Introduction

When Entrepreneurs start their new business, there is a common confusion between which form of business will be best for them. Which will benefit them more. Which type will  provide the best environment for their business to flourish. What factors do they need to consider? Questions like these are not only common but very important too. You need to know the difference between all the types. You need to have the knowledge of what all these companies provide. The pros and cons. Talking about LLP vs Private Limited company, both provides limited liabilities to its partners and members. Both are also considered to be separate legal entities.

LLP vs Private Limited Company

Private Limited Company is one of the most common types of business form in India. In India, Limited Liability Partnerships are somewhat new in comparison to Private Limited Companies. There are certain differences as well as similarities between the two. Some of them are as follows:

• Different Requirements:

While you need at least two members, two shareholders and two directors for the incorporation of the private limited company and a maximum of fifteen directors and two hundred members is allowed. Limited Liability Partnership demands at least two partners and two designated partners. There is no maximum limit howsoever. The cost of formation of a Limited Liability Partnership is comparatively less than Private Limited company.

• The difference in naming:

Both forms have to be named in a different way. For a Private Limited company, you need to use Private Limited at the end of the name of the company. As for, a Limited Liability Partnership, you need to use Limited Liability partnership or LLP at the end of the name of the company. While there are partners in an LLP, there are members in a Private Limited Company. 

• The difference in the registration process:

Private limited company registration is executed according to Companies Act, 2013 and is registered with Registrar of Companies. However, LLP registration is done according to the Limited Liability Partnership Act, 2008 and is registered with Registrar of LLP. A DIN (Director Identification Number) is required for the registration of Private Limited Company. However, a DPIN (Designated Partner Identification Number) is required in case of a Limited Liability Partnership. The other rules followed by both the companies are according to their respective Acts also.

• The difference in tax structure:

Private limited companies are liable to pay tax on the earnings (income) of the company. Then there is a dividend distribution tax and an alternate minimum tax also. However, tax structure of a Limited Liability Partnership is much simpler. There are only two taxes applicable. One being income tax and second being an alternate minimum tax.

• Different Charter Documents:

While Private Limited Company has to write a Memorandum of Association and Article of Association, the same does not follow for an LLP. A Limited Liability Partnership has to produce an LLP agreement. even though both the documents are used for the same thing. They include the working and objectives of the company along with other necessary details.

• Annual Meetings:

According to Companies Act, it is mandatory for the private Limited Companies to conduct board and general meetings on the prescribed time. However, there are no such compulsions for a Limited Liability Partnership.

• Share Transfer:

In a Private Limited Company, a shareholder can easily transfer his shares to another shareholder. However, in a limited Liability Partnership, such transfers are governed by the LLP agreement.

• Voting Rights:

Voting rights are decided in a Private Limited Company on the basis of the number of shares a shareholder holds. However, in a Limited Liability partnership voting rights are decided as mentioned in the LLP agreement.

• Compliance and other factors:

A Limited Liability Partnership does not have to audit its account if its annual turnover is less than Rupees forty lakhs. However, Private Limited Company will have to audit its account annually and also will have to file the same with MCA (Ministry Of Corporate Affairs). Also, both forms provide limited liabilities, however liability of members are limited to shares in Private Limited Company. In an LLP the liability is limited not only to shares but up to whatever amount has been invested in the firm in any form.

• Whistle blowing:

In the case of Private Limited Company, no provisions are provided to the members. In a Limited Liability Partnership, however, protection is provided to the partners or members who provide useful information.

The basic rules and regulations of a Private Limited Company are mentioned in the Memorandum of Association and Article of Association. However, in a Limited liability Partnership, the same is mentioned in the LLP agreement. The dissolution in LLP vs Private Limited Company is less procedural when compared to pvt limited company.

In LLP vs Private Limited company, LLP is more flexible than Private Limited company. However, Private Limited Companies are more old and reliable. That is they are more famous in a country like India and hence are preferred more. Limited Liability Partnerships do see a hike in future.