PRIVATE LIMITED VS LLP REGISTRATION

The new business person who wants to start a new business is curious and bewildered about the difference between Private Limited Company and LLP. Both entities offer many similar features which are required to run a small to large-sized business, while they also differ in certain features. Following are the different points between the two,

Registration Process

The registration process of both Private limited and LLP is very similar with some differences in the required documents and forms to be filed for incorporation. The steps for incorporation of both entities are:-

1. Creation Of Digital Signature Certificate (DSC) for the proposed Directors, 2. Apply for Director Identification Number (DIN) for the proposed Directors, 3. Obtaining name approval from the MCA department by filling RUN form and 4. Filing for incorporation form i.e. SPICE+.

LLP registration also has a similar registration process:

1. Creation of Digital Signature Certificate (DSC) for the proposed Partners.

2. Apply for Director Identification Number (DIN)/Designated Partner Identification Number (DPIN) for the proposed Partners.

3. Obtaining name approval from the MCA department by filling RUN form.

4. Filing for incorporation form i.e. Filip Form.

Both the entities are registered with the MCA and Certificate of Incorporation is being issued by MCA only. The processing time for incorporation of both entities is almost similar i.e. 7 days to 10 days to incorporate.

Registration Cost

The Government fee for incorporation of an LLP is notably low-priced when compared to the Government fee for incorporation of a Private Limited Company. Generally, LLPs have been launched to meet up the requirements of small businesses and hence the incorporation fee of LLP is low.  

Features

Both LLP and Private Limited Company present many similar features. The LLP and Private Limited Company, both have the same feature of separate legal entity i.e. Both the entities are separate from their promoters and the assets and liabilities are also separate from the promoters. Both entities have a feature of transferability, though a Company offers more elasticity when it comes to sharing of the ownership. LLP and Private Limited Company both have perpetual succession, unless and otherwise, the entities decide to close the entities voluntarily or by the order of the authority.

The LLP is an entity registered under the LLP Act, 2008. In this, the partners are not personally liable for the liabilities of the LLP. The liability of the partners is limited and the partners are liable only to the extent of their contribution made to the LLP.

Private Limited Company is incorporated as per the laws of Companies Act, 2013. Both the directors and shareholders of the company are not personally liable for the liabilities of the Company. The liability of the shareholders is limited and liable only to the extent of their share capital subscribed by them in the company.

Ownership

Private Limited Company offers more resistance for the promoters when it comes to rights and profits sharing. The ownership of a Private Limited Company is set on by its shareholding and a private limited company can have up to 200 shareholders. Further, since the shareholders do not directly participate in the management of the company so there is a clear difference between the owners of share and the management of the company. Hence, a private limited company is more advantageous when it comes to ownership and management features.

In an LLP, there is no difference between the owners and management of the company. In an LLP, Partners hold ownership of the LLP and also hold powers to manage the LLP. Therefore, a Partner in an LLP has the authority of both the ownership and manages the management of LLP, whereas, in a Private Limited Company, the shareholders who are considered as the owners do not hold the powers of managing the management of the Company. A private limited company is typically suggested for the business that is in view of FDI or Employee Stock Options or Equity finance or Venture Capital funding.

At the time of appointing or resignation of any director in Private Limited Company, there is no need for alteration of MOA and AOA of the company, in this case only the company has to file a form. But in LLP, for addition as well as deletion of any partner, the LLP agreement is required to be changed and supplementary deed is to be approved from the MCA, which is a costly and lengthy process.

Compliance

Tax compliances are the same for both the entities. However, the compliances of the Ministry of Corporate Affairs are different for both entities.

For LLP, the auditing requirement arises if the annual turnover of the LLP is less than Rupees 40 lakhs and the contribution of capital is Rupees 25 lakhs. A private limited company on the other hand would have to file audited financial statements with the Ministry of Corporate Affairs each year irrespective of the turnover.

A Company is required to pay a Dividend Distribution tax at the time of the issue of profits to its shareholders. However, Dividend Distribution is not applicable to LLP. LLP is required to pay income tax at the rate of 30%. However, Minimum Alternate Tax is applicable to both the entities.

Fines and Penalties

The penalty or late fees of non-filling of documents with the Ministry of Corporate Affairs is much higher in LLP.

Other Factors

Private limited companies have been in existence for a much longer time than LLPs and enjoy universal acceptance in India and the world. LLP on the other hand is a recently introduced concept in India.

A private limited company presents its promoters a better image towards society. The private limited company also considered superior and given preference when it comes to funding from banks and foreign direct investment. Private limited alteration of the MOA and AOA is more convenient than that of the altering of the LLP agreement.

Foreign Ownership

In LLP outsiders are allowed to invest in an LLP only with the prior approval of Reserve Bank of India and Foreign Investment Promotion Board (FIPB) approval. Further in Private Limited Company, NRIs are allowed to invest in a Private Limited Company under the automatic approval route in most sectors.

Conclusion

The incorporation process, compliances and the management process of both the entities are similar, but when it comes to funding, recognition, loan, FDI, then the private limited company is considered and preferred over LLP. LLP is a newer concept and is not been accepted everywhere. So the choice of the starting of the business depends upon the owner's need like if one is considering raising funds in India than one should register as a company and not LLP.

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