Limited Liability Partnership In India

Why is LLP better than Private Limited Company?

Private Limited Company and Limited Liability Partnership India are two different business structures. They are governed by two different acts namely Companies Act 2013 and Limited Liability Partnership Act 2008 respectively. Both the companies i.e. Private Limited and Limited Liability Partnership offer many similar features required for running a small and large scale business, while there are also many differences in certain features. In this article we will discuss the comparison between Private Limited and Limited Liability Partnership from the perspective of an entrepreneur starting a new business.

What is Private Limited and LLP? A private limited company is a privately held company for small businesses. The liability of the members of a private limited company is limited to the extent of the shares held by them respectively. Shares of a private limited company cannot be traded publicly.

A limited liability partnership is a business that requires a minimum of two members and has no limit on the maximum number of members. Liability of LLP members is limited.

Comparison between LLP vs Private Limited Company: LLP vs Private Limited Which is better? There are some similarities and some differences between the two types of business entities, i.e. there are a lot of differences between both the private limited company and the limited liability partnership. Let us discuss both here for better understanding: Similarities Between Private Limited and Limited Liability Partnership: Separate Legal Entity: Both have separate legal entity. That means a Private Limited Company or LLP is treated as a different person in the eyes of the law.

Advantages of Taxes (Taxation): Tax incentives are provided for both types of business structures. Tax benefits are 30% of profits.

Limited Liability: In case of Private Limited Company and LLP, the liability of partners is limited.

Registration Process: Private Limited Registration and LLP Registration, both types of businesses need to be registered with the Ministry of Corporate Affairs.

Advantages of Private Limited and Limited Liability Partnership: Advantages of registering a business as an LLP., 1.

An LLP is easier to start and manage and the process involves less formalities.

2.

The cost of registration is less compared to a company.

3.

LLP is like a corporate body having its existence apart from one partner.

4.

LLP can be started with minimum capital.

Advantages of registering a business as a Private Limited Company: 1.

The company has no minimum capital requirement.

2.

Members have limited liability.

3.

It is a separate legal entity.

4.

It acts as a separate person from the composing members.

Why is LLP better than Private Limited Company?

It is easy to see that both Private Limited Companies and LLP registration procedures are simple. Sometimes incorporation of a private limited company can also be found beneficial.

However, here we will see a detailed argument as to why LLPs should be preferred as compared to Private Limited Companies .

1.

LLPs combine the operational advantages of a corporation and the flexibility of a partnership.

2.

Incorporation fee of LLP is very less compared to Private Limited company.

3.

The compliance requirements of an LLP are significantly less than those of a private limited company.

4.

A private limited company has restricted ownership and the number of owners can only extend to a maximum of 200 shareholders. However, there is no limit to its applicability to LLPs. 5.

Meetings requirements are significantly higher for PLCs with a requirement to hold 4 board meetings and 1 annual general meeting of the company. In an LLP, there is no mandatory requirement to hold meetings.

6.

A PLC (Rs 15000 Incorporation + Rs 15000 Compliances + Rs 15000 Audit) is 3 times more than an LLP (Rs 11,000 Incorporation + Rs 4,000 Compliances). This makes LLP an economical choice.

7.

Adopting a PLC model can be financially disruptive to start-up owners. Many times, PLCs are unable to pay or meet their compliance requirements on time, however with LLPs you can avoid the penalty altogether. Fees for LLP compliance are very low.