Which One Is Better, LLP Or Private Limited Company?
Many entrepreneurs who are beginning a new business are curious about the differences between a private limited liability company (LLC) and a limited liability partnership (LLP). Both entities provide many of the same characteristics needed to run a small to medium-sized business, but they differ significantly in other areas. In this essay, we examine the differences between a private company and an LLP from the perspective of an entrepreneur launching a new business.
The registration process for a private company and an LLP are quite similar, with certain modifications in the documents and forms that must be filed for incorporation. 1. Obtaining a Digital Signature Certificate (DSC) for the proposed Directors, 2. Obtaining the Director number (DIN) for the proposed Directors, 3. Obtaining name permission from MCA, and 4. Filing for incorporation is the stage for forming a personal company. A similar procedure applies to the formation of an LLP: 1. Obtaining a Digital Signature Certificate (DSC) for each of the prospective Partners 2. Obtaining Director positive identification (DIN) or Designated Partner positive identification (DPIN) for the proposed Partners, and 3. Obtaining MCA name clearance. and 4. Incorporation paperwork. Private Limited Liability Partnerships and Limited Liability Partnerships are both registered with the Ministry of Corporate Affairs and given a Certificate of Incorporation. The time it takes to form a private limited company and a limited liability partnership (LLP) is comparable, with both entities taking roughly 20 days on average.
The government charge for forming an LLP is much less than the fee for forming a non-public limited liability company… Because LLPs were created to meet the needs of small enterprises, they have lower government fees for incorporation. In addition, while registering an LLP, the number of documents that must be printed on non-judicial stamp paper and notarized is smaller than when registering a personal company.
Many of the attributes of an LLP and a personal limited liability company are the same. Both the LLP and the personal Ld. are different legal entities with assets and liabilities that are separate from the promoters’. Both an LLP and a personal Limited Liability Corporation (LLC) can be transferred, but a non-public company provides more flexibility when it comes to transferring or sharing ownership. Both an LLP and a personal corporation have a perpetual life until the promoters or a competent authority decide differently.
When it comes to ownership and ownership sharing, the promoters have more options with a private limited company. A private company’s ownership is determined by its shareholding, and a private Ltd. can have up to 200 shareholders. Furthermore, because shareholders are not actively involved in corporate management, there is a clear demarcation in a highly private Ltd. between the owners of shares and hence the management. As a result, when it comes to ownership and management, a non-public Ltd. is favourable.
There is no clear difference between the owners and the management in an LLP. In an LLP, the LLP Partners own the company and have management authority over it.
As a result, a Partner in an LLP is both an owner and a manager, but in a highly private corporation, the shareholders (owners) do not always need to be managers.
Any business pursuing FDI, Employee Stock Options Equity funding, or working capital finance should consider forming a private limited liability company (LLC).
Both private limited businesses and LLPs must comply with the same tax regulations. When it comes to compliance with the Ministry of Corporate Affairs, however, LLP has a substantial benefit. If the LLP’s annual turnover is less than Rs.40 lakhs and the capital contribution is less than Rs.25 lakhs, the LLP’s records should not be audited. An LLP, on the other hand, would submit LLP Forms 8 and 11.
On the other hand, a private limited liability company would file annual return audited financial statements with the Ministry of Corporate Affairs.
Fines and Penalties
The penalty for non-compliance or late submission of paperwork with the Ministry of Corporate Affairs is usually higher for an LLP because when non-compliance continues, a flat cost of Rs.100 per day is levied with no cap on the responsibility. As a result of noncompliance, LLPs may face higher penalties or fines from MCA. As a result, it’s critical for the promoters of an LLP to keep track of the deadlines and submit the required paperwork to the registrar on time.
Private limited companies have a longer lifespan than LLPs and are well-known in India and the rest of the world. As a result, personal Limited Companies have well-established systems and procedures. LLPs, on the other hand, may be a relatively new entity in India. As a result, many of the foundations, legislation, and procedures are still evolving. Because LLPs are a relatively new idea in India, they are not as well known as a personal limited liability company.
The promoters of a private limited company have a better image or standing than those of an LLP. In addition, a private corporation has easier access to bank financing and international direct investment.
Rishiraj is a keen learner and eager to learn more about the financial world. As a content writer at Finaxis, he hopes to capitalise on his newfound inclination for technology and language.