Company Registration

Limited Liability Partnership vs Private Limited Company

A Private Limited Company and Limited Liability Partnership are business structures that are governed by two different acts- Companies Act and Limited Liability Partnership Act respectively. They are different as well as similar on many fronts and that’s exactly what we are exploring in this post. We will discuss LLP vs Private Limited Company formation.

LLP vs Private Limited Company: Overview

A Limited Liability Partnership means a partnership formed and registered under the Limited Liability Partnership ACT, 2008^[1]. However, a private company means a company which is held privately for small businesses, and which has restricted rights to transfer its shares by its articles. It is also prohibited to make an invitation to the public for subscriptions of any type of securities of the company. It can have a maximum of two hundred members (Except in the case of a One Person Company).

Following Persons are excluded from the Counting of Two Hundred Members:

• All the persons who are employees of the company; and
• Persons who were formally in the employment of the company, and choose to remain, members of the company, even after they cease to be the employee of the company; and
• If two or more persons hold shares jointly in a company, for the purpose of counting the number of members they should be treated as one single member.

The process of LLP Registration and Pvt Ltd. Company Registration is very much similar, but there is a difference in documents and forms, which are required to be filed with the ROC.

Incorporation Process of LLP

The Procedure for LLP Registration is as Follows:

1. Obtain Digital Signature for proposed designated partners;
2. Obtain Designated Partner Identification Number (DPIN) of the proposed partners;
3. File Form for Name Approval to ROC;
4. Filing of Incorporation forms to ROC;
5. Execute LLP Agreement between partners and file the same with ROC.

Private Limited Company Registration Process

Incorporation process of Private Limited Company is as Follows:

1. Obtain Digital Signature for proposed directors
2. Obtain Director Identification Number (DIN) of proposed directors
3. Filename Approval Form to ROC
4. File form for Incorporation of Company.

Characteristics

Both of them have similar characteristics; such as separate legal entity, perpetual succession, easily transferability of ownership, etc.

Popularity

Nowadays an LLP is becoming popular for service providers and small businesses as it requires less compliance and cost. But a private limited company have greater applicability, a private limited can raise funds easily and it is more trustworthy in the eyes of stakeholders.

Incorporation Cost and Documentation

The incorporation cost and the statutory fee for LLP registration are generally cheaper than charges for registration of a Private Limited Company. Even incorporation of LLP requires fewer documents and judicial stamp papers in comparison to documents required in case of Private Limited Company Registration.

Number of Directors/ Designated Partners

For incorporating an LLP, there must be at least two partners; however, there is no limit on maximum numbers of designated partners.

Whereas, a private limited company can be incorporated into a minimum of two directors and there is a restriction of not having more than 200 members.

Requirement of Audit

Every registered company, whether public or private, is required to get their accounts audited by a statutory auditor irrespective of their share capital, turnover, etc.

However, in the case of LLP, an audit is required only if:

• The contribution of LLP exceeds Rs. 25 Lakhs or
• The annual turnover of the LLP exceeds Rs. 40 Lakhs.

Compliances and Filings

In comparison to companies, an LLP is required to file forms to ROC. Comparatively, LLPs are not obligated to maintain statutory registers, while companies are required to maintain various registers and records.

Filing Fee and Other Charges

Generally, the form filing fee for an LLP is less than the fee payable by a company.

Meetings of Directors/ Designated Partners

After the first board meeting after incorporation of the company, the company is required to hold a minimum of four Board meetings during a financial year and at least one board meeting in each quarter. So, basically, a company is required to hold at least five board meeting in each financial year.

However, no such requirement for holding meetings of designated partners is applicable to LLP.

Ownership

Ownership of a private limited company is determined by the shareholding. The Directors of the Company can be its promoter or any other person as may be appointed by the Company.

Whereas, ownership of the LLP is determined on the basis of Contribution of the Designated Partners or as mutually agreed by the partners. Generally, in case of LLP, there is no distinction between the owners and the Management.

Fines and Penalties

The penalty for non-compliance or a late fee in filling out of Forms to MCA is higher in case of LLP as a flat fee of Rs. 100 per day is levied after the expiry of a specified time period. Therefore it is important for the management and partners of the LLP to file the required forms within the specified time period.

Taxation

Income derived from the LLP is chargeable to tax as per the Income Tax Act in the hands of the LLP and the amount received by its designated partners are exempt from income tax as the LLP has already paid the taxes. However, any amount receivable to a shareholder from its company is subject to CDT.

Limited Liability Partnership vs Private Limited Company: Advantages

The advantage of registering a business as an LLP is as follows:

• LLP is easy to start and manage as the process has lesser formalities;
• It requires less cost for registration;
• LLP is a corporate body having its existence other than its partners.

The advantage of registering a business as a Private Limited Company is as follows:

• There is no need of any minimum capital requirement;
• The members have limited liability;
• It is a separate legal entity.

Conclusion

When we explore about LLP vs Private Limited Company, we know that there are certain differences as well as certain similarities. It’s all about choosing the option that suits your need.