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A Private Limited Company or an LLP

A Private Limited Company or an LLP. Choose what suits your business idea the best

The difference between a private limited company and an LLP has always been a confusion among new business owners. Both these entities have almost similar kind of features, while they do differ in certain aspects. Few of the factors include:

  • Registration Process

The registration process to incorporate a private limited company involves the below steps

  1. Obtaining Digital Signature Certificate
  2. Obtaining Director Identification Number
  3. Name approval from MCA
  4. Incorporation of the company

Registering an LLP also involves a similar process

  • Obtaining Digital Signature Certificate
  • Obtaining Director Identification Number
  • Name approval from MCA
  • Incorporation of the company

 

Registration Cost

The registration cost incurred on an LLP by the government is much lesser when compared to that of a private limited company. Documents that have to be printed on the notarized and the non-judicial stamp paper in case of a limited liability partnership company are lesser in number than a private limited company.

Features

LLP and Pvt Ltd company work along similar features. Both LLP and private limited company are legal entities and can be transferred easily. A private limited company is more flexible when it comes to transfer of ownership.

In case of both an LLP and a private limited company, the partners have limited liability and are liable only to their contribution

Ownership

There is no clear difference between a management and an owner in an LLP.  The partners in an LLP have the power to hold the LLP and also hold the title of an owner of the LLP. In a Private Limited Company, the shareholders (owners) may not necessarily hold managerial powers

Compliance

Tax compliances are similar for both LLP and Private Limited Company. However, an LLP enjoys much more benefits than a private limited company when it comes to compliance related to the Ministry of Corporate Affairs. The account of an LLP do not require auditing if the annual turnover is less than 40 lakhs and the capital contribution is less than 25 lakhs.

A private limited company has to file audited financial statements with the Ministry of Corporate Affairs. At the time of distribution of profits to the shareholders, a private limited company is required to pay a dividend distribution tax of approximately 16.50%

Taxation structure of an LLP is much simple. An LLP is only subjected to income tax. Minimum alteration tax is applicable to both LLP and Private limited company

Fines and penalties

The penalty for non-compliance or late filing of documents with the Ministry of Corporate affairs is higher for an LLP. An LLP is levied with a flat fee of Rs 100 per day.

Other Factors

A private limited company is well established and existed much before LLP. A private limited company is widely recognized in India than an LLP. As LLP is newly introduced in India, the rules, regulation and procedures are still evolving gradually.

Foreign Ownership

Only with prior approval from Reserve Bank of India and Foreign Investment Promotion Board (FIPB), the LLP foreigners are allowed to invest in an LLP.

The Automatic Approval route in most private limited companies allow foreigners to invest in the company

Existence or survivability

The existence of an LLP does not depend on the partners. It can be dissolved only voluntarily or by an Order of the Company Law Board.

An existence of a Private limited company does not depend on directors or shareholders. It can be dissolved only voluntarily or by regulatory authorities.

CONCLUSION

Always ensure you choose the business entity that best suits the nature of your business. You can also read through the advantages of registering your LLP or Private Limited Company

 KEYWORDS

LLP, Pvt Ltd. Limited liability partnership, private limited company

Alt text – Difference and similarities between an llp and Pvt Ltd company

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