Pros and Cons of LLP vs Pvt Ltd: Comparing Two Preferable Business Entities

Choosing the right business entity is among the fundamental lawful selection taken by an entrepreneur while initiating a new business. With the exhibition of the LLP act and the companies act, 2013, decision-making of the business entities has become easier. 

The promoter or entrepreneur must understand the business element’s nuts and bolts and choose the right one prior to starting up with company incorporation in India. And it is also vital to carry out the company incorporation process in India. It can be done under the MCA with required documents and compliances. In this blog, we will look into those elements of LLP compared to a private limited (Pvt) company.

Registration.

• LLP – limited liability partnership can be registered with the ministry of corporate affairs under the limited liability partnership act, 2008.
• Private limited company – it can be registered with the ministry of corporate affairs under the companies’ act, 2013.

Entity’s name.

• LLP – the name chosen by the founders of the company has to be approved by the registrar of the company (RoC). The proposed name for approval must not be identical to the existing LLPs and companies or identical to a trademark or a brand name. It has to be sui generis and should be easily differentiated from other companies and LLPs. The business’s name would end with the words ‘LLP’ or ‘limited liability partnership.’
• Private limited company – the selection of name and its approval process is identical for the LLP and Pvt company. The business’s name would end with the words’ private limited’.

Entity’s legal status.

• LLP – it is a separate legal entity incorporated under the LLP Act, 2008. The one partner of the LLP will not be liable for the other partners’ acts if they do something without his/her consent. For instance, if A partner borrows money in the LLP’s name without the B and C’s knowledge or consent, who are the partners, then B and C will not be liable to pay the due amount.
• Private limited company – it is a separate legal entity as well incorporated under the companies’ act, 2013. The shareholders and the Pvt company’s directors will not be personally liable for the company’s liabilities.

Liabilities on the members.

• LLP – in LLP, partners will have limited liability and will be liable only to the extent of their contribution to the entity.
• Private limited company – investors will have limited liability and will be liable only to the extent of their share capital in the entity.

Minimal strength of the members.

• LLP – it requires at least two people for initiation.
• Private limited company – it requires two people to initiate the Pvt company.

The maximum strength of the members.

• LLP – it can have limitless numbers of partners in the entity.
• Private limited company – it can only have up to 200 shareholders in the entity.

Foreign ownership.

• LLP – foreign companies and foreign nationals can invest into an LLP with prior approval from the FIPB (foreign investment promotion board) and the RBI.
• Private limited company – foreign companies and foreign nationals can invest in a Pvt company under the approval route or automatic route.

Transferability.

• LLP – ownership can be transferred in the LLP.
• Private limited company – ownership in the Pvt company can be transferred through the share transfer.

Survivability or existence.

• LLP – the existence of the LLP does not rely on the partners. It can be dissolved wilfully or through a company law board’s order.
• Pvt company – the private limited company’s existence does not rely on the directors or the shareholders. It can be dissolved wilfully or by regulatory authorities.

Taxation.

• LLP – profits of the business with LLP registration will be taxed at thirty percent plus surcharge and cess as applicable. DDT (dividend distribution tax) will not be applied to LLPs.

• Private limited company – companies whose turnover is not more than Rs. 250 crores will be taxed at 25% plus cess and companies whose turnover exceeds Rs. 250 crores will be taxed at thirty percent plus cess. DDT will be applicable while distributing the dividend.

Annual statutory meetings.

• LLP – there is no requirement to conduct such meetings.
• Private limited company – it should convene a minimal four board meetings in a financial year and one general meeting in a financial year.

Annual submission.

• LLP – it should submit form 8, form 11 with MCA annually within stipulated time and date under the law.
• Pvt company – it should record annual returns and annual accounts with RoC every year.

Cost of registration.

• LLP – the cost of LLP registration is minimal that can be accessed on the website.
• Pvt company – the cost of a private limited company is minimal and can be accessed on the website.

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