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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Qualification: CA in Practice
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Location: Ahmedabad, Gujarat, India
Member Since: 16 May 2021 | Total Posts: 3

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