A Memorandum of Understanding (MOU) is a document between two or more parties that explains the...
Limited Liability Partnerships (LLPs) have increased in number since they had been introduced in 2008, but LLP should be more famous as they are now. This is so because LLP offers us more benefit of a private limited company, such as a law firm or an accounting firm. LLP offers us limited liability, offers tax advantages, it can also accommodate infinite numbers of members, and it is also credible if it is registered with the ministry of corporate affairs (MOA). It is easier to maintain, and also it involves low investment to start the business. We can easily conclude that LLPs are much cheaper than private limited companies. Also, the compliance requirements are lesser under LLPs than private limited companies. Looking at so many advantages of an LLP, there is no doubt that it has become a popular form of business ownership.
Business registration as a Private Limited Company is very appropriate. A private limited company can distinguish between shareholders and directors. This can make arise a possibility of funds raising and also attract talent by offering the profitable ESPs. If anyone is looking to do both of them in the near term, then go ahead and register one. But if you want to start web development or Software company or you want to run a small business online, there is no need. If you are looking forward to raising funds, but not for a few years. Then you should consider forming a private limited company.
If you want to start a new business, then you should not waste so much money on it. Legal things should not be ignored such as documentation in a particular area that start-ups ignore mostly. Registration costs are as less as possible. So now we are going to compare the starting costs of LLP and a private limited company. A private limited company may cost around Rs.15, 000 as the starting cost. But after this you may need more rs.15, 000 approximately to comply with the MCA rules and regulations. Then there is an audit, for which money is required again for around Rs. 15,000. That costs up to 45,000 a year.
But if we see LLP, it is a much cheaper form of business ownership. It costs you around Rs.10, 000 for registration and around Rs 4000 to comply with MCA rules and regulations.
Also, you need to have an audit once in a year, if your turnover is of Rs. 40 lakhs and also if you have a paid-up capital of rs.20 lakhs. It means that the costs of starting a private limited company are more and you can also maintain an LLP in its first year only.
Most of the private limited companies do not obey the rules and regulations of MCA, and they do not pay attention to the MCA regulations. This can lead to a penalty of 1 lakh rupees or even more for a year. LLP have low costs, and it is often to obey to pay the MCA regulations. This would mean that you have to skip the hefty fines.
LLP is a great choice, if you plan to commence a business whose funds does not rise or if you are interested in offering ESOPs to your employees.
Hence, both are cheap and best on their level. LLP and Private Ltd. The company has both its advantages and disadvantages.