Difference Between LLP And Private Limited Company In India
LLP Registration in India – Starting a company isn’t an easy task neither does legally structuring that business is. And when things get into the flow for small businesses, it becomes important for entrepreneurs to register the business and cover their legal bases.
But not every entrepreneur has a sound knowledge of the legal side of the business, and a significant percentage of entrepreneurs in India do not know how to register a company.
This article aims to educate entrepreneurs who want to increase their knowledge regarding new company registration in India and to know the difference between LLP and a private limited company.
What is LLP Registration in India ?
Before going straight to the topic, let’s first understand LLP Registration in India and private limited companies.
LLP stands for Limited Liabilities partnership. LLP is a type of Partnership where Liabilities are limited. It was brought first in the US under the Limited Liabilities Partnership Act 2000 and adopted by all over the world, but in India Limited Liabilities Partnership Act was introduced in 2008.
In an LLP, the mutual rights and duties of the partners are governed by an agreement between the partners. And since it contains elements of both a corporate structure and a partnership firm structure, it is called a hybrid between a company and a partnership.
Private Limited Company
A private limited company is a type of business that has only ‘private’ ownership. It has a different name in different countries, such as LLC in the United States, Private company Limited by Share in the United Kingdom, Pvt. Ltd. in India, etc.
In Private limited companies, there is no required minimum capital. There is easy entry and exit. In a Private limited company, there is a very easy way to fundraising because there are many investors for startups who are very interested in investing in the startup.
Difference Between LLP Registration and a Private limited Company Registration
A Startup Company registration in Limited Liabilities Partnership is done under Limited Liabilities Partnership Act 2000, while in Private Limited company, a Startup Company registration is done under Company Act 2013.
Below written points show the difference between an LLP Registration and a Private limited company.
Acceptance And Recognition
Limited Liabilities Partnership Act was introduced in 2008, whereas Private limited companies have been in existence for longer. Private limited companies enjoy widespread recognition in India and the world, with well-established processes and procedures compared to LLPs.
Additionally, being a Private limited company, promoters get a better image in the market and enjoy better access to funding from banks and foreign direct investment.
When it comes to ownership and ownership sharing, a Private Limited Company offers more flexibility for the promoters as compared to an LLP.
In the case of a Private Limited Company, the ownership is determined by its shareholding, and it can have up to 200 shareholders. Moreover, since the shareholders do not directly participate in the management of the company, the management and the owners of the share have a clear distinction in a private limited company, making it advantageous when it comes to ownership and management features.
There is not a clear distinction between the owners and management in the case of an LLP. Here, the LLP Partners hold ownership of the LLP and powers to manage the LLP. Consequently, a Partner in an LLP will be both a manager and an owner.
In the case of a Private Limited Company, foreigners are allowed to invest under the Automatic and Approval route in most sectors. Investment in an LLP by foreigners is allowed only with prior approval of the Reserve Bank of India (RBI) and Foreign Investment Promotion Board (FIPB) approval.
In some cases, compliances are similar for both private limited companies and LLP like the Tax compliances. However, in compliance relating to the Ministry of Corporate Affairs, LLP enjoys significant advantages.[ Also read it – compliance services ]
A private limited company has to file audited financial statements with the MCA each year, whereas an LLP does not have to have its accounts audited if the capital contribution is less than Rs. 25 lakhs and an annual turnover of the LLP is less than Rs.40 lakhs
The taxation structure for an LLP is simpler as an LLP is subjected only to Income tax, and Dividend Distribution is not applicable on LLP.
Penalties & Fines
With the late filing of documents and being non-compliant, companies get to pay fines. And penalities are most of the time higher for an LLP when the non-compliance continues with no limit on the liability.
Though the fines are somewhat the same, LLPs could incur larger penalties or fines compared to a Private Limited Company from MCA due to being non-compliant. Therefore, the promoters of an LLP Registration in India need to be aware of the due dates and file the required documents with the registrar on time.
The process of register a company is intricate, and it is advisable to consult a professional for any legal business exercise. TheStartupLab, with its team of experienced dedicated professionals, offers services to set up a company, register a company, compliance filing, funding formalities, etc.
Contact us to get your business documents completed on time and without any hassle.