It is the most popular form of organisation in India and is best suited to businesses that need a lot of capital or want to raise funds from external sources.
For example, tech startups or manufacturing businesses that need external funding can benefit from this structure a lot.
Advantages of LLP and who is it for?
On the other hand, an LLP has many advantages as well. It is more flexible and easy to manage than a private limited company and is, therefore, a good option for businesses that do not have much capital or require less compliance.
For example, small businesses or startups that do not need to raise external funding may benefit from this structure. It also works well for professional service providers like lawyers, medical practitioners, etc.
Both private limited companies and LLP are two very popular forms of organisation in India. They both have their own advantages and disadvantages, which makes them suitable for different types of businesses. It is important to choose the right form of organisation for your business, based on your needs and requirements.
If you need any help with private limited company registration online or llp registration online, we can help you pick the right structure for your business and register it for you without hassle.
Author : Nivetha
Date : 12-Jul-2022