Understand the Distinction Between Pvt Ltd Company and LLP Before Starting Business

Dear Readers if you are planning to start a business but worried about which form of business structure is better for you out of LLP (Limited Liability Partnerships) and Private Limited Company then this article is for you because in this article we will discuss about the difference between the two forms of business organization that are prevalent in India.

You will definitely be able to pick out of LLP or a Pvt Ltd Company as your business setup and all Confusions if any will be addressed in this article.

Lets Begin,

As We Knows that India is a very ancient nation as far as history is concerned but we got independence from the british rule only in 1947 and thus we are basically a new economy in terms of industrialization. Prior to Independence and Post independence era we were mostly reliable on Agriculture and at present also there is no doubt that agriculture plays a very important role in Indian economy.

As India is a fast growing economy and we are heading towards rapid industrialization but we basically remains a Agrarian nation from our roots. As far as history of Corporate Culture in India is concerned the British East India Company is a classic example.  For years we are following the laws Specially the Corporate Laws made by the britisher’s.

The Concept of Corporate Structure is years old but LLP is relatively a new concept.

The Present structure of LLP’s and Companies in India are governed by the LLP Act, 2008 and Companies Act, 2013 respectively. Further the traditional form of Partnerships and Company Structure is not suitable for everyone because they have their own limitations. The Companies Act, 2013 repealed the erstwhile Companies Act, 1956 to remove the inefficiencies of the later up to certain extent.

The  Company form of Structure is traditional but the LLP is a modern form introduced for the first time in India in the year 2008 to provide flexibility to entrepreneurs to operate as a traditional partnership at the same time providing the benefits of a Corporate form which is already tried and tested by some advanced countries like UK, USA,etc.

The Table below Shows the Distinction Between the two forms of Business Structure:

S.No Points of Distinction Pvt Ltd Company LLP
1 Regulating Act Companies Act, 2013 Limited Liability Partnership Act, 2008
2 Name Ends with Pvt Ltd/ Private Limited LLP/Limited Liability Partnership
3 Type of Structure Plain Hybrid (Partnership + Company)
4 Liability Limited Limited
5 Entity Separate Legal Entity Separate Legal Entity
6 Type of Ownership Equity Share Holders Partners
7 Form of Owners Funding Share Capital Partners Contribution
8 Type of Management Directors Collectively referred as Board of Directors Partners and Designated Partners manages the LLP and Designated Partners are additionally responsible for regulatory compliances.for regulatory Compliances.
9 Charter Documents Articles and Memorandum of Association LLP Agreement
10 Bank Funding More Chances to raise funds from Banks over LLP. Possible due to Separate Legal Status
11 Minimum  Members 2 2
12 Maximum Members 200 No Limit
13 Minimum Directors 2 Not Applicable
14 Maximum Directors 15 unless increased. Not Applicable
15 ROC Compliances More Compliances over LLP Lesser as Compared to Pvt Company
16 Statutory Audit Mandatory Only if Partners Contribution exceeds INR 25 lacs or Turnover Exceeds INR 40 Lacs in any Financial Year
17 Tax Compliances More Complex as far as procedural requirement is concerned for tax rates kindly refer Income Tax. Simple Procedure as Compared to Company and for tax rates refer Income Tax.
18 Goodwill Enjoys more goodwill over LLP because a Company has more powers. Less as Compared to Pvt Company but overall good image over traditional partnership. Rather many MNCs are operating as LLP.
19 Registration Compliance More registration requirement Simple as compared to Pvt Company
20 Conversion Can be Converted to LLP Can be Converted to Company
21 Liquidation Only though Legal Process the death of Shareholders doesn’t impact the existence. Same and the death of partners doesn’t impact the existence.
22 Recommended for Comparatively more Capital Intensive Businesses. Less Capital Intensive preferably for Service Sector or small entrepreneurs.

From the above distinction we are sure that now you have better understood the distinction between a traditional Corporate Pvt Ltd Company and a Modern LLP form of Business.

CONCLUSION

As one size doesn’t fits all, similarly every form of  business organization has its own advantages and limitations and the suitability of any form of business solely depends upon the intent of the entrepreneur like what are his objectives, the nature of business, Size of business and the risk taking Capacity,etc.Therefore all such factors should be kept in mind before selection of a business structure.  

DISCLAIMER

Absolute Care is taken to Prepare this article however inadvertently if any errors occurs then the Author shall not be held responsible for any such cause. The Content published is only for educational purpose and shall not be construed as rendering of any Professional Advice in any manner whatsoever. The Readers must exercise their own Judgement and refer the original source before any implementation. Further the content is an original work of the author and shall not be used without written Permission. We thanks the readers of this article.

 

The Author may be contacted at paisalawgic@gmail.com

Author Bio

Qualification: CS
Company: Himanshu Goyal & Associates (Practicing Company Secretaries)
Location: Delhi, New Delhi, IN
Member Since: 23 Oct 2019 | Total Posts: 15
A Company Secretary and a Post Graduate in financial administration having working hands in Investment Banking, Manufacturing Sector and Company Secretarial Practice. View Full Profile

My Published Posts

More Under Company Law

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

September 2020
M T W T F S S
 123456
78910111213
14151617181920
21222324252627
282930