The selection of a business entity is among the primary lawful choice taken by an Entrepreneur while starting a new business. With the presentation of the Limited Liability Partnership Act and the Companies Act, 2013, more decisions of business entities are currently accessible. In this way, it is vital for the Entrepreneur or Promoter to comprehend the upsides and downsides of every one of the business element and pick the correct one. In this article, we look at those kinds of elements viz.LLP versus Private Limited Company.
- I) Registration
Limited liability partnership will be enlisted with the Ministry of Corporate Affairs under the Limited Liability Partnership Act, 2008.
- Private Limited CompanyPrivate Limited company will be registered with the Ministry of Corporate Affairs under the Companies Act, 2013.
- ii)Name of the Entity
- LLP The name given by the founders must be approved by the Registrar of Company. The name proposed for approval should not be similar to existing LLPs and Companies or similar to a brand name or a trademark. The name should be unique and must be easily distinguishable from other LLPs and Companies. The name of the business will end with the words “Limited Liability Partnership” or “LLP”.
- Private Limited Company
The name selection and approval process is similar for private limited company and LLP. The name of the entity will end with the words “Private Limited”.
- iii) Legal Status of the Entity
LLP is a separate legal entity registered under the LLP Act, 2008.The one partner of the LLP not liable for the acts of the other partners done without consent. For example if Sam borrows money in the name of the LLP without the consent or knowledge of Peter who is the partners. Peter will not be liable to the amount due.
- Private Limited CompanyPrivate Limited Company is a separate legal entity registered under the Companies Act, 2013. The Directors and Shareholders of a Private Limited Company are not personally liable for the liabilities of the Company.
- iv)Member(s) Liability
Partners have limited liability and are at liable only to the extent of their contribution to the LLP.
- Private Limited CompanyInvestors have limited liability and are liable only to the extent of their share capital.
- v) Minimum Number of Members
- LLP At least two people are required to start an LLP.
- Private Limited CompanyAt least two people are required to start a Private Limited Company.
- vi)Maximum Number of Members
A LLP can have unlimited number of Partners.
- Private Limited CompanyA Private Limited Company can only have a maximum of 200 shareholders.
- vii)Foreign Ownership
Foreign national and foreign companies are permitted to invest into an LLP with prior permission from the RBI and Foreign Investment Promotion Board (FIPB) approval.
- Private Limited CompanyForeign national and foreign companies are allowed to invest in a private limited under automatic route and approval route.
Ownership can be transferred.
- Private Limited CompanyOwnership can be transferred by way of share transfer.
- ix)Existence or Survivability
- LLPPresence of a LLP isn’t reliant on the Partners.Could be wound up willfully or by an Order of the Company Law Board.
- Private Limited CompanyPresence of a Private Limited Company isn’t reliant on the Directors or Shareholders. Could be would up just willfully or by Regulatory Authorities.
LLP profits are taxed at 30% plus surcharge and cess as applicable.
Dividend Distribution Tax (DDT) is not applicable for LLPS
- Private Limited CompanyCompanies having turnover less than Rs 250 Cr will be taxes at 25% plus cess and Companies having turnover more than 250 Cr will be taxes at 30% plus cess. DDT is application while distributing dividend.
- xi) Annual Statutory Meetings
No requirements to conduct annual statutory meetings.
- Private Limited CompanyPrivate limited company must hold a minimum of 4 Board meetings in a financial year and 1 General Meetings in a financial year.
- xii) Annual Filings
- LLPLLP must form 11, form 8 with MCA every year within the due dates specified under the law.
- Private Limited CompanyPrivate Limited Company must record Annual Accounts and Annual Return with the Registrar of Companies every year.
- xiii) Registration Cost