In India, when a common man thinks about incorporate any business entity, at the same time, too much options click in his mind with different entity structure; like Proprietorship, Partnership, LLP and Company etc. All structures have their pros & cons and legal requirements. His first decision impacts the future of the organization. So let’s understand the three types of entities: Proprietorship, Partnership Firm and Limited Liability Partnership:
| Sr No. | Basis | Proprietorship | Partnership Firm | Limited Liability Partnership |
| 1 | Formation | It is not prevailed by any Act | It is prevailed by ‘The Indian Partnership Act, 1932’ and various Rules made thereunder` | It is prevailed by ‘The Limited Liability Partnership Act, 2008’ and various Rules made thereunder |
| 2 | Registration | Optional | Optional | Compulsory |
| 3 | Cost of Incorporation | Very Low | Very Low | Comparatively High |
| 4 | No. Of Members | Minimum: 1 Maximum : 1 | Minimum: 2 Maximum: 20 | Minimum: 2 Maximum: no limit |
| 5 | Liability | unlimited | unlimited | to the extent their Contribution |
| 6 | DIN/DPIN | The proprietor is not required to obtain any identification number | The partners are not required to obtain any identification number | Each Designated Partners is required to have a DPIN before being appointed as Designated Partner of LLP. |
| 7 | Digital Signature | Not required | Not required | At least, 2 Designated Partners should have Digital Signatures. |
| 8 | Termination Process | Easy | Easy | Little bit difficult and take time, either voluntary or by NCLT |
| 9 | Borrowings | Borrowing From anyone – Flexible | Borrowing From anyone – Flexible | Borrowing from anyone- as per agreement |
| 10 | Cessation/Admission | Not Applicable |
As per agreement and no form would be filed | As per agreement but every time form would be filed within 30 days of any change. |
| 11 | Legal Proceedings | It is not registered, so cannot sue third party | Only registered partnership can sue third party | It is a legal entity, can sue and be sued. |
| 12 | Audit of Accounts | Tax Audit applicable only, wherever Turnover limit exceeds | Tax Audit applicable only, wherever Turnover limit exceeds | Tax Audit applicable, When Turnover is more than Rs. 40 Lac and Contribution is more than Rs. 25 Lac |
| 13 | Annual Filing | No return is required to be filed | No return is required to be filed with ROF | Form-11 for Annual Return and Form-8 for Annual Accounts and Solvency to be filed with ROC every year. |
| 14 | Taxes | Income tax @30% ,if income exceeds 10Lac + Surcharge + Cess as applicable | Income tax @ 30% plus Surcharge + Cess as applicable | Income tax @ 30% plus Surcharge + Cess as applicable |
| 15 | Additional Compliances | Only Income Tax/GST Compliance | Only Income Tax/GST Compliance | Income Tax/GST Compliance and additionally Compliance with ROC when any changes in LLP |
| 16 | Additional Capital | Further Introduction of Capital- no compliance | Further Introduction of Capital- no compliance | Further Introduction of Capital- With Compliance as applicable. |
| 17 | Secrecy | Secrecy of Financial Statements Maintain | Secrecy of Financial Statements Maintain | No Secrecy of Financial Statements, it can be checked on MCA site |
Conclusion:
All of the above entities have some advantages and disadvantages. Final decision to choose the structure depends on the following factors:
- Size of business
- Nature of business
- Availability of funds
- Short term and long term goals
- The complexity of business operations, etc.
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Disclaimer:- The entire contents of this document have been prepared on the basis of relevant provisions and rules and as per the information existing at the time of the preparation, and the views expressed here are personal in nature. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information.
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