Difference Between Private Limited Company and Limited Liability Partnership

27 Jan, 2021

While starting a business one faces a difficult task as in what kind of business organization they want to incorporate for initiating the business. In this article, we will discuss the Difference Between Private Limited Company and LLP.

Difference Between Private Limited Company and LLP

The Process of registering a Private Limited Company or LLP

Company registration before starting a business is extremely necessary for doing business in India. One can choose the following types of Business Organization while initiating his business. They are:

Sole Proprietorship
Partnership Firm
Public Limited Company
Private Limited Company
Limited Liability Partnership (LLP)

Usually one goes for a private limited Company or LLP, on account of the various advantages conferred on them by their respective Acts.

Private Limited Company: Meaning and Advantages

Private Limited Company is a company where all shares of the company are held by private entities. They can manage their business on their own or hire individuals to manage the company on their behalf. The articles of such Company restrict the right to transfer the shares of the company and limits the number of members to 200.

The following are the Advantages of Private Limited Company:

The liability of the shareholders is restricted to the extent of their holding and that their personal assets are not taken to repay the debts of the corporate.
There are restrictions on the transfer of shares. This reduces the risk of a hostile takeover.
It has ‘perpetual succession’, i.e. it continues to exist and remains unaffected by the death or other departure of any of its members but continues to be in existence irrespective of the changes in membership. It shall continue to enjoy the same privileges, immunities, estates, and possessions and shall exist until it is wound up.
It is a separate legal entity. It can own assets or incur Liabilities. Being a separate legal entity, it can be used or sue & can hold or dispose of the property in its name. It is capable of owing the funds and other properties. It is a legal person under whose name the company’s property is vested and is not of the shareholders.
A private company after receiving a certificate of incorporation start business immediately.

It enjoys a separate legal entity status. A private limited has a legal capacity to own property and also incur debts. The members of the company have no liability towards the creditors of a company for such debts. A company is a separate legal entity has the power to sue in its name and can be used by others.
Since there are few shareholders it enables quick and prompt decisions.

READ How to Provide an Inter-Corporate Loan by one Private Company to another Private Company?

Also, Read: One Person Company vs Limited Liability Partnership.

Limited Liability Partnership

Limited Liability Partnership Registration is a new form of business where both partnership and corporation exists. It a type of partnership with limited liability. It is covered under the LLP Act, 2008^[1]. LLPs are growing in number since their introduction in 2008.

The following are the Advantages of LLP:

There is no minimum capital requirement for LLP. It is so set up hassle-free and not burdensome on the owners.
It needs a minimum of two partners and there’s no limit on the most variety of partners of the LLP.
The cost of registration of LLP is low as compared to that of a company.
All companies public or private have to get their accounts audited but in the case of LLP, there is no such requirement. However, an audit is required when the paid-up contributions of LLP exceeds Rs. 25 lakh or when the annual turnover exceeds Rs. 40 lakh.

The compliance for LLP is low in comparison with Private or Public Limited Companies.
LLP is treated on par with the partnership firm. The provision of dividend distribution tax is not applicable to LLP. Also, deductions are allowed in the interest given to partners, on payment of salary bonus commission or remuneration.