Overview: Difference Between LLP Vs Pvt Ltd
Many Entrepreneurs who are starting a new venture is interested in understanding the difference between the two types of business: Private Limited Company vs LLP. Both offer several similar capabilities required for running the smallest to the largest business, however, they differ sharply in certain areas.
PLC & LLP are two distinct business entities that are regulated by two distinct laws, recognise as Companies Act 2013 & LLP Act 2008, respectively.
In this blog post, we will discuss the difference between a Private Limited Company vs LLP from the perspective of an entrepreneur who is starting a new venture.
What is Pvt Ltd vs LLP?
● Private Limited Company ( PLC ) or ( Pvt Ltd )
A PLC is an institution that is individually held by small-scale companies. The responsibility of members of the PLC is restricted to the number of stakes held by the partners. Shares held by a PLC cannot be traded on the open market.
Advantages of Pvt
Easy Formation:- The incorporation of a PLC is simpler. MCA has made changes to the registration procedure.
Capital Requirements:- No required capital amount is needed for the building of a private limited company as the company can be formed with any amount.
Perpetual Succession:– A PLC has permanent succession & an independent identity. This means that it does never forfeit its recognition after the death of its owners or stakeholders. Any change in the stakeholder of stakeholders will affect the company
Separate Legal Entities:- A private limited company is considered to be an individual under the legal eyes. The company can hold assets and funds under its name.
Limited Liability:- the stakeholder’s liability in the event of a PLC is limitless to the number of shares held
● Limited Liability Partnership LLP
A Limited Liability Partnership indicates that a business in which at least two partners are required, & it is not restricted to the number of partners. The liability of participants of the LLP is only limited.
Advantages of Limited Liability Partnership
Easy Formation:- With fewer formalities, it is simpler to establish & manage an LLP. The formation of an LLP requires less legal compliances and takes lesser time, effort, and energy.
Minimum Capital Requirements:- LLP can be formed in any size of capital There isn’t a minimum capital requirement for incorporation of an LLP.
Separate Legal Entities:- LLP is a type of corporate body with its legal status independent of its partners. It is an entity with its legal status legally.
Difference between LLP vs Private Limited Company With Comparison Table
There are a few commonalities in addition to some differences between these two kinds of business entities i.e. they are the PLC & LLP. Let us examine both equally to get a better understanding of them.
| Specifications | Pvt Ltd Co. | Limited Liability Partnership. |
|---|---|---|
| Laws that Apply | Companies Act 2013 | Lmited Liability Partnership Act, 2008 |
| Share capital minimum | No need of minimum requirements of share capital r | No minimum share requirement of capital. |
| Members Mandatory | Minimum two members are mandatory & Maximum 200 | Minimum two Members & Maximum no limit |
| Directors are required | Minimum requirement of 2 members & Maximum of 15 members allowed. | Two appointed partners & Maximum dosen't count |
| Board meeting | Within 120 days after the last meeting of the board. At least four board of directors conferences need to be arranged every year. | Not necessary |
| Statutory Audit | Mandatory | Not mandatory unless the contribution of the partner is greater than 25 lakhs or annual turnover is more than 40 lakhs |
| Yearly Filing | Annual statement of accounts and annual return, accompanied by ROC. They are filed on forms AOC 4 and MGT 7. | Accounts for the year and returns must be submitted to RoC. The returns are filed on LLP Form 8 as well as LLP form 11. |
| Compliance | High | Low |
| Liability | Limited | Limited |
| Shares transferability | Transfers are easy. It can be limited only by the Article of Association. | Transferable by signing a contract before the notary public. |
| Foreign Direct Investment | Eligible through the automatic and government route | You are eligible for an automatic route |
| suitable for what type of HTML | Entrepreneurs are entrepreneurs, and businesses have turnover. require external financing. | Startups, Businesses, trade, manufacturers, etc. |
| The Company's Name | Should be concluded with the Pvt. Ltd. | Should be concluded with LLP. |
| Tax structure | More complex (dividend distribution tax must be paid by the company) | Much simpler (no taxes on dividends distribution) |
| Reliability | More private | Less reliable |
| Investment | Companies are required to comply the section 73 as well as any other regulations and provisions adopted by them. | There isn't a limit or criterion for the investment of any third entity. |
Benefits of Pvt Ltd and Limited Liability Partnership
The advantages of enlisting your firm as an LLP
- An LLP is simpler to establish and manage, and the process requires fewer formalities
- It is a less expensive registration compared to an LLC
- LLP is a type of corporate body that has its existence apart from its partners
- LLP can be established with any amount of capital
The benefits of registering your business in the form of a Private Limited Company
- There is not a minimum capital requirement in the business.
- The members are Limited Liability.
- It is a distinct legal commodity
- It is an entirely different “person in comparison to the members that compose it.
Conclusion
Pvt. Ltd & LLP are both a great deal alike, as they share many similarities, but they differ in a number of their features and structure. If you’re an entrepreneur in need of external capital and are aiming at a high turnover then a Private Limited Company is an ideal business structure.
If you’re multiple people who wish to begin the industry jointly with limited liability, then an LLP is for you. If you still have any doubt about the Pvt Ltd vs LLP, we are ODINT Consultancy, here to help you out in each & every step of yours.
FAQ’s
An LLP could be converted to a private. Ltd. company according to the rules that are mentioned in Section 366 of the Companies Act.
No. There isn’t a minimum threshold for forming an LLP in India.
An LLP will be taxed with the exact rate of 30 percent as a corporation on its earnings. Partnerships that own their profits do not have to pay tax on these profits, so profit distribution is tax-deductible in India since there is no DDT (equivalent to taxes).
