LLP (Limited Liability Partnership) VS Private Limited Company
06 Apr 2017
LLP and a private limited company, both are incorporated under MCA and characterised by limited liability, tax advantages, name approval, prevailing law. However, LLP has fewer compliances, easy transferability, unlimited members as compare to private limited company.
Private Limited Company makes it possible to raise external funding and LLP makes it possible to have control over all the operations. If you are looking to register your entity shortly, go ahead either of the two.
Limited Liability Partnership (LLP)
Limited Liability Partnership (LLP) is the worldwide recognised corporate business vehicle that combines the advantages of both the company and flexibility of a partnership firm. Flexibility in the internal structure of an LLP makes it more useful for small and medium enterprises.
Private Limited Company
Private Limited Company is one of the popular forms of business entity among domestic and international investors. A company which allows outside funding, limits the liability of the members to the extent of their shares, having a maximum limit of two hundred are called Private Limited Company. A private limited company lies between a partnership and widely owned public company.
Let’s understand the nuances of each business entity to help you to choose the right one for your business.
Private Limited Company
LLP prevailed by the Limited Liability Partnership Act, 2008 and various prescribed rules.
A private company is prevailed by the Companies Act, 2013.
Limited Liability Partnership required to register with the MCA (Ministry of Corporate Affairs).
A Private Limited Company is also required to register with the Ministry of Corporate Affairs.
Name Approval of Entity
Every LLP needs name approval from the ROC (Registrar od Companies). Already existing names are not permitted. Approved name must contain the ‘LLP’ word as suffix.
In the case of private company also name approval is required and the name of a private company must have ‘Private Limited Company’ words as a suffix.
A Limited Liability Partnership is required to get its accounts audit when:
Turnover is Rs.40 lacs or more or contribution is Rs.25 lacs or more.
A Private Limited Company needs to audit its account as per the provisions given under the Companies Act, 2013.
Liability of the Members
Every partner of the LLP enjoys the limited liability to the extend of their contribution.
Every shareholder in a Private Limited Company is liable only to their shares, which means it has limited liability.
In case of LLP ownership can be transferred.
In case of private company ownership can be transferred by way of share transfer only.
Number of Members
Minimum- 2 partners
Maximum- unlimited partners
Minimum- 2 members
Maximum- 200 members
To be an investor or member of an LLP, the foreign nationals need to get prior approval of the Reserve Bank of India.
Foreigners are allowed to invest in a Private Limited Company and it is done under the automated approval route.
Profit of the LLPs is taxed at a flat rate of 30% plus cess. (Add surcharge when applicable)
Income of private limited company also taxable with the same rate of 30% plus cess.
Annual Statutory Meetings
No requirement of any annual statutory meeting.
There is a provision to conduct Board Meetings and General Meetings by a Private Limited Company.
It is a mandatory compliance to file the Statement of Accounts & Solvency, Annual Return and Tax Returns with the Registrar each year in the prescribed forms.
Private Limited Company must file the Annual Accounts & Annual Return with the Registrar each year along with the Income Tax Returns.
A distinct legal entity under the Limited Liability Partnership Act, 2008.
A separate legal entity under the Companies Act, 2013.
LLP Agreement is a charter of the LLP which denotes its scope of operation, rights and duties of the partners.
MOA (Memorandum of Association) and AOA ( Article of Association) are the charter document of the company.