DIFFERENCE BETWEEN PRIVATE LIMITED COMPANY AND LLP
Page Contents
1) Objective
2) Major Difference Under Below Heading
a) Governing Law
b) Requirement of Capital
c) Name of Entity
d) Registration requirement
e) Formation Cost
f) Formalities of Incorporation
g) Verifying authority as per sec 140 of IT Act,1961
h) Liability
i) Audit Compliance
j) Income Tax Applicable Rate and Related Compliances
k) Annual ROC Compliances
l) Principal-Agent relationship
m) Unique identification number
n) Statutory Meeting required
o) Right to Vote
p) No. of members
3) Conclusion
Objective
Whenever a person wants to start or to expand his/her business, he needs to think about the way in which he/she is going to do it. There are lots of forms in which he can incorporate his/her business like Partnership Firm, Company, Limited Liability Partnership, sole proprietary concern, etc.
As per the nature and complexity of the business, he/she needs to choose amongst them. Private Limited Company registration and LLP registration are the most popular and commonly used forms which normally used to start a business. We are describing here the difference between Private Limited company and LLP to understand these business formats so that entrepreneurs can opt better form of business to start their business.
Differentiate between Private company v/s Limited Liability Partnership
a) Governing Law
In the case of a company, it is governed by the Companies Act, 2013 whereas LLP is governed by the Limited Partnership Act, 2008, and various rules covered under it.
b) Requirement of Capital
To incorporate a private company, there is a minimum requirement of Rupees 1 lakh and on the other hand, there is no such requirement in the case of LLP.
c) Name of Entity
Name to contain ‘Private Limited’ or ‘Pvt Ltd’ in case of Private Limited Company as suffix and Name should contain ‘Limited Liability Partnership’ or ‘LLP’ as a suffix in case of LLP.
d) Registration requirement
Both should have to get registered under their respective statutory authority i.e Registrar of company or LLP.
e) Formation Cost
The statutory fee for incorporation of Pvt Company is Relatively High whereas, in LLP, the cost of Formation is statutory filing fees, comparatively lesser than the cost of registration of Company.
f) Formalities of Incorporation
Various E-forms are to filled online on the MCA site in case of Pvt company as under:
SPICE + Form : It includes,
E-Memorandum of Association
E-Article of Association
AGILE form details
SPICE form details
INC-9 (Attached therewith)
DIR-2 (Attached therewith)
In the case of LLP, below mention form to be filed electronically.
FILLIP form
Partnership Deed in FORM 3
g) Verifying authority for ITR as per sec 140 of IT Act,1961
In the case of a company, by the managing director thereof, or where for any unavoidable reason such managing director is not able to verify the return, or where there is no managing director, by any director or any other person as may be prescribed.
In the case of a limited liability partnership, by the designated partner thereof, or where for any unavoidable reason such designated partner is not able to verify the return, or where there is no designated partner as such, by any partner any other person as may be prescribed.
h) Liability
The liability of members is limited to the amount required to be paid upon each share whereas, in case of LLP, the liability of the partners is limited, to the extent of their contribution towards the capital of LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.
i) Audit Compliance
The audit is compulsory for a Private Limited Company every financial year. Also, within 30 days of Incorporation, its board needs to appoint an Auditor (first auditor) for a Private Limited Company.
If the board fails to appoint an auditor within 30 days, then the shareholders must be informed. They are then required to make an appointment within 90 days of incorporation.
But, LLP has to get its books audited if its Capital exceeds Rs 25 lakhs or if its Turnover exceeds Rs 40 lakhs in any financial year.
j) Income Tax Applicable Rate and Related Compliances
The applicable Income tax rate for the companies if turnover less than 400 crore is 26% on the other side the effective income rate applicable for LLP is 31.20%
k) Annual ROC Compliances
In the case of Private Limited Company we need to file AOC-4 (Filing of Financial statement) and MGT-7(Annual Return) form compulsorily, due date for AOC-4 form is 29 October and for MGT-7 is 28 November. In the case of LLP, we need to file Form-11 (Annual Return) and Form-8 (Annual Accounts) and the due dates for from 11 is 30 May and for form 8 due date is 30 October. If we don’t file these forms on time then we have to pay a penalty as specified so in the case of the company the late fees are Rs. 100 per day each form and in the case of LLP, the late fees are Rs. 50 per day. So it always advisable to do the annual compliances on time.
l) Principal-Agent relationship
Directors share a Principal-agent relationship with the company not of the members and in case of LLP, Partners act as an agent of LLP not of other partners.
k) Unique identification number
Every company and director of the Company should hold a Unique no. known as CIN and DIN and in the case of LLP, LLPIN and DPIN are allowed to LLP and Designated Partners.
o) Statutory Meeting required
Generally, there has to be 4 Board meeting is required to be conducted every year once per quarter and one Annual General Meeting in a year in case of a company but on the other hand there is no such provision for the compulsory conducting meeting in case of LLP.
p) Right to Vote
Voting rights is with the shareholders and it is based on the no. of shares they holds. In case of LLP, voting rights is as per the Partnership deed or agreement made between them.
q) No. of members
In the case of a private company, there is a minimum of 2 members and a maximum of 200 members required whereas in the case of LLP minimum of 2 partners and there is no maximum limit specified.
Conclusion:
To conclude the above-mentioned details, it is advisable to select appropriate forms of business by doing going concern analysis, brand image, area of operation, financial condition and independence, nature, and complexity of transaction involved.
