Real Difference Between LLP And Private Limited Company
Many entrepreneurs while starting a business get confused about which is the most suitable business form for their new business entity. But there are various business forms available, an entrepreneur can easily pick from a variety of business forms, although the most frequent is the private limited company and the limited liability partnership. If someone needs to choose between a private limited company and an LLP, one can compare the benefits and drawbacks to determine which option is best for them.
Many of the characteristics of an LLP and a Pvt ltd are similar. However, they do have certain differences. So, in this article, we will discuss what exactly an LLP and Private Limited Company is and comparison between them.
What Is LLP (Limited Liability Partnership) And Its Advantages?
A Limited Liability Partnership (LLP) is a type of business that requires at least two people to establish. There is, however, no limit on the number of people who can join. An LLP’s members also have limited liability. The LLP Act of 2008 regulates it. As of their establishment in2008, LLPs have grown in popularity. An LLP’s partners are only responsible for their contributions and are not liable for the LLP’s debts in any other way. A limited liability partnership (LLP is a separate legal entity that can own property, incur debts, and be sued.
- It necessitates a minimum of two partners and has no maximum limit on the number of required partners.
- An LLP’s ownership can also be easily transferred. A person can easily be designated as a partner, and ownership is transferred to them.
- It is easier to organize and operate an LLP since there are fewer formalities. It takes less time and effort to form an LLP because there are fewer legal requirements.
- Formal audits are not required for LLPs with a capital of fewer than 25 lakhs and yearly revenue of fewer than 40 lakhs. This makes forming an LLP advantageous for small firms and startups.
- An LLP is significantly less expensive. The registration fee is roughly Rs.11,000, and the MCA compliance fee is around Rs. 4,000.
What is a Private Limited Company And Its Advantages?
The Companies Act of 2013 governs it. A private limited company is the most frequent type of business entity. In order to form a private limited company, no minimum capital is necessary, and just two directors and members are needed. It prevents members from unbounded liability in the company’s loss or closure. A business’s ownership can be readily transferred to a company by transferring shares. Above all, public trading of Pvt Ltd Company shares is prohibited.
- Members of the Private Limited Company would have Limited Liability.
- Private Limited Company is a separate legal entity. It has the ability to own assets as well as incur debt. It can be utilized, sued, and hold or disposed of the property in its name because it is a separate legal entity. This is capable of obtaining the funds as well as other assets.
- There are no minimum capital requirements for the company. As a result, there is no need to worry about meeting fund requirements.
- The trade of shares is restricted, which benefits stockholders who do not wish to sell their shares to anyone outside the company. As a result, there is less of a chance of a hostile or unfavorable takeover.
- It possesses ‘perpetual succession,’ which means that it continues to thrive and is unchanged by the death or departure of any of their members. It will continue to have the same rights, privileges, immunities, estates, and assets until it is dissolved.
- Transferring shares is a simple way to obtain funds in a private limited company.
- Personal assets are at low risk in a Private Limited Company.
Difference Between LLP And Private Limited Company?
|Particulars||Private Limited Company||Limited Liability Partnership (LLP)|
|Law Applicable||Companies Act 2013||Limited Liability partnership Act 2008|
|Minimum Share Capital||No requirement for minimum share capital||No requirement for minimum share capital|
|Members Required||Minimum 2 members and Maximum 200||Minimum 2 members and Maximum 50 members|
|Directors Required||Minimum 2 and Maximum 15||Minimum 2 Designated partners and Maximum not applicable|
|Statutory Audit||Mandatory||Unless the contribution of the partners exceeds 25 lakhs and the yearly turnover surpasses 40 lakhs, it is not required.|
|Transferability of Shares||It can be transferred easily. The article of association can only restrict it.||It can be shifted by implementing agreement before a notary public|
|Board Meeting||Within 120 days of the last meeting of the board. Each year, there must be at least four board meetings.||Not necessary|
|Member Liability||Limited Liability||Limited Liability|
|Foreign Direct Investment||Eligible via automatic and government route||Eligible via automatic route|
|Annual Filing||Compulsory to file Annual Account, Annual Return, and Income Tax Return with the RoC.||Compulsory to file Annual Return, Tax Return, and Statement of Account and Solvency with the RoC.|
|Company Name||Must end with Private Ltd||Must end with LLP|
|Suitable to which type||Businesses are having turnover, entrepreneurs who need external funding.||Startups, Businesses, trade, manufacturers, etc.|
What Is The Common Between LLP And Private Limited Company
The following are some of the similarities between an LLP and a private limited company:
Registration Process: Both private limited companies and limited liability partnerships must register with the Ministry of Corporate Affairs.
Benefits of Taxes: Benefits are granted to both types of businesses. Profits would be taxed at a rate of 30%.
Limited Liability: The partners’ liabilities would be limited in the Private Limited Company or a Limited Liability Partnership (LLP).
Separate Legal Entity: Both of them are separate legal entities. In the legal sense, a Private Limited Company or LLP is recognized as a separate entity.
With the help of this article, it should be clearer for you to pick between an LLP and a Pvt Ltd. Although there are several similarities between an LLP and a Private Limited Company, they are vastly different in terms of features and structures. However, the choice is totally yours.