Distinction Between Private Limited Company and LLP

Understand the Difference Between Pvt. Ltd. Company and LLP before taking decision to start Business.

When we plan to start business than so many form of business form are available and private limited company and Limited liability partnership (LLP) are the most popular form of business structure among others.

Before selecting the proper structure, first we should understand our requirement, scalability of business, control over business, funding and finance etc. because there are some benefit and limitation in both form of business structure which has been differentiate in below table.   

The Concept of Corporate Structure is years old but LLP is relatively a new concept.

The Present structure of LLP’s and Companies in India are governed by the LLP Act, 2008 and Companies Act, 2013 respectively. One the other side the traditional form of Partnerships and Company Structure is not suitable for everyone because they have their own limitations. The Companies Act, 2013 repealed the erstwhile Companies Act, 1956 to remove the inefficiencies of the later up to certain extent.

The company business structure is old and traditional and used extensively on the other side LLP id new concept and introduce in India first time in 2008 to provide flexibility to entrepreneurs to operate as a traditional partnership at the same time providing the benefits of a Corporate form which is already tried and tested by some advanced countries like UK, USA, etc.

The Table below shows the difference Between the two forms of Business Structure:

S. No Points of Distinction Pvt Ltd Company LLP
1 Regulating Act Companies Act, 2013 Limited Liability Partnership Act, 2008
2 Name Style Pvt Ltd/ Private Limited LLP/Limited Liability Partnership
3 Structure Type Plain Hybrid (Partnership + Company)
4 Liability of Owners Limited Liability Limited Liability
5 Entity Separate Legal Entity Separate Legal Entity
6 Type of Ownership Equity Share Holders Partners
7 Form of Owners Funding Share Capital Partners Contribution
8 Management Structure Directors Collectively referred as Board of Directors Partners and Designated Partners manages the LLP and Designated Partners are additionally responsible for regulatory compliances.
9 Charter Documents Articles and Memorandum of Association (MOA & AOA) LLP Agreement
10 Bank Funding More possibility to raise funds from Banks and others compare to LLP. Possible due to Separate Legal Status
11 Minimum  Members 2 2
12 Maximum Members 200 No Limit
13 Minimum Directors 2 Not Applicable
14 Maximum Directors 15 unless increased. Not Applicable
15 ROC Compliances More Compliances over LLP Lesser as Compared to Pvt Company
16 Statutory Audit Mandatory, even if no turnover Only if Partners Contribution exceeds INR 25 lacs or Turnover Exceeds INR 40 Lacs in any Financial Year
17 Tax Compliances More Complex as far as procedural requirement is concerned for tax rates kindly refer Income Tax. Simple Procedure as Compared to Company and for tax rates refer Income Tax.
18 Goodwill Enjoys more goodwill over LLP because a Company has more powers. Less as Compared to Pvt Company but overall good image over traditional partnership. Rather many MNCs are operating as LLP.
19 Registration Compliance More registration requirement Simple as compared to Pvt Company
20 Conversion Can be Converted to LLP Can be Converted to Company
21 Liquidation Only though Legal Process the death of Shareholders doesn’t impact the existence. Same and the death of partners doesn’t impact the existence.
22 Recommended for Comparatively more Capital Intensive Businesses. Less Capital Intensive preferably for Service Sector or small entrepreneurs.

Above text surely give better understanding for distinction between a traditional Corporate Pvt Ltd Company and a Modern LLP form of Business.

We are team of make my filing help you to choose best business structure to fit your future requirement and to fulfill your business goal so fell free to contact us.

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Swapnil S

CA in Mumbai

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