Summary: Entrepreneurs often grapple with the decision of whether to structure their business as a Company or a Limited Liability Partnership (LLP). Both offer the advantage of limited liability and are considered separate legal entities, but their regulatory, operational, and financial implications vary significantly. Companies are governed by the Companies Act, 2013, while LLPs are regulated under the LLP Act, 2008. Companies can be private or public, with shareholders as owners and directors managing day-to-day operations. In contrast, LLP partners act as both owners and managers. Compliance requirements for companies include mandatory annual audits, board meetings, and statutory filings, whereas LLPs have fewer formalities and audits are only necessary above specified thresholds. Companies have better fundraising options, including equity investments from venture capitalists and angel investors, while LLPs face limitations in this area. Taxation also differs: companies can opt for concessional tax regimes, while LLPs face a flat rate of 30%, with surcharges for higher incomes. Ownership in companies is represented through share certificates, making transferability easier compared to LLPs, which require amendments to agreements. While companies must maintain minutes and hold statutory meetings, LLPs enjoy flexibility in these aspects. The choice between the two depends on factors like the nature of the business, growth plans, and operational preferences. Entrepreneurs are encouraged to consider these differences to align the business structure with their goals effectively.
COMPANY VS LLP
I Often see entrepreneurs getting confused whether they should go with incorporating their business structure as a Company or Limited Liability partnership as they both provide the limited liability and both considered as Body corporate .
Many people will say incorporate LLP as there are lessor compliances but other will say incorporate a company with lesser tax rate. Both business structure has
As a result I am presenting a practical difference between Company and Limited liability partnership.
By referring to the below table , one can decide whether to go with incorporating company or LLP.
COMPARISON BETWEEN COMPANY & LLP
| S. No | Particulars | Company | Limited Liability Partnerships |
| 1. | Governing Act | Companies Act, 2013 | LLP Act, 2008 |
| 2. | Definition | Company” means a company incorporated under Companies Act 2013 or under any previous company law.
Primarily Company can be incorporated in two types: – 1- Private Limited company 2- Public Limited company Private Company- Section 2 (68) of the Companies Act, 2013 defines a private company as: “A Company which, by its articles, – (i) restricts the right to transfer its shares; (ii) except in case of One Person Company, limits the number of its members to two hundred; (iii) prohibits any invitation to the public to subscribe for any securities of the company.”- Generally at initial stage , private company is preferred.
Public company – Section 2(71) means a company which— (a) is not a private company But Subsidiary of public company deemed to be public limited company even where such subsidiary company continues to be a private company in its articles; |
The concept of the Limited Liability Partnership (LLP) come to India in the year 2008.
As per 2(n) of Limited Liability partnership Act 2008 , means a partnership formed and registered under this Act;
|
| 3. | Capital/Contribution | No Minimum capital/ contribution is prescribed under the companies Act, 2013 as well as LLP act 2008 | |
| 4. | Registration Process | Registered with MCA under the Companies Act 2013. Directors of Private companies must get a Director Identification Number (DIN). | It is registered with the MCA under LLP Act, 2008. Designated Partners of LLP get a Designated Partner Identification Number (DPIN). |
| 5. | Membership and Directors
|
The shareholders of a company are owners but do not directly participate in company management.
Directors are appointed for day-to-day management of the company. |
Partners of an LLP are both the managers and the owners. |
| 6. | Compliance
|
AGM within 6 months from the end of FY and 4 board meetings are mandatory (2 in case of small company). | No such requirement in case of LLP. |
| 7. | Audit
|
Companies must conduct a statutory audit every year.
|
LLP’s are not required to conduct statutory audit of their accounts for a turnover below 40 lakh or Capital Contribution below 25 Lakh |
| 8. | Funding
|
Companies, unlike LLPs, have the ability to raise funds through venture capital (VC) and angel investors by issuing equity or convertible instruments.
Companies can obtain Foreign Direct investment within the limit set by FEMA Guidelines.
|
Limited Liability Partnerships (LLPs) have certain limitations when it comes to fundraising. Since LLPs don’t issue shares like private limited companies, they can’t raise funds from angel investors or venture capitalists through equity investments.
LLPs can receive Foreign Direct Investment (FDI) but it requires government approval. |
| 9. | Taxation
|
If company go with old regime- Company must pay Tax at 25% if turnover is upto 400 Crores otherwise 30% is applicable
However, the new regime includes a tax rate of 22% for domestic companies that do not claim exemptions or deductions followed by the surcharge of 10% |
LLP is taxed at 30% up to an income of 1 crore and a 12% surcharge if the total income exceeds 1 crore and 15% if total income exceeds 10 crore.
|
| 10. | Charter Document
|
Memorandum and Article of Association is the charter of the company that defines its scope of operations. | LLP Agreement is a charter of the LLP which denotes its scope of operation and rights and duties of the partners vis-à-vis LLP. |
| 11. | Share Certificate
|
Share Certificates are proof of ownership of shares held by the members in the Company. | The ownership of the partners in the firm is evidenced by LLP Agreement. No Share Certificate needed. |
| 12. | Voting Rights
|
Voting rights are decided as per the number of shares held by the members. | Voting rights shall be as decided as per the terms of LLP Agreement. |
| 13. | Maintenance of Minutes
|
The proceedings of meeting of the board of directors / shareholders are required to be recorded in minutes. | LLP by agreement may decide to record the proceedings of meetings of the Partners/Designated Partners. |
| 14. | Statutory Meetings
|
Board Meetings and General Meetings are required to conducted at appropriate time. | There is no provision in regard to holding of any meeting. |
| 15. | Transferability of Interest
|
Shares can be easily transferred, facilitating changes in ownership. In private limited companies, the existing shareholders would have the first right of refusal. | Transfer of partnership rights may require consent of other partners and is generally more cumbersome. The transfer would require amending the LLP Agreement, Stamp duty payment and notary followed by filing of Form 3 to the ROC. |
| 16. | Annual Filings
|
Mandatory filings with the ROC include financial statements in form AOC-4, annual returns (Form MGT-7/7A), etc. | Annual statements of accounts and solvency in Form 8 and annual return in Form-11 must be filed with the MCA. |
| 17. | Dissolution
|
The winding up of defunct companies can be done easily by filing a simplified application in STK-2 form. However, winding up of active companies is more complex and time-consuming. | The LLP Form 24 can be used to close an inactive LLP.
|
This comparison should help in making an informed decision regarding the choice between a company and an LLP, based on your business goals and operational preferences
CS MEGHA PALIWAL
Author Bio
as such there is no limits as pre- requisite for conversion but for availing capital gain exemption there are certain limits with respect to assets , turnover etc. if you satisfied those conditions under income tax conversion will not considered as transfer and accordingly capital gain will not be applicable
for further clarification . pls email me at csmeghapaliwal@gmail.com
what are the limitations of a private limited company being converted to LLP? Any asset limit?
As such there is no limit as a pre- requisite for conversion but for availing exemption from capital Gain there are certain limits with respect to Turnover, assets etc. If you satisfy those conditions the conversion will not be treated as transfer and accordingly capital gain will not be applicable
as such there is no limits as pre- requisite for conversion but for availing capital gain exemption there are certain limits with respect to assets , turnover etc. if you satisfied those conditions under income tax conversion will not considered as transfer and accordingly capital gain will not be applicable