Company vs. LLP - Which is better?

Limited Company means a Company registered under the Indian Companies Act (Companies Act, 2013). Broadly 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.

Limited Liability Partnership ('LLP') is a form of enterprise that merges certain advantages of a partnership with those of a company. Viewed as an 'alternate or hybrid corporate vehicle', an LLP achieves the best of both corporate forms by granting to the members of the LLP, the flexibility of organizing their internal managerial structure as a partnership based on mutual-understanding, while limiting the liability of the partners to the extent of their interest in the partnership, which is corresponding to the separate legal personality of a company.

Both LLP and Private Companies business model are developed over a period of time to suit the needs of the Business and hence there are few Pros and Cons of LLP as well as Private Limited Company, however, neither of them is perfect suited for all nor absolutely redundant. Therefore, learning the basic difference and features of both is important before anyone can take a decision to start (incorporate) an LLP or a Private Company.

Usually 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.

Flexibility in Operation

LLP is a partnership firm and alternative business vehicle that provides the benefits of limited liability with the flexibility of partnership firm which is regulated by a partnership deed executed between the partners. However, unlike Partnership firm, LLP has a perpetual succession and it can hold property in its own name.

While in case of Company, Companies Act requires a formal board structure and decision making at validly constituted meetings, passing of resolutions and maintenance of minutes of meetings and other statutory records to enable the Members/Directors take benefit of Limited Liability and other features of Private Company.

Legal uncertainty: Private Limited companies have long been in existence and hence there is legal certainty about the various aspects of the Company. On the other hand, In India LLPs received formal recognition through the Limited Liability Partnership Act, 2008 (“LLP Act”) with effect from 2009 even though the theoretical inception of the concept of an LLP first occurred in 1957 as a recommendation by the 7th Law Commission of India. Which means LLPs are still a new concept and many a times, bank may not be willing to give loan to LLP or a person not familiar with the concept will see it with suspicion even after decade of its existence. However, of late, India is witnessing an upward moving trend in LLP registrations and conversion of traditional unlimited partnerships to the LLPs giving it a sought-after status in the Indian corporate scenario.

Cost Factor:

LLP which is a hybrid of Partnership Firm and a Company form of business is comparatively cheaper to maintain than the Private Company. As LLPs are not required to hold regular Board Meetings, maintain Statutory Registers and even filing fees are very less.

However, in case of delay in filing, LLP Act, 2008 charges penalty without any upper limit which in case of Private Company such additional fees are applicable only in case of delay in filing Balance Sheet and Annual Return of the Company.

Since we have discussed various differences between LLP and Private Company, let us see the similarities between two:

The liability of an LLP as well as Company is limited to the respective Capital Contribution or subscription of Paid up capital. Which means no personal tangible or Intangible assets of the Partners of LLP or Members of Company are used to pay off the liability of the Company or LLP.

Both LLP and Company are a separate legal entity and has its separate legal existence from its Partners or Members. Which means an LLP or a Company can hold asset in its name, can sue someone or can be sued by someone. Unless in exceptional cases, acts of LLP or a Company will not be treated as an Act of its Partners/Board or Members.

Since LLP and Company has its separate legal existence, it can hold properties in its own name unlike Partnership firms or sole proprietorship.

Below is the Table with Main Pointers for your key highlight.

The author is the Founder and Partner at JMJA & Associates LLP. With over 10 years of work experience in various listed companies and conglomerates, he has a rich and varied experience in his portfolio.

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