Private Company vs LLP
In this article we will cover the comparison between Private Limited Company (Herein after referred as Pvt. Ltd Co.) vis a vis Limited Liability Partnership (LLP). Many Entrepreneurs starting a new business are curious about the comparison between a Pvt. Ltd Co. vs Limited Liability Partnership. Both entities offer many similar features required to run a small to large sized business, while also differing starkly on certain aspects. We will cover the differences between two for various aspects.
The Pvt. Ltd Co. Registration process and the Limited Liability Partnership Registration process are very similar with some differences in the documents and forms being filed for registration. The steps for registration of a Pvt. Ltd Co. are 1. Getting Digital Signature Certificate (DSC) for the proposed Directors, 2. Getting Director Identification Number (DIN) for the proposed Directors, 3. Getting name approval from MCA and 4. Filing for registration. Limited Liability Partnership registration likewise has a similar process: 1. Getting Digital Signature Certificate (DSC) for the proposed Partners, 2. Getting Director Identification Number (DIN) / Designated Partner Identification Number (DPIN) for the proposed Partners, 3. Getting name approval from MCA and 4. Filing for registration. Both Pvt. Ltd Co. and Limited Liability Partnership are registered with the Ministry of Corporate Affairs and are issued a Certificate of registration. The processing time for registration of a Pvt. Ltd Co. and Limited Liability Partnership are likewise comparable with both entities taking on average about 20 days to incorporate.
The Government fee for registration of a Limited Liability Partnership is significantly cheaper when compared to the Government fee for registration of a Pvt. Ltd Co. Limited Liability Partnerships have been introduced to meet the needs of small businesses and hence LLP enjoy lower government fee for registration. Also, the number of documents that have to be printed on Non-Judicial Stamp Paper and Notarized is lesser for Limited Liability Partnership registration when compared to that of a Pvt. Ltd Co. registration.
Both Limited Liability Partnership and Pvt. Ltd Co. offer many of the same features. Limited Liability Partnership and Pvt. Ltd Co. are both separate legal entities and have assets and liabilities that are separate from that of the promoters. Limited Liability Partnership and Pvt. Ltd Co. are both transferable, though a Pvt. Ltd Co. offers more flexibility when it comes to transferring or sharing of ownership rights. LLP and Pvt. Ltd Co. both have perennial life, unless and otherwise closed by the promoters or a competent authority.
Pvt. Ltd Co. offers more flexibility for the promoters when it comes to ownership rights and ownership sharing. The ownership rights of a Pvt. Ltd Co. is determined by its shareholding and a Pvt. Ltd Co. can have upto 200 shareholders. Further, since the shareholders do not directly participate in the management of the Co., there is a clear distinction in a Pvt. Ltd Co. between the owners of share and the management. Hence, Pvt. Ltd Co. is advantageous when it comes to ownership and management features.
In a Limited Liability Partnership, there is not a clear distinction between the owners and management. In a Limited Liability Partnership, the LLP Partners hold ownership of the Limited Liability Partnership and likewise hold powers to manage the Limited Liability Partnership. Therefore, a Partner in a LLP will be both a owner and a manager, whereas in a Pvt. Ltd Co., the shareholders (owners) do not necessarily have to have management powers.
A Private Limited Company is recommended for any business that is considering FDI or Employee Stock Options or Equity funding or Venture Capital funding.
Tax compliances are similar for both Pvt. Ltd Co. and Limited Liability Partnership. However, when it comes to compliance relating to the Ministry of Corporate Affairs, Limited Liability Partnership enjoys significant advantages. A Limited Liability Partnership does not have to have its accounts audited if the annual turnover of the Limited Liability Partnership is less than Rs.40 lakhs and the capital contribution is less than Rs.25 lakhs. A Limited Liability Partnership would however have to file Limited Liability Partnership Form 8 and Limited Liability Partnership Form 11.
A Private Limited Company on the other hand would have to file annual return audited financial statements with the Ministry of Corporate Affairs each year.
Fines and Penalties
The penalty for non-compliance or late filing of documents with the Ministry of Corporate Affairs are most of the times higher for a Limited Liability Partnership as a flat fee of Rs.100 per day is levied when the non-compliance continues with no cap on the liability. Therefore, Limited Liability Partnerships could incur larger penalty or fines from MCA due to non-compliance. Therefore, it is important for the promoters of a Limited Liability Partnership to be aware of the due dates and file the required documents with the registrar on time.
Pvt. Ltd companies have been in existence for longer than Limited Liability Partnerships and enjoys widespread recognition in India and the world. Therefore, there are well established processes and procedures for Pvt. Ltd Companies. Limited Liability Partnerships on the other hand is a recently introduced entity in India. Therefore, some of the rules, regulations and procedures are continuing to evolve. Limited Liability Partnerships are also not as recognized in India as a Pvt. Ltd Co., since it is a relatively new concept.
Private Limited Company offers its promoters a better image or standing than that of a Limited Liability Partnership. Private Limited Company also enjoys better access to funding from banks and foreign direct investment.
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