The Limited Liability Partnership (LLP) and Private Limited Company are two different concepts covered under the corporate law of India. The Limited Liability Partnership Act 2008[1], defined limited liability partnership as a corporate or incorporate body formed under this act. LLP has its separate legal entity from its partners and has perpetual succession. The changes in the partners will not affect the existence, rights, and liabilities of the LLP. Limited Liability Partnership is a new concept then of a Private Limited Company.
According to the Companies Act 2013, The Private Limited Company has its minimum paid-up capital and restrict rights to transfer shares. The Private Limited Company also has its legal existence as of LLP and has its limited liability. Here in this blog, I have intended to put up the differences between the two, and how LLP is better than Private Limited Company.
Similarities between LLP and Private Limited Company
The LLP can be defined as a hybrid entity incorporating the good points of both, partnership and company, so as to facilitate the business. Earlier in the concept of partnership firm, all the partners were jointly and severally liable for their actions, which is not true for LLP. The concept of LLP is moreover similar to that of Private Limited Company which are as follows:
- The Private company and the LLP both have a separate legal entity than of its members and partners.
- At least two partners or members are required to set up an LLP and Private Limited Company.
- Both LLP and Private Limited Company have perpetual succession, which means that any changes in partners or members such as death, bankruptcy, exit, transfer, etc. do not affect the existence of LLP and company.
- Under both LLP and Private Limited Company, the capital is raised privately from partners or shareholders. They cannot raise or borrow money from the general public.
- In the LLP and Private Company both, a partner or a member is liable for his actions only to the liability extent of his contribution to the capital.
The incorporation process of LLP and Private Company
- In LLP, one needs to apply for the Designated Partner Identification Number (DPIN) for the two designated partners and digital signatures. At least one of them obtains DPIN, who will be authorized to work in case of legal, taxation, and compliance matters. This is followed by an application for the name availability and obtaining a name for the LLP to be incorporated. Afterwards, the LLP agreement is formed and filing of incorporation document available with the registrar of companies. Then after the successful filing process, a certificate of registration is being given.
- In Private Limited Company, the company name is selected, followed by the application for Director Identification Number (DIN) and digital signatures in favour of one of the Directors of the company. This is followed by the drafting of Article of Association (AoA) and Memorandum of Association (MoA). The AoA, MoA, and other documents on being filed successfully, Certificate of Incorporation is being given.
Read our article:Difference Between LLP and Partnership Firm: Choose the Correct Form of Entity For Your Startup?
Difference between LLP and Private Limited Company
| Points of Difference | Limited Liability Partnership | Private Limited Company |
| Number of members | The number of members for the incorporation of the LLP required is of two, but no maximum limit of members are there in the Limited Liability Partnership. | The numbers of members to start a Private Limited Company is also two, which can extend up to two hundred in case of the company. |
| Minimum Capital | There is no specific minimum paid-up capital required in the case of LLP. | The minimum paid-up capital requires Rs 1Lakh to start a Private Limited Company. |
| Applicability | The LLP is guided by the provisions of the Limited Liability Partnership Act 2008. | The Private Company is guided by the provisions of the Companies Act 2013. |
| Compliances | The cost of statutory compliances is less in LLP. | The cost of statutory compliances is more in the company. |
| Registering Authority | The registering authority in the LLP is the registrar of the LLP, and the cost of LLP registration is less. | The registering authority for the company is the registrar of the company (ROC). The cost of Private Limited Company registration is more. |
| Audit Requirements | Auditing is required when the turnover exceeds Rs 40 Lakhs or when the capital contribution is more than Rs 25 Lakhs. | Auditing is must for the Private Limited Company irrespective of the amount of the share capital. |
| Accounting Method | A cash accounting method can not be used | The mercantile method of accounting is used. |
| Taxation Benefit |
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| Transferability | The shares can be transferred only by executing a written agreement before the notary public in the case of LLP. | There is no agreement between the shareholders binding either on the company or on the shareholders. The transfer of shares can only be restricted by AOA. |
Why LLP over Private Limited Company?
As discussed above, one can clearly see that the LLP is a much better option than a Private Limited Company. The Limited Liability Partnership carries all good advantages of the partnership firm and also covers the unique features of the Private Limited Company. LLP has less cost of compliances than of the Private Limited Company. There are many more taxation benefits in the case of LLP. There are various taxes that are exempted in the case of LLP, such as Wealth Tax, Surcharge, and Dividend Distribution Tax, whereas all these taxes are levied in case of the Private Limited Company. The benefits of saving money are more in LLP, and therefore advantages of LLP is more than that of Private Limited Company.
Takeaway
LLP registration & private company registration has its own benefits, however, initially one can start its business through online LLP registration as it has less compliance formalities in comparison to company registration while later, they can convert their LLP into private company as in long run company registration is more beneficial than LLP. We at Corpbiz have a team of expert professionals who can help you with LLP registration, company registration as well as post incorporation compliance services.
Read our article:Difference Between LLP and Partnership Firm: Choose the Correct Form of Entity For Your Startup?
