While starting up a company each one has to decide which business organization they want to incorporate and carry on. The choice of business organization is very crucial to give shape to your business motive. Here, if one has to choose between the Private limited company registration and LLP one can see the advantages and the difference so as to choose what’s best for them.
Limited Company means a Company which is registered under the Indian Companies Act (Companies Act, 2013). Mainly there are two types of Companies in India, viz. Private Company and Public Company. For comparison Private Company is more similar and alternative to Limited Liability Partnership (LLP) and vice versa. Hence, we have restricted this article to Private Company comparison only.
Generally LLP’s are recommended to entrepreneurs, professionals and enterprises in service industry which is not a capital-intensive industry to form commercially efficient vehicles suited to their requirements.
Many Entrepreneurs starting a new business are curious about the comparison between a Private Limited Company vs LLP. Both entities offer many similar features required to run a small to large sized business, while also differing starkly on certain aspects. In this article, we decode compare Private Limited Company vs LLP from the viewpoint of an Entrepreneur starting a new business.
Advantages of Private Limited Company and LLP:
Advantages of Private Limited Company are as follows:
- A company being a legal entity has the power to sue in its name and can be sued by others.
- Income tax act 1961 provides a lower tax burden and rates for the companies compared to other type of business.
- The liability of the shareholders is limited to the extent of their shareholding their personal assets are not taken to repay the liabilities of the company.
- There is restricted trade of shares. It is an advantage to the shareholders who do not want to sell the shares to the outsiders. So the risk of hostile takeover is low.
- It has its own assets and liability and is separate legal entity which can be sued or sue or can hold and dispose of property of the company. It is capable of owing the funds and other properties.
- It has perpetual succession and it has an separate legal and independent identity which is different from its owners or shareholders. It means that the company will still and continue to exist even if the members die or ceases to be a member.
Advantages of LLP are as follows:
- LLP can be formed by any amount of capital. There is no need for minimum capital for LLP. It is so set up hassle free and not burdensome on the owners.
- LLP requires a minimum of 2 partners and there is no limit on the maximum number of partners of the LLP.
- All limited companies have to get their accounts audited but in case of LLP there is no such requirement. Although it is required to audit when the contributions of LLP exceeds Rs. 25 lakh or annual turnover exceeds Rs. 40 lakh.
- The LLP has to file only two i.e. annual return and statement of accounts and solvency.
- LLP is treated in par with the partnership firm. Under Section 40(b) deductions are allowed on the interest given to partners, any payment of salary bonus commission or remuneration.
- The cost of registering LLP is low as compared to a company.
Difference between the LLP and Private Limited Company:
|Comparison Points||LLP||Private Limited Company|
|Minimum Members||For the formation of an LLP, minimum of 2 Partners are required.||The minimum number of shareholder required for a company is 2.|
|Maximum number of members||There is no limit for maximum number of partners||There can be upto 200 members.|
|Audit||Audit is compulsory only if contribution is more than Rs. 25 lakhs or turnover exceeds Rs. 40 Lakhs||It is compulsory|
|Requirements for compliance||Annual return filling and Statement of Account & Solvency.||Annual return filling borad meetings and general meetings|
|Cost of Formation||The cost of formation in LLP is lower as compared to private limited company||The cost of formation of company is lower but higher than LLP|
|Time for registration||10-15 days||15-20 days|