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Know the Distinction Between Private Ltd Company and LLP for setting up Your Business

Himanshu Goyal 
on 06 January 2020

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Dear Readers if you are planning to start a business but worried about which form of business structure is better for you out of LLP (Limited Liability Partnerships) and Private Limited Company then this article is for you because in this article we will discuss about the difference between the two forms of business organization that are prevalent in India.

Know the Distinction Between Private Ltd Company and LLP for setting up Your Business

You will definitely be able to pick out of LLP or a Pvt Ltd Company as your business setup and all Confusions if any will be addressed in this article.

Lets Begin, 

As We Knows that India is a very ancient nation as far as history is concerned but we got independence from the british rule only in 1947 and thus we are basically a new economy in terms of industrialization. Prior to Independence and Post independence era we were mostly reliable on Agriculture and at present also there is no doubt that agriculture plays a very important role in Indian economy.

As India is a fast growing economy and we are heading towards rapid industrialization but we basically remains a Agrarian nation from our roots. As far as history of Corporate Culture in India is concerned the British East India Company is a classic example.  For years we are following the laws Specially the Corporate Laws made by the britisher's. 

The Concept of Corporate Structure is years old but LLP is relatively a new concept.

The Present structure of LLP's and Companies in India are governed by the LLP Act, 2008 and Companies Act, 2013 respectively. Further the traditional form of Partnerships and Company Structure is not suitable for everyone because they have their own limitations. The Companies Act, 2013 repealed the erstwhile Companies Act, 1956 to remove the inefficiencies of the later up to certain extent. 

The  Company form of Structure is traditional but the LLP is a modern form introduced for the first time in India in the year 2008 to provide flexibility to entrepreneurs to operate as a traditional partnership at the same time providing the benefits of a Corporate form which is already tried and tested by some advanced countries like UK, USA, etc.


 

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The Table below Shows the Distinction Between the two forms of Business Structure:

  

S.No

Points of Distinction

Pvt Ltd Company

LLP

1

Regulating Act

Companies Act, 2013

Limited Liability Partnership Act, 2008

2

Name Ends with

Pvt Ltd/ Private Limited

LLP/Limited Liability Partnership

3

Type of Structure

Plain

Hybrid (Partnership + Company)

4

Liability

Limited

Limited

5

Entity

Separate Legal Entity

Separate Legal Entity

6

Type of Ownership

Equity Share Holders

Partners

7

Form of Owners Funding

Share Capital

Partners Contribution

8

Type of Management

Directors Collectively referred as Board of Directors

Partners and Designated Partners manages the LLP and Designated Partners are additionally responsible for regulatory compliances.

9

Charter Documents

Articles and Memorandum of Association

LLP Agreement

10

Bank Funding

More Chances to raise funds from Banks over LLP.

Possible due to Separate Legal Status

11

Minimum  Members

2

2

12

Maximum Members

200

No Limit

13

Minimum Directors

2

Not Applicable

14

Maximum Directors

15 unless increased.

Not Applicable

15

ROC Compliances

More Compliances over LLP

Lesser as Compared to Pvt Company

16

Statutory Audit

Mandatory

Only if Partners Contribution exceeds INR 25 lacs or Turnover Exceeds INR 40 Lacs in any Financial Year

17

Tax Compliances

More Complex as far as procedural requirement is concerned for tax rates kindly refer Income Tax. 

Simple Procedure as Compared to Company and for tax rates refer Income Tax. 

18

Goodwill

 

Enjoys more goodwill over LLP because a Company has more powers.

Less as Compared to Pvt Company but overall good image over traditional partnership. Rather many MNCs are operating as LLP.

19

Registration Compliance

More registration requirement

Simple as compared to Pvt Company

20

Conversion

Can be Converted to LLP

Can be Converted to Company

21

Liquidation

Only though Legal Process the death of Shareholders doesn’t impact the existence. 

Same and the death of partners doesn’t impact the existence.

22

Recommended for

Comparatively more Capital Intensive Businesses.

Less Capital Intensive preferably for Service Sector or small entrepreneurs.

From the above distinction we are sure that now you have better understood the distinction between a traditional Corporate Pvt Company and a Modern LLP form of Business.

CONCLUSION

As one size doesn't fits all every form of  business organization has its own advantages and limitations and the suitability of any form of business solely depends upon the intent of the entrepreneur like what are his objectives, the nature of business, Size of business and the risk taking Capacity. Therefore all such factors shall be kept in mind before any decision.

DISCLAIMER

Absolute Care is taken to Prepare this article however inadvertently if any errors occurs then the Author shall not be held responsible for any such cause. The Content published is only for educational purpose and shall not be construed as rendering of any Professional Advice in any manner whatsoever. The Readers must exercise their own Judgement and refer the original source before any implementation. Further the content is an original work of the author and may be used only after written Permission. We thanks the readers of this article.

The author can also be reached at paisalawgic@gmail.com


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Category Corporate Law
Other Articles by - Himanshu Goyal 




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