Comparison of Private Limited Company and Limited Liability Partnership
Selecting the suitable business structure is the very first step in starting a business. This selection is based on different parameters including business plan, number of partners, investment requirements, foreign investment, area of operation, ability to take risk, etc.
Different business structures can be compared on parameters such as Business Formation and Legal Status, Business Risk on Personal Assets, Acceptance and Credibility, Attracting Investments, Tax and Legal Compliances, and Startup advantages, Business Succession etc. etc.
Comparing the advantages and disadvantage of different business structure is very important in selecting the suitable business structure by an entrepreneur.
Different Business Structures
In India, a business can be organized in different forms such as Sole Proprietorship, Partnership, One Person Company, Limited Liability Partnership, Private Limited Company or Public Limited Company. While selecting a business organization, one must have an understanding about the different types of business structures, its merits and demerits, public acceptance and image.
Comparison of Company and LLP
Here is the Comparison of Private Limited Company and Limited Liability Partnership (LLP) on the parameters such as Business Formation, Benefits of Business Structure, Business Management, Taxation, Accounts, Audit, Records And Legal Compliances
BUSINESS FORMATION
Criteria | LLP | Private Company |
| Incorporation / Registration | Incorporated under provision of LLP Act, 2008 | Incorporated under provisions of Companies Act, 2013 |
| Minimum number of owners | 2 Partners required | 2 shareholders required |
| Minimum Number of Directors / Designated Partners | 2 Designated Partners required | 2 Directors required |
| Maximum number of owners | No such limit. An LLP can have any number of partners | 200 is the maximum number of shareholders allowed |
| Capital Requirements | No Minimum capital requirements | No requirement of Minimum Authorised and paid up capital |
| Cost of Registration | Less when compared to Company | Cost of Registration depends on Authorised Capital and stamp duty on each state |
BUSINESS STRUCTURE
Criteria | LLP | Private Company |
| Liability of Owners | Limited to the agreed contribution | Limited to the unpaid amount of shares taken in the company |
| Duration of Business | Continue until winding up under LLP Act. | Continue until winding up under Companies Act. |
| Changes in the ownership | LLP will continue irrespective of changes in the ownership | Company will continue irrespective of changes in the ownership or management |
| Ownership of property | All assets and liabilities owned by the LLP | All assets and liabilities owned by the company |
| Withdrawal of Capital | Partners can withdraw capital subject to LLP agreement. It is also possible for a partner to reduce contribution liability after giving notice to creditors | Once paid up, capital cannot be withdrawn by shareholders without the approval of court. Company can buy back the shares subject to Companies Act. |
| Interest on capital | LLP can provide interest on capital without any approval subject to LLP Agreement. | Company cannot provide interest on capital to shareholders |
| Termination of ownership | A partner continues as a partner in the LLP even after transferring all his rights in the LLP unless LLP agreement provides otherwise. A partner can even resign from the LLP. | A shareholder (member) can terminate membership by transferring the shares in his name to any person subject to conditions in Articles of the company. A shareholder cannot resign from the company. |
| Removal from the ownership | It is possible to remove a partner from the LLP subject to the LLP agreement. | It is not possible to remove a shareholder from the company by others. However, the shares of one shareholder can be transferred to another person |
BUSINESS MANAGEMENT
Criteria | LLP | Private Company |
Directors / Designated Partners | Designated Partner should be a partner in LLP. | A director need not be a shareholder. |
| Management | LLP is managed by partners as per LLP agreement. Partners can delegate management power to a management team or single partner | Management of Company is vested with Board of Directors elected by shareholders |
| Meetings for Management Decisions | No such requirements of meetings. Decision process as per LLP Agreement. | In case of a private company, Directors are required to meet once in every quarter. In case of a small company, dormant company and a private company (if such private company is a start-up) there should be at least one meeting of the Board of Directors in every half of a calendar year and the gap between the two meetings is not less than ninety days. |
| Ownership Meetings for specific Decisions | No requirements of meetings of Partners of LLP. | General meeting of shareholders to be conducted once in a year mandatorily. |
| Remuneration | Working partners can take remuneration subject to LLP agreement | Directors can take remuneration subject to Companies Act |
ACCOUNTS, AUDIT, RECORDS AND LEGAL COMPLIANCES
Criteria | LLP | Private Company |
| Accounts | Accounts to be maintained with all supporting documents | Accounts to be maintained with all supporting documents |
| Audit Requirements | Accounts to be Audited by a Chartered Accountant only if the turnover exceeds Rs.40 Lakhs or contribution exceeds Rs.25 Lakhs. | Accounts to be Audited by a Chartered Accountant whether the company does any business not. |
| Registers and Records | LLP is not required to maintain any Registers, Records and Minutes unless specifically mandated by LLP agreement. Partners are at liberty decide the requirements. | Limited Company is required to maintain lot of Registers, Records and to keep Minutes of Board Meetings and General Meetings from time to time irrespective of doing business or not. |
| Annual and Event based Filings | LLP is required to file certain statutory returns annually and other filings based on certain events from time to time irrespective of doing business or not. | Company is required to file certain statutory returns annually and other filings based on certain events from time to time irrespective of doing business or not. |
TAXATION
Criteria | LLP | Private Company |
| Permanent Account Number (PAN) | LLP is required to have a separate PAN other than partners | Company is required to have a separate PAN other than Shareholder or Director |
| Tax Rate | LLP is taxable at ‘Firm’ tax at 34.80% on net profit of the LLP. | Company is taxable at 22% on net profit and the Effective IT Rate (IT+Surcharge+Cess) will be 25.52%. |
| Dividend Distribution Tax (DDT) | Profit after tax will be credited to partners’ account and it will not be taxable in the hands of partners again. | Company Profit, if distributed as Dividend, it will attract Dividend Distribution Tax (DDT) @ 20.36% on dividend |
| Taxability of Dividend in the hands of Shareholder / Partner
| Profit distributed by an LLP is completely exempted in the hands of Partner. | Dividend from a domestic company up to ₹10 Lakhs is exempted in the hands of a Shareholder. Dividend in excess of ₹10 Lakhs shall be taxable at 10% in the case of a resident individual/HUF/Firm |
| Tax Filings | Required to file Tax returns every year. In case of no business, a ‘NIL’ return is required to be filed. Delay in tax return Filings will attract Penalties and the Loss can’t be carried forwarded for setoff | Required to file Tax returns every year. In case of no business, a ‘NIL’ return is required to be filed. Delay in tax return Filings will attract Penalties and the Loss can’t be carried forwarded for setoff |
STARTUP BUSINSES CRITERIAS
Criteria | LLP | Private Company |
| External Investment – Angels / VC / PE etc. | External Investment and even Foreign Direct Investment is Possible. However, attracting Investors to LLP is a difficult task. | Best suitable business model for attracting External Investments from Angels / VC / PE |
| Start-up India Registration | LLP can be registered under Start-up India program. | Private Company can be registered under Start-up India program. |
| Employee Stock Options Plans for attracting Employees
| Not Possible | Only a Private / Public Limited Company can issue Employee Stock Options Plans for attracting Employees
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