An entrepreneur must know the difference between a partnership and private limited company before registering a business. Choosing between LLP vs Pvt Ltd can be tricky enough because both have their own merits and demerits. In this article, our focus will be on LLP company and try to know what is an LLP.
Most of the people are googling “difference between partnership and company” to know the right answer. So, let’s get started and read the post till the end, don’t skip anything for clear understanding.
Private Limited Company
A Private limited company is a voluntary association of not less than two and not more than two hundred members, whose liability is limited, the transfer of whose shares is limited to its members and who are not allowed to invite the general public to subscribe to its shares or debentures.
Features of Private Limited Company
- Independent legal existence.
- A Private Limited company need not have more than two directors and two shareholders.
- Liability of its members is limited.
- Shares allotted are not freely transferable between members
- Enjoys continuity of existence.
- The transfer of shares could be restricted by the Articles of Association, thereby avoiding any undesirable persons to become shareholders of the company.
Limited Liability Partnership (LLP)
Hereunder we are explaining what is LLP.
LLP is a new corporate structure that combines the flexibility of a partnership and the advantages of limited liability of a company at a low compliance cost. In other words, it is an alternative corporate business vehicle that provides the benefits of limited liability of a company, but allows its members the flexibility of organizing their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm.
Features of LLP
- The LLP has a separate single entity.
- Minimum two partners are required.
- No requirement for minimum capital contribution.
- The mutual rights and duties of LLP and its partners shall be governed by LLP agreement between the partners or between LLP and its partners.
- Provision for Firms/ Private Limited Companies/ Unlisted Companies to convert into LLPs.
The Benefits of Limited Liability Partnership over Private Limited Company
1. Owner of Business
LLP requires a minimum of 2 partners. There is no limit on maximum partners unlike a private limited company wherein there is a restriction of not having more than 200 members.
2. No requirement of minimum contribution
As against the company, there is no minimum capital requirement in LLP. An LLP can be formed with the least possible capital.
Moreover, the contribution of a partner may consist of tangible, movable or immovable or intangible property or other benefits to the LLP.
3. Lower cost of formation
The cost of registering LLP is low as compared to the cost of incorporating a private limited or a public limited company.
– Private Limited Company
Minimum Statutory Fee for the incorporation of Private Company is Rs. 6000/- and Minimum Statutory fee for Public Limited company is Rs. 19000/-
Minimum Statutory fee for incorporation of LLP is Rs. 1500/- and Maximum fee for incorporation of LLP is Rs. 7000/- (approx.)
4. Lower compliance burden resulting in savings
Approximately at least 8 to10 compliances per annum are required to be made by a private limited company whereas a Limited Liability Partnership is required to file only the Annual Return and a Statement of Accounts and Solvency.
5. No requirement of compulsory audit
All the companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement. As per the provisions of LLP act, accounts to be audited annually except for LLPs having a turnover less than Rs. 40 lacs or Rs. 25 lacs contribution in any financial year.
6. Taxation Aspect on LLP
For income tax purpose, LLP is treated at par with partnership firms. Thus, LLP is liable for payment of income tax and share of its partners in LLP is not liable to tax. Thus no dividend distribution tax is payable. Provision of ‘deemed dividend’ under income tax law, is not applicable to LLP.
Section 40(b): Interest to partners, any payment of salary, bonus, commission or remuneration allowed as a deduction in the hands of Limited Liability Partnership.
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