PRIVATE LIMITED COMPANY :
A private limited company is a company which is privately held for small businesses. The liability of the members of a private limited company is limited to the amount of shares respectively held by them. Shares of Private Limited Company cannot be publicly traded.
RECOMMENDATION : A private limited company is recommended for any business that is considering FDI or Employee Stock Options or Equity funding or Venture Capital funding.
There are major differences between the private limited company and LLP. The following article talks about all the differences between private limited company and LLP.
LIMITED LIABILITY PARTNERSHIP (LLP) :
LLP is a combination of both partnership and corporation. It has the feature of both these forms. As the name suggests partners have limited liability in the company which means that personal assets of the partners are not used for paying off the debts of the company. Nowadays it has become very popular form of business as many entrepreneurs are opting this. There are a number of partners in the firm and hence they are not liable or responsible for others misconduct. Every one is liable for their own acts. All limited liability partnership is governed under the limited liability partnership act of 2008. However in India LLP was introduced in April 2009.
Both Private Limited Company and LLP ‘s registration process are similar with some differences in the documents and forms being filed in the process. The features of both are similar as well. They both have separate legal entities and have assets and liabilities that are separate from that of the promoters. Private Limited Company and LLP both have perennial life, unless and otherwise closed by the promoters or a competent authority. Both are used from over a long period of time as per the needs of the Business and hence there are a few pros and cons. Therefore, learning the difference between them is necessary to get a clear picture before anyone can take a decision to start an Private Limited Company and LLP.
PRIVATE LIMITED COMPANY VS LLP
POINT OF DIFFERENCE
|PRIVATE LIMITED COMPANY||LLP (LIMITED LIABILITY PARTNERSHIP)|
|OWNERSHIP||Private limited company offers more flexibility to the promoters when it comes to ownership. The ownership is determined by its shareholdings and can have upto 200 shareholders. Further, the shareholders do not have to participate in the management of the company. Therefore, Private limited company is advantageous when it comes to ownership and management.||In LLP, the LLP partners hold ownership of the LLP and also holds power to manage LLP. Therefore, he is both a owner and a manage.|
FLEXIBILITY IN OPERATIONS
|In the case of Private limited company, Companies act requires a formal board structure and decision making at validly constituted meetings, passing of resolutions, maintaining minutes of meetings and other records to enable the members/directors take benefit of limited liability and other features of Private company.||LLP provides the benefits of limited liability with the flexibility of partnership firm which is regulated by a partnership deed. LLP has a perpetual succession and it can hold property in its own name.|
|COMPLIANCE||A private limited company have to file annual return audited financial statements with the Ministry of Corporate Affairs each year.||When it comes to compliance relating to the Ministry of Corporate Affairs, LLP enjoys significant advantages. A LLP does not have to have its accounts audited if the annual turnover of the LLP is less than Rs.40 lakhs and the capital contribution is less than Rs.25 lakhs. A LLP would however have to file LLP Form 8 and LLP Form 11|
|LEGAL UNCERTAINTY||Private limited companies have been existed for a long time and hence there is legal certainty about various aspects. Private limited company is widely accepted and followed my majority of people.||In India, LLP received formal recognition through the Limited Partnership Act, 2008. LLP is still a new concept and many a times, bank may not be willing to give loan to LLP.|
|COST FACTOR||Private limited company is comparatively expensive. However, in case of delay additional fees are applicable only in case of delay of balance sheet and annual return of the company.||LLP is comparatively cheaper than Private limited company as LLP’S are not required to hold regular board meetings, maintain statutory registers and even filing fees are very less. In the case of delay in filing, LLP Act, 2008, charges penalty without any upper limit.|
FINES AND PENALTIES
|The penalty for non-compliance has been increased to over Rs.1 lakh by both the income tax department and Ministry of Corporate Affairs.||The penalty for non-compliance or late filing of documents with the Ministry of Corporate Affairs are most of the times higher for a LLP as a flat fee of Rs.100 per day is levied when the non-compliance continues with no cap on the liability. Therefore, LLPs could incur larger penalty or fines from MCA due to non-compliance. Therefore, it is important for the promoters of a LLP to be aware of the due dates and file the required documents with the registrar on time.|
|RECOMMENDED FOR||Private limited company is recommended for medium and large businesses. For the companies looking for IPO and multiple stakeholders.||LLP is recommended for entrepreneurs and professionals. Also for enterprises in service industry which are not capital intensive.|
|FOREIGN OWNERSHIP||Foreigners are allowed to invest in a Private Limited. Company under the Automatic Approval route in most sectors.||Foreigners are allowed to invest in a LLP only with prior approval of Reserve Bank of India and Foreign Investment Promotion Board (FIPB) approval.|
|Existence of a Partnership business is dependent on the Partners. Could be up for dissolution due to death of a Partner.||Existence of a LLP is not dependent on the Partners. Could be dissolved only voluntarily or by an Order of the Company Law Board.|
|CHARTER DOCUMENTS |
|MoA (Memorandum of Association) and AoA (Articles of Association) are the charter documents in Private Limited Company.||LLP Agreement is the charter documents in LLP.|
|Private Limited Company can be converted into a LLP||LLP can be converted into a company|