5 Points Of Difference Between A Private Limited Company And An LLP

Initially, making a distinction between a private limited company and an LLP becomes an arduous task for aspiring entrepreneurs. Both of the business structures provide various standard features to operate a small or a large company, although they differ in many ways. 

Additionally, it is crucial to get the new company registration in India as per the suitable business structure. It would help you run it very efficiently and achieve success. Also, the LLP formation can be done in India through online facilities. It falls under the ministry of corporate affairs and is incorporated by the companies act, 2013. Here, we will try to comprehend the difference between the two by comparing a private limited company to an LLP for an entrepreneur.

Registration procedure

The registration process for a private limited company and an LLP is quite similar with some minor distinction in the forms and documentation filed for incorporation.

Here is the guide which can help you to register a private limited company in India.

– Obtaining the DSC (digital signature certificate) dedicated to each proposed director.

– Obtaining the DIN (director identification number) for each of the proposed directors.

– Applying to MCA to avail the company name approval.

– Submission for private limited incorporation.

Now, let us look at the process for an LLP which is quite similar.

– DSC (digital signature certificate) will be availed to proposed partners.

– Proposed partners will apply to use DIN (director identification number) or DPIN (designated partner identification number).

– Applying to MCA for name approval.

– Submission for LLP incorporation.

All the LLP and private limited companies are licensed, and a certificate of the corporation is provided to the ministry of corporate affairs.

The processing time for both of them to incorporate would also take approximately 20 days on average.  

Cost of registration

The government fees for incorporation of a private limited company in India are higher compared to the incorporation of an LLP which is cheaper. The reason for that is LLPs are meant to serve the needs of small firms, and that’s why government fees are lower for it.

Also, when it comes to the required documentation, for incorporation, documents have to be printed on non-judicial stamp paper, and notarized is lesser for LLP registration compared to private limited company registration.

Business Ownership

The private limited company gives more flexibility to promoters in terms of ownership and interests. Its shares own a private limited company, and a private limited company can hold up to 200 shareholders, not beyond that.

Hence, shareholders are not entangled in business management; the difference between shareholders and controllers are pretty clear in private limited company. One can say in terms of ownership and management features, a private limited company provides an edge.  

Whereas, in LLP, owners and managers are not distinguished. Within LLP, partners are managers, hence, they would also have management authority over the LLP. Partner in LLP is both investor and manager, while owners (shareholders) do not possess management powers in a private limited company.

Any business that wants to seek employee stock options or FDI or venture capital funding or equity is recommended for a private limited company.

Key Features

Both the businesses under private limited companies and LLP formation share many same characteristics. Both of them are independent legal bodies with distinguished assets and liabilities from those of advocates. Both can be transferable, but the private limited company gives more edge flexibility in transfers/sharing.

Private limited companies and LLP exist or live for a lifetime until and unless the competent authority or promoters exist or otherwise.

LLP is an individual and separate licensed legal entity that falls under the LLP act, 2008. For the responsibility of the LLP, the LLP partners are not directly liable. Partners will be responsible only to the extent of LLP contribution and will have minimum liability.

A private limited company is an individual and a separate registered legal entity governed by the companies act, 2013. The owners and the company’s directors beneath private limits are not directly obliged for any corporation’s liability. Even shareholders are accountable only to their share capital in a limited way.

Penalties and fines

Penalty for late submission or non-conformity of documents to the department of corporate affairs is higher, such as a flat fee of RS.100 a day, as non-compliance continues without a limited liability gap. That’s why LLP can be subjected to higher MCA fines and penalties because of failure to abide.

Therefore, LLP proponents have to be aware of due dates and promptly send documentation to the registrar.

Foreign ownership

LLP – foreigners are only allowed to invest with prior approval of the foreign investment promotion board (FIPB) and RBI.

Private limited company – foreigners can invest in the private limited company automatic path approval business in most countries.

Survivability or existence.

Partnership – the life of a joint organization sustains on partners. It should be ready for a breakup after the partner’s demise.

LLP – the life of LLP is not reliant on partners. It could only be revoked, voluntarily, or orders by the company law board.

Private limited enterprise – a private company’s life is not dependent on shareholders or managers by regulatory bodies or by voluntarily.

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Other elements

Late submission and non-compliance of documents’ penalty to the department of management affairs for a flat fee of RS.100 a day is usually higher than if it persists without a limited liability limitation. LLPs might, therefore, be subjected to higher MCA fines and penalties due to non-compliance. LLP proponents should also be aware of due dates and should sent paperwork to the registrar promptly.

A private limited company has higher credibility and reputation compared to LLP for its promoters. Nowadays, registered private limited companies have greater access to foreign direct investment and bank funding.

Pro Tip: Watch out for Taxability

Tax policy is more or less equal for both of them. Nonetheless, LLP provides significant leverage in terms of compliance with the department of corporate affairs. If LLP’s annual revenue is less than RS.40 lakhs and capital investment is lower than RS.25 lakhs, it is not expected to audit its accounts.

The tax structure for LLP is more natural. It is subjected to income tax only. Payment of dividends is not available on LLP. After the benefits, shared-out income is reported, and tax charged by LLP is tax-free in partners’ pockets. Tax will be levied in the company at the rate of 30%, and all partners have to ensure the annual submission of LLP. Here, both LLP and private limited companies have to pay alternate minimum tax.

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