Private Limited Company v/s Limited Liability Partnership – Insights

• While starting up a company one has to decide which business organization they want to incorporate and carry on. The choice of business organization is very important to give shape to your business motive. Here, if one has to choose between the Private limited company registration and LLP one can see the advantages and the difference so as to choose what’s best for them.

Private company are those companies where the all shares of the company are held privately. They can operate their business themselves or hire directors to manage the company on their behalf. It is a business entity which is privately held by some share holders. It limits the owner liability to the extent of their shareholding and limits the number of shareholders to 200 only. It also restricts shareholders to trade shares publically.

• • ADVANTAGES:

  1. Liability of Shareholders:

     • The liability of the shareholders is limited to the extent of their shareholding their personal assets are not taken to repay the debts of the company. Although this has one exception where there is fraud committed in relation to the company it will negate the owner’s liability protection.

  2. Restriction on Transfer of shares:

     • There is restricted trade of shares; it is an advantage to the shareholders who do not want to sell the shares to the outsiders. So the risk of hostile takeover is low.

  3. Perpetual Succession:

     • It has perpetual succession and has an independent identity which is different from its owners or shareholders. It means that the company will still and continue to exist even if the members die or ceases to be a member. The change in shareholders will not bring any effect on the identity of the company. It will be the same with same privileges, immunities, estates and possessions. It will continue to exist till wound up is there according to the Companies Act 2013 or any relevant act.

  4. Separate Legal Status:

     • It is a Separate legal entity. It has its own assets and liability is a legal entity which can be sued or sue or can hold and dispose of property of the company. It is capable of owing the funds and other properties. It is a legal person under whose name the company’s property is vested and is not of the shareholders.

  5. Governed Body:

     • There are few shareholders the decisions taken are quick and prompt. They are governed by the Companies Act 2013 and have to follow the procedures and disclosure norms under the act.

  6. Lower tax Benefits:

     • Income tax act 1961 provides a lower tax burden and rates for the companies compared to other type of business.

  7. Legal Power:

     • A company being a legal entity has the power to sue in its name and can be sued by others.

• • LLP is limited liability partnership. It is new form of business where both partnership and corporation exists. Here the partnership is with limited liability. It is registered under LLP Act, 2008 and with Ministry of corporate affairs.

  • ADVANTAGES:

    Under current income tax laws, if you own more than one self-occupied property, only one of them can be claimed as a self-occupied property. The rest are ‘deemed to be let out’ and you have to pay tax on notional rent. However, an HUF can own a residential house without having to pay tax. In addition, it can also avail of a Home Loan to purchase a residential property and get tax benefits up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act for loan repayment and up to Rs. 2 lakhs for interest thereon.

    1. No Minimum Capital:

       LLP can be formed by any amount of capital. There is no need for minimum capital for LLP. It is so set up hassle free and not burdensome on the owners.

    2. Number of Partners:

       It requires a minimum of 2 partners and there is no limit on the maximum number of partners of the LLP.

    3. Lower Registration Cost:

       The cost of registering LLP is low as compared to a company.

    4. No Compulsory Audit:

       TAll limited companies have to get their accounts audited but in case of LLP there is no such requirement. Although it is required to audit when the contributions of LLP exceeds Rs. 25 lakh or annual turnover exceeds Rs. 40 lakh.

    5. Less Legal Requirements:

       The LLP has to file only two i.e. annual return and statement of accounts and solvency.

    6. Partnership with limited Liability:

       LLP is treated in par with the partnership firm. The provision of dividend distribution tax is not payable on LLP. Also under Section 40(b) deductions are allowed on the interest given to partners, any payment of salary bonus commission or remuneration.

  • DISADVANTAGES:

    1. Legal Binding by a Partner:

       LLP can be bind by the act of one partner without the other partner i.e. one partner can make all other liable or bind them.

    2. Fund raising:

       Limited Liability Partnership cannot raise money from public.

A Quick Comparison between Limited Liability Partnership and Private Limited Company

S.No.	Factors of comparison	Private limited company	Limited liability partnership
1.	Maximum number of members	200 Shareholders	No Cap Limit
1.
2.	Requirements for compliance	Annual return filling Board meetings General meetings	Annual return filling Statement of Account Solvency.
3.	Audit	Compulsory Audit	Only if Share Capital more than Rs. 25 lakhs OR Turnover exceeds Rs. 40 Lakhs
4.	Conversion	Can be converted to LLP	Cannot be converted into a company
5.	Procedure	DSC (Digital Signature Certificate) DIN (Directors Identification Number) Name Approval Filing for Incorporation MOA and AOA	DSC (Digital Signature Certificate) DPIN (Designated Partner Identification Number) Name Approval Filing for Incorporation File LLP Agreement
6.	Time for registration	15-20 days	10-15 days
7.	Dividend distribution tax	Applicable	Not Applicable

