Difference between LLP Company and Private Limited Company

LLP vs Private Limited Company

The Companies Act, 2013 lays down specific guidelines and provisions for all processes related to companies to be followed within the territory of India. All topics, beginning from basic requisites, compositions, incorporation, registration, etc. are dealt with in this Act. The Act, further, provides for the same for all types of public as well as private companies.

This article will deal with the following sub-topics:

* Registration of Companies
* Limited Liability Partnership Companies.
* Private Limited Companies.
* Difference between Private Limited Companies and LLP Companies.

REGISTRATION OF COMPANIES

The Indian law provides for a variety of companies that can be incorporated under it. Within the private sector itself, there is a plethora of types; Private Limited Companies, Sole Proprietorship, Hindu Undivided Family, LLP, etc. To begin with, one must identify the type of company that theirs is and thereafter follow the procedure.

Stage 1: Obtaining Digital Signature Certificate
Stage 2: Preparation of INC-29
Stage 3: Filing of INC-29
Stage 4: Issuing of Incorporation Certificate.

LIMITED LIABILITY PARTNERSHIP COMPANIES

These are registered under the Limited Liability Partnership Act, 2008 with the Ministry of Corporate Affairs. The idea behind a LLP is that a partner is not responsible for the things done by another since their liability is limited. Some of the key features of a Limited Liability Partnership are discussed below:

* In a llp, it is easier to incorporate and form since the capital assigned has no limits and the requirements for its formation are also much lesser than other forms of companies.

* The partners have a lot more flexibility in running and managing the business of a Limited Liability Partnership.

* The formalities to be filed by a Limited Liability Partnership are restricted too Statement of Account and Solvency and the Annual Return.

* There is no mandatory requirement for audits in a Limited Liability Partnership until and unless the annual turnover goes beyond Rs. 40 lakhs and the capital crosses Rs. 25 lakhs.

PRIVATE LIMITED COMPANY

The members of a Private Limited Company have some liability which is restricted by the percentage of shares held or owned by them in the company. These are preferred by smaller businesses and there are no provisions allowing public trading. Some important features are discussed below:

* A minimum of 2 members and maximum 200 members.
* Perpetual existence.
* Paid up capital must be at least Rs. 1,00,000.
* The words “Private Limited Company” must be used after the name of the company.
* Have 2-7 directors.
* No strict need for a prospectus.

LIMITED LIABILITY PARTNERSHIP COMPANY v/s PRIVATE LIMITED COMPANY

1. Cost of Registration: Incorporation of a LLP costs much lower as the government fees for the same is much lesser. This type of companies was introduced to help small businesses and therefore, all associated costs have been kept low. Documentation on Stamp Papers and Notarization is also much lesser.

2. Ownership: In a Private Limited Company, the ownership is decided by the shareholdings. The shareholders are also not the same as the management, therefore creating a clear distinction, making the ownership and management features of a Pvt Ltd company more attractive. On the other hand, the distinction is not the very clear in a LLP since the partners in this set up have both ownership as well as the management powers, therefore making him both manager as well as partner.

3. Compliance: The tax compliance for both Private limited Companies and Limited Liability Companies are mostly similar. However, there are some advantages that a LLP gets. For example, if the capital contribution is lower than Rs. 25 lakhs and the annual turnover does not exceed Rs. 40 lakhs it does not have to have its account audited. On the other hand, A Limited Liability Partnership must file a Form 8 and Form 11 which are specifically for them. At the same time, the fines and penalties for non-compliance are higher for a Limited Liability Partnership.

4. Membership: A Limited Liability Partnership requires a minimum of 2 members and there is no maximum limit on the members. A Private Limited Company also requires a minimum of 2 members however the upper limit is fixed at 200 members.

5. Foreign Ownership: To be a member or investor in a LLP, Foreign nationals are required to have approval from the Reserve Bank of India. In Pvt Ltd Company, there is no such restriction.

6. Annual Statutory Meeting: The provisions to do not provide for the conduct of an annual statutory meeting in a LLP. A Pvt Ltd Company on the other hand is required to conduct regular General Meetings and Board Meetings.

7. Charter Document: A Limited Liability Partnership is governed by a LLP Agreement with regard to rights and duties of partners and its operation. A Private limited Company on the other hand is governed by its Article of Association and memorandum of Association.

8. Conversion: A limited Liability Partnership cannot be converted into a Private Limited Company. However a Public Limited Company can be converted into a LLP.

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