Before starting a business venture, every business owner has one common confusion choosing a form of business. Which business structure will be best for them? What business structure to choose and why? These are very important questions, and the most important is to understand the difference between LLP vs Pvt Ltd (Limited Liability Partnership Vs Private Limited Company Registration).
So, let’s see which one is better, LLP vs Pvt Ltd for your business type.
Private Limited Company (Pvt Ltd)
In simple words, a Private Limited Company is a company owned by a small non-governmental organization with zero or no minimum capital and only two members, you can incorporate a Private Limited Company.
Limited Liability Partnership (LLP)
LLP is a business that requires at least two members and the number of members is be exceeded to no limit. LLP is a corporate body and covered under LLP ACT 2008
Difference between Limited Liability Partnership and Private Limited Company (LLP vs PVT LTD)
Registration procedure
- While registering for LLP, a Designated Partner Identification Number (DPIN) is needed, but in the case of Private Limited company registration, only Director Identification Number (DIN) is needed.
- Limited Liability Partnership is registered under the LLP Act 2008 and with the Registrar of LLP whereas, according to the Companies Act, 2013, a private limited company registers with the Registrar of Companies.
Registration Cost
LLP Registration Fee is Rs. 5000/- (minimum)
Private Limited Company Registration Fee is Rs.7000/- (minimum)
The registration fee for LLP is less in comparison to the registration cost of a Private Limited Company. Because LLP is to fulfil the needs of small businesses, therefore, its registration fee is low. Also, the fee depends on the number of partners/directors and capital contribution.
Required number of members
While making a private limited company, the owner requires at least two members, two Directors, and two shareholders, whereas, in a Limited Liability Partnership, there is no limit howsoever.
Title
In the case of LLP, the company title terminates with “Limited Liability Partnership” or “LLP”, whereas the Private Limited company title terminates with “Private Limited” or “Pvt Ltd”.
Tax format
In the case of LLP, two types of taxes are implemented, one is income tax and another alternate minimum tax, whereas, in the case of a Private limited company, distribution tax and alternate minimum tax is applicable.
Charter Document
Limited Liability Partnership has to make an LLP agreement While the Private Limited Company writes Article and memorandum of association.
Annual Meetings
According to the Companies Act, the Private Limited Companies must carry out the board and general meetings at the ordered time but in the case of LLP, conducting meetings is not a necessity.
Share Trade
One shareholder transfers his/her shares in a Private Limited Company, whereas, in an LLP such share transfers are controlled and managed by the LLP agreement.
Voting Rights
In an LLP right grant according to the LLP agreement. While in a Private Limited Company voting rights are based on the number of shares a shareholder holds.
Policy factor
LLP audits its account if its annual turnover is more than forty lakh rupees. On the other hand, Private Limited companies have to audit and also report the same with MCA (Ministry of Corporate Affairs) annually.
Immigrant Ownership
It is easier for a Foreigner to invest in a Private Limited Company than in a Limited Liability Partnership because It requires approval granted from the Foreign Investment Promotion Board (FIPB) and the Reserve Bank of India for investing in LLP.
Similarities between Limited Liability Partnership and Private Limited Company (LLP vs Pvt Ltd)
- Registration Process: both limited Liability Partnership registration and Private Limited Company registration are registered with the MCA (Ministry of Corporate Affairs)
- Distinct entity: both types of businesses have different legal entities that mean LLP or Pvt Ltd company is treated as different elements according to the law.
- Benefits on taxes (taxation): The tax benefits would be 30% of the profits in both the business structure.
- Limited Liability: In the case of Private Limited Company and LLP, the liabilities of the members would be limited.
Advantage and disadvantages of Limited liability Partnership
Advantages:
-
Convenient: incorporating LLP is easy as it has less legal work and also acquires less time and effort.
-
Funds: it can acquire with no minimum capital or any amount of capital.
-
Unique legal entity: It works like a corporate firm having members but has its unique existence in the law.
Disadvantages
-
Tax and profits: in some cases, owners of an LLP pay more tax than the owner of a firm. The income and salary of LLP refer to as taxes like self-employment tax. Such taxes are paid two times by the owner as he/she is the employee and also the employer.
-
Ownership transfer: transferring ownership is difficult as it requires approval from all the shareholders and members of the company. Also, legal approval from the Reserve Bank of India and the Foreign Investment Promotion Board in case of foreign transfer.
Advantages and disadvantages of Pvt ltd company
Advantages
-
Convenient: starting a Pvt Ltd company is easy as the registration is according to the MCA (ministry of corporate affairs).
-
Fund required: you can incorporate a private limited company without any capital or with any amount.
-
Unique legal entity: Pvt Ltd company is a separate entity in front of the law. A private limited company is capable to own capital and property in its name.
-
Limited Liability: The liability of the members restricts to the percentage of shareholding.
-
Existence: It has perpetual succession, which means it has a capacity of continuous existence even after the death of shareholders. Any kind of change in the shareholding will not affect the company.
Disadvantages
-
Division of Ownership: Pvt Ltd firm requires at least two individuals as shareholders and directors of the company. Therefore, if a solo business is willing to establish and manage a Company, they are not eligible to start a private limited company. While passing any major decision in a Pvt Ltd company, it always needs the permission of its members.
-
Closing of Company: Also the process of closing an LLP firm is tricky as it cost more money and time in comparison to an unregistered partnership firm. Therefore, before registering a company remembers to search whether the other members are serious about it or not.
To sum up, you need to look at all the process carefully before choosing any of the stream as their are many options according to your requirements. For instance, you can also go for company registration in Mumbai and start your business like this too.