Registration Fees comparison LLP v/s Pvt Ltd Company

• 1. Limited Liability Partnership

     Below 1 lakhRs. 500/-

     Contribution limit	Amount of Registration fees
     1 lakhs to 5 lakhs	Rs. 2,000/-
     5 lakhs to 10 lakhs	Rs. 4,000/-
     Above 10 Lakhs	Rs. 5,000/-

  2. Private Limited Company

     Nominal Share Capital limit	Amount of Registration fees	Total maximum Fees
     Below 1 Lakh	Rs. 5,000/-	Rs. 5,000/-
     For every Rs.10,000/- increase in share capital above 1 lakh up to 5 lakhs	Rs. 400/-	Rs. 21,000/-
     For every Rs.10,000/- increase in share capital above 5 lakh up to 50 lakhs	Rs. 300/-	Rs. 1,56,000/-
     For every Rs.10,000/- increase in share capital above 50 lakh up to 1 Crore	Rs. 100/-	Rs. 2,06,000/-
     For every Rs.10,000/- increase in share capital above 1 Crore Provided that, Maximum Additional Fees shall not exceeds above Rs 2,50,00,000/- in any case.	Rs. 75/-	Rs. 2,50,00,000/-

So, the choice of the business organization depends upon the owners need like if one is considering raising funds in India you should register as a company and not LLP. Private companies are considered more credible by the investors then the LLP.

1. What are the steps to incorporate LLP?

   • Name reservation: The first step to incorporate Limited liability partnership (LLP) is reservation of name of LLP. Applicant has to file E-Form 1, for ascertaining availability and reservation of the name of a LLP business.

   • Incorporate LLP: After reserving a name, user has to file E-Form 2 for incorporating a new Limited Liability Partnership (LLP). E-Form 2 contains the details of LLP proposed to be incorporated, partners’/ designated partners’ details and consent of the partners/ designated partners to act as partners/ designated partners.

   • LLP Agreement: Execution of LLP Agreement is mandatory as per Section 23 of the Act. LLP Agreement is required to be filed with the registrar in E-Form 3 within 30 days of incorporation of LLP.

2. Can an existing partnership firm be converted into LLP?

   • Yes, an existing partnership firm can be converted into LLP by complying with the Provisions of clause 58 and Schedule II of the LLP Act. Form 17 needs to be filed along with Form 2 for such conversion and incorporation of LLP.

3. Can an existing Company be converted into LLP?

   • Yes, any existing private company or existing unlisted public company can be converted into LLP by complying with the Provisions of clause 58 and Schedule III and IV of the LLP Act. Form 18 needs to be filed with the registrar along with Form 2 for such conversion.

4. Can a Listed company be converted into LLP?

   • No, only private / unlisted public company can be converted into LLP.

5. Whether name of LLP can end with word like ‘Limited’ of ‘Pvt. Ltd’?

   • No, name of the LLP shall end with either ‘Limited Liability Partnership’ or ‘LLP’. Word ‘limited’ shall be allowed in name only within ‘Limited Liability Partnership’.

6. What are the documents required to be filed by LLP annually?

   • LLP is required to file LLP Form 8 (Statement of Account & Solvency) and LLP Form 11 (Annual Return) annually. The ‘Annual Return’ is required to be filed within 60 days of close of the financial year and ‘Statement of Accounts & Solvency’ shall be filed within 30 days from the end of six months of the financial year to which it relates. Every LLP has to maintain uniform financial year ending on 31st March of a year.

7. What is a ‘statement of accounts of solvency’ and whether it has a prescribed format?

   • Every LLP is required to file ‘Statement of Accounts & Solvency’ in prescribed LLP Form 8 which contains a declaration on the state of solvency of the LLP by the designated partners and also information related to statement of assets and liabilities and statement of income and expenditure of the LLP. This form has to be filed by the LLP on an annual basis.

8. How can I inspect the documents as filed and registered by LLP?

   • The user has to log on to LLP portal to avail the service. The following documents/ information of LLP will be available for inspection by any person:-
     • Incorporation document
     • Names of partners and changes, if any, made therein,
     • Statement of Account and Solvency
     • Annual Return
     The fees for such inspection of a LLP is Rs 50/-

9. Is it required to file Form 14 for conversion of private company/unlisted company into LLP?

   • As per notification dated 15th October, 2015 issued by Ministry, Form-14 is not required to be filed in case of conversion of private company/unlisted public company into LLP.