LLP vs Pvt Ltd Company: Which is better?
By Kohal Dev Sharma, Advocate, Punjab and Haryana High Court
Every individual who wishes to start their own business and ventures into the entrepreneur territory is always confused with the kind of business that is most suitable for them and is the one that they should go for. There are always questions that such individuals ask themselves such as which business will be more beneficial to them, what kind of an environment they need to establish in order for the business to flourish, what kind of investments they need and the list goes on. Not only are these questions common but are also very important too. Why, well because these questions if acted upon correctly, lay down the foundation of a thriving business venture. One such question is which is better an LLP or a Pvt Ltd Company? Well one needs to have knowledge of both of them and then compare which is most suitable for them individually. When talking about an LLP vs Pvt Ltd Company, both have their own set of pros and cons and provide limited liabilities to its partners and members. Both of them are also considered to be separate legal entities.
LLP and Private Limited Company compared
One of the most common types of business forms in India is a Private Limited Company. In our country, Limited Liability Partnerships are a totally new concept when compared to Private Limited Companies. However, there are a few differences amongst them and then there are a few similarities between both of them which are as follows:
Both have different requirements.
In case of a private limited company’s incorporation there is a requirement of at least two members, two shareholders and two directors and the number of directors that is allowed is a maximum of fifteen while the maximum number of members is two hundred members. However, in case of a Limited Liability Partnership there is a requirement of at least two partners and two designated partners and then there is no limited to the maximum number that can be there. Forming a Limited Liability Partnership is comparatively less costly than a Private Limited Company.
Both have difference in their naming.
A private limited company and an LLP have to be named in a different ways. In case of a Private Limited company, one needs to use the words Private Limited at the end of the name of the company. On the other hand, in case of a Limited Liability Partnership, one needs to use the words Limited Liability partnership or LLP at the end of the company’s name. In case of an LLP there are partners and in case of a Pvt. Ltd. Company there are members.
Both are registered differently.
As per the Companies act 2013, a Private limited company is registered with the registrar of companies after the registration is executed before him. On the other hand an LLP is registered under the Limited Liability Partnership Act, 2008 before the Registrar of LLP. In case of a Private Limited Company, a DIN (Director Identification Number) is required for registration. In case of an LLP a DPIN (Designated Partner Identification Number) is required. The rules that have to be followed by both the types are according to their respective acts.
There is a difference in tax structure of both types.
A Private limited company has to pay taxes on its income and there is a provision of dividend distribution tax as well as an alternate minimum tax. However, a Limited Liability Partnership has a much more simple tax structure as there are only two taxes that are applicable with one being income tax and second one being an alternate minimum tax.
The Charter Documents of both are different.
A Memorandum of Association and Article of Association has to be drafted in case of a private limited company and on the other hand no such thing is required for an LLP. In case of a Limited Liability Partnership, an LLP agreement is required and even though both the documents have the same purpose, they have to be put on paper as they include the objectives of the company and have all the necessary details.
The Annual Meetings are different.
As per the Companies Act, it is necessary for all private Limited Companies to conduct board meetings as well as general meetings on a regular basis and in a prescribed manner. However, in case of a Limited Liability Partnership there are no such rules or compulsions.
Different Share Transfer process:
In case of a Private Limited Company, each shareholder has the power to transfer his shares to another shareholder and the process is quite easy. However, in case of a limited Liability Partnership, transfer of shares are governed by the terms and conditions of the LLP agreement.
Voting Rights are different.
In case of a Private Limited Company the right to vote is decided on the basis of the number of shares that a particular shareholder has with him or her. However, in case of a Limited Liability partnership the voting rights are determined as per the terms and conditions mentioned in the LLP agreement.
Difference in Compliance.
In case of a Limited Liability Partnership, the requirement to audit its accounts is not there if the annual turnover of the said LLP is not more than Rupees forty lakhs. However, when talking about a Private Limited Company, an annual account audit is necessary and the same is to be filed before the Ministry of Corporate Affairs. Both the types provide limited liabilities, however in case of a Private Limited Company, the liability of its members is limited to the number of shares that they hold. In case, of an LLP the liability is not just limited to the number of shares held but also to the amount that has been invested in the firm.
Difference in other provisions.
In the case of Private Limited Company, no separate powers or provisions are afforded to its members, however in case of a Limited Liability Partnership, a partner or member who provides useful information as to any misdeeds of the company, is protected by the law.
Private limited companies and LLPs are both good and bad in a way and it depends upon an individual whether to go further with an LLP or Private Limited Company taking into consideration their own particular interests and situations.
About the Author:
Kohal Dev, is a lawyer by profession and has a penchant for writing and his ability to juggle several tasks at a time, in the most effective and efficient manner is something that allows him to deliver content fresh out of the box. His extensive experience in the field of Law, Finance, Real Estate and Marketing allows him to write some of the most amazing blogs and articles in exactly the way they are required to be done. When not at work, he can be found reading and of course, writing.