Comparison of Private Limited Company And Limited Liability Partnership

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A BRIEF COMPARISON OF PRIVATE LIMITED COMPANY AND LIMITED LIABILITY PARTNERSHIP

INTRODUCTION:

If you are starting a new business and want to register a company but can't figure out which type of company you should get registered with? Should it be a limited company or a partnership firm? As you start a new business, these are the questions that first appear in your mind. Because there are multiple types of companies and firms in India, deciding in which category you should register your business can be a tough task. But with the help of this article, all your queries will get solved.

There are different types of companies, such as One Person Company, Private Limited Company, Limited Company, Public Limited Company, Partnership, Limited Liability Partnership, Sole Proprietorship, and many more. But, here, we are going to talk about Private limited companies and Limited liability partnerships. In this article, we will also explain the process of registration of a private limited company and the process of limited liability registration.

So, let's get to know both the types of companies and their features.
 

WHAT IS A PRIVATE LIMITED COMPANY?

A private limited company is a business entity classified in "private" ownership. The word Private is used in many jurisdictions, with distinction to a publicly listed company, having some differences from country to country. There is a benefit of having a private limited company that holds limited liability. Yet, the shares of the company can only be sold to the shareholders in the business, which indicates that it can be challenging to liquidate such a company. We can say that a private limited company is a company that is privately owned for small businesses. The liability of the members of a Private Limited Company is restricted to the number of shares respectively owned by them. It is not possible to trade the shares publically, which are held by the private limited company.

In India, nearly 93 percent of the companies incorporated are registered as Private Limited Companies.
The Ministry of Corporate Affairs is the governing body that holds all Private Limited Companies in India. The law regulating Private Limited Companies is the Companies Act 2013.

Earlier in 2015, the shareholders had to pay a minimum of ₹1 lakh as a paid up capital to register a private limited company.
 

Here are the Features of the Private Limited Company:

  • All private companies must use the word private limited after their company's name.
  • A minimum number of 2 members is required and a maximum number of 200 members according to the provisions of the Companies Act, 2013 to start a company.
  • The liability of each member or shareholder is limited in Pvt. Ltd. Company. So, if a loss occurs under any circumstances, the company's shareholders are accountable for selling their assets for payment. And the personal or individual assets of the shareholders are not at stake.
  • A private company ought to have two directors. With the presence of 2 directors, the registration of the private limited company can be done.

WHAT IS A LIMITED LIABILITY PARTNERSHIP?

A limited liability partnership (LLP) is a partnership where some or all partners hold limited liabilities. Hence, it can show components of partnerships and corporations. In an LLP, every partner is not accountable or responsible for another partner's wrongdoing or failure. In an LLP, some partners or all partners hold a form of limited liability, which is similar to that of the shareholders of a corporation. The corporate shareholders must elect a board of directors under the laws of diverse state accords. The board manages itself and engages corporate officers who then have as "corporate" individuals the legal commitment to govern the corporation in its best interest. 

In Indian jurisdictions, a Limited liability partnership (LLP) is a lot different from a Limited Partnership. A limited liability partnership (LLP) works as a limited partnership, but, in a Limited liability partnership (LLP), each member is saved from personal liability, except for the period of their capital contribution to the LLP. There are more than 1 Lakh LLP companies registered in India. 

 

Here are the features of LLP:

  • LLP is a separate legal entity: Just like a company, LLP also has a separate legal entity. 
  • There is no requirement for minimum capital: To start and register a Limited liability partnership (LLP), the minimum capital is not required.
  • A minimum number of members: To start a limited liability partnership, at least two members are needed initially. Nonetheless, there is no limit on the maximum number of partners.
  • Requirement for compulsory audit: In the case of a Limited liability partnership (LLP), no such requirement is there. A limited liability partnership is instructed to get the audit done only if:
  1. the contribution of the LLP is more than ₹ 25 lakhs or
  2. the annual turnover of the LLP is more than ₹ 40 lakhs

 

DISTINGUISH BETWEEN PRIVATE LIMITED COMPANY AND LIMITED LIABILITY PARTNERSHIP:

Here, there will be a comparison between a Private limited company and a Limited liability partnership. The comparison will be made on various factors, such as the formation of the business, structure, and management of the business, based on the registration process and business criteria.
 

1. BUSINESS FORMATION

Title

Pvt. Ltd. Company

LLP

Incorporation

Under Provisions of Companies Act, 2013

Under Provisions of LLP Act,2008

Minimum number of owners

2 shareholders

2 Partners

Maximum number of owners

A maximum of 200 shareholders are allowed

No limit

Minimum number of Directors

2 directors

2 Partners

Requirement of capital

No capital required

No capital required

 

2. STRUCTURE OF BUSINESS

Title

Pvt. Ltd. Company

LLP

Duration of business

It will continue until the winding up of the Companies Act.

It will continue till the winding up of the LLP Act

Changes in the ownership

It will continue irrespective of the changes in ownership

It will continue irrespective of the ownership

Liabilities of owners

Limited to the unpaid amount of share given in the company

Limited to the agreed contribution

        

Ownership of property

All assets and liabilities acquired by the company

The assets and liabilities acquired by LLP

Interest on capital

The company cannot provide interest on capital to shareholders

LLP can provide interest on capital without any approval from the LLP Agreement

 

3. MANAGEMENT

Title

Pvt. Ltd. Company

LLP

Management

The management of the company is done by the board of directors

LLP is managed by the partners according to the LLP agreement

Directors

There is no need for a director to be a shareholder

The designated partner should be a partner in LLP

Remuneration

Directors are allowed to take remuneration

Working partners can take remuneration

Meetings for management

The directors are required to meet once every quarter.

Not required

Ownership meetings

The general meeting should be conducted every year

Not required

 

CONCLUSION:

As per the comparison done in this article now, it will be easy to find out with which company your business should get incorporated with either Register for a private limited company or register with a limited liability partnership; the choice is yours. With the various aspects to look upon and find the appropriate type of your business, this article explains it all. From the structure of the business to the registration process, it explains all. To find out which type of company will suit your business well and incorporate your company to get started with your business.
 


Author : Sakshi

Date     : 06-Jul-2022


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