Difference between LLP and Pvt Ltd |
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Here is the Comparison of Private Limited Company and Limited
Liability Partnership (LLP) on the parameters such as Business Formation,
Benefits of Business Structure, Business Management, Taxation, Accounts,
Audit, Records And Legal Compliances | |||
BUSINESS FORMATION |
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Criteria |
LLP |
Private Company |
|
Incorporation / Registration |
Incorporated under provision of LLP Act, 2008 |
Incorporated under provisions of Companies Act, 2013 |
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Minimum number of owners |
2 Partners required |
2 shareholders required |
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Minimum Number of Directors / Designated Partners |
2 Designated Partners required |
2 Directors required |
|
Maximum number of owners |
No such limit. An LLP can have any number of partners |
200 is the maximum number of shareholders allowed |
|
Capital Requirements |
No Minimum capital requirements |
No requirement of Minimum Authorised and paid up capital |
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BUSINESS STRUCTURE |
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Criteria |
LLP |
Private Company |
|
Liability of Owners |
Limited to the agreed contribution |
Limited to the unpaid amount of shares taken in the company |
|
Duration of Business |
Continue until winding up under LLP Act. |
Continue until winding up under Companies Act. |
|
Changes in the ownership |
LLP will continue irrespective of changes in the ownership |
Company will continue irrespective of changes in the ownership or
management |
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Ownership of property |
All assets and liabilities owned by the LLP |
All assets and liabilities owned by the company |
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Withdrawal of Capital |
Partners can withdraw capital subject to LLP agreement. It is also
possible for a partner to reduce contribution liability after giving notice
to creditors |
Once paid up, capital cannot be withdrawn by shareholders without the
approval of court. Company can buy back the shares subject to Companies Act. |
|
Interest on capital |
LLP can provide interest on capital without any approval subject to
LLP Agreement. |
Company cannot provide interest on capital to shareholders |
|
Termination of ownership |
A partner continues as a partner in the LLP even after transferring
all his rights in the LLP unless LLP agreement provides otherwise. A partner
can even resign from the LLP. |
A shareholder (member) can terminate membership by transferring the
shares in his name to any person subject to conditions in Articles of the
company. A shareholder cannot resign from the company. |
|
Removal from the ownership |
It is possible to remove a partner from the LLP subject to the LLP
agreement. |
It is not possible to remove a shareholder from the company by others.
However, the shares of one shareholder can be transferred to another person |
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BUSINESS MANAGEMENT |
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Criteria |
LLP |
Private Company |
|
Directors / Designated Partners |
Designated Partner should be a partner in LLP. |
A director need not be a shareholder. |
|
Management |
LLP is managed by partners as per LLP agreement. Partners can delegate
management power to a management team or single partner |
Management of Company is vested with Board of Directors elected by
shareholders |
|
Meetings for Management Decisions |
No such requirements of meetings. Decision process as per LLP
Agreement. |
In case of a private company, Directors are required to meet once in
every quarter. |
|
In case of a small company, dormant company and a private company (if
such private company is a start-up) there should be at least one meeting of
the Board of Directors in every half of a calendar year and the gap between
the two meetings is not less than ninety days. |
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Ownership Meetings for specific Decisions |
No requirements of meetings of Partners of LLP. |
General meeting of shareholders to be conducted once in a year
mandatorily. |
|
Remuneration |
Working partners can take remuneration subject to LLP agreement |
Directors can take remuneration. No restriction in Companies Act |
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ACCOUNTS, AUDIT, RECORDS AND LEGAL COMPLIANCES |
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Criteria |
LLP |
Private Company |
|
Accounts |
Accounts to be maintained with all supporting documents |
Accounts to be maintained with all supporting documents |
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Audit Requirements |
Accounts to be Audited by a Chartered Accountant only if the turnover
exceeds Rs.40 Lakhs or contribution exceeds Rs.25 Lakhs. |
Accounts to be Audited by a Chartered Accountant whether the company
does any business not. |
|
Registers and Records |
LLP is not required to maintain any Registers, Records and Minutes
unless specifically mandated by LLP agreement. Partners are at liberty decide
the requirements. |
Limited Company is required to maintain lot of Registers, Records and
to keep Minutes of Board Meetings and General Meetings from time to time
irrespective of doing business or not. |
|
Annual and Event based Filings |
LLP is required to file certain statutory returns annually and other
filings based on certain events from time to time irrespective of doing
business or not. |
Company is required to file certain statutory returns annually and
other filings based on certain events from time to time irrespective of doing
business or not. |
|
TAXATION |
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Criteria |
LLP |
Private Company |
|
Permanent Account Number (PAN) |
LLP is required to have a separate PAN other than partners |
Company is required to have a separate PAN other than Shareholder or
Director |
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Tax Rate |
LLP is taxable at ‘Firm’ tax at 34.80% on net profit of the LLP. |
Company is taxable at 22% on net profit and the Effective IT Rate
(IT+Surcharge+Cess) will be 25.52%. |
|
Dividend Distribution Tax (DDT) |
Profit after tax will be credited to partners’ account and it will not
be taxable in the hands of partners again. |
Company Profit, if distributed as Dividend, it will attract
Dividend Distribution Tax (DDT) @ 20.36% on dividend |
|
Taxability of Dividend in the hands of Shareholder / Partner |
Profit distributed by an LLP is completely exempted in the hands of
Partner. |
Dividend from a domestic company up to ₹10 Lakhs is exempted in the
hands of a Shareholder. Dividend in excess of ₹10 Lakhs shall be taxable at
10% in the case of a resident individual/HUF/Firm |
|
Tax Filings |
Required to file Tax returns every year. In case of no business, a
‘NIL’ return is required to be filed. Delay in tax return Filings will
attract Penalties and the Loss can’t be carried forwarded for setoff |
Required to file Tax returns every year. In case of no business, a
‘NIL’ return is required to be filed. Delay in tax return Filings will
attract Penalties and the Loss can’t be carried forwarded for setoff |
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STARTUP BUSINSES CRITERIAS |
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Criteria |
LLP |
Private Company |
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External Investment – Angels / VC / PE etc. |
External Investment and even Foreign Direct Investment is Possible.
However, attracting Investors to LLP is a difficult task. |
Best suitable business model for attracting External Investments from
Angels / VC / PE |
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Start-up India Registration |
LLP can be registered under Start-up India program. |
Private Company can be registered under Start-up India program. |
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Employee Stock Options Plans for attracting Employees |
Not Possible |
Only a Private / Public Limited Company can issue Employee Stock
Options Plans for attracting Employees |
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Thanks & Regards,
CS Ravi Garg
E-mail: csravi2014@gmail.
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