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LLP vs Private Limited Company: Startup

June 16, 2017

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Many young entrepreneurs are curious about the difference between Private Limited Company and Limited Liability Partnership (LLP) and which of them is apt for their business model. In this article we will compare both types of company and how they are different from each other in various aspects.

Registration Process

The registration process for both types of company is almost same with slight difference in few steps of the process. To register a Private Limited Company, the following are the steps: –

Acquiring Digital Signature Certificate (DSC) for the said Directors.
Acquiring Director Identification Number (DIN) for the said Directors.
Acquiring name approval from MCA.
Filing for incorporation.

To register a Limited Liability Partnership (LLP) Company, the following are the steps: –

Acquiring Digital Signature Certificate (DSC) for the said Partners.
Acquiring Director Identification Number (DIN) / Designated Partner Identification Number (DPIN) for the said Partners.
Acquiring name approval from MCA.
Filing for incorporation.

Both Private Limited Company and Limited Liability Partnership (LLP) are registered with Ministry of Corporate Affairs (MCA) and the ministry issues a Certificate of Incorporation. The time taken to complete the entire registration process is almost same for both types of company (i.e. 20 days approx.).

Registration Cost

The registration cost of Private Limited Company is much higher than the cost of registration of Limited Liability Partnership (LLP). The paper work or the number of documents which are printed on Non-Judicial Stamp Paper are much less in Limited Liability Partnership (LLP) than in Private Limited Company.

Features

Limited Liability Partnership (LLP) and Private Limited Company both provides many similar features. Both types of company are separate legal entities and both are transferable, though Private Limited Company provides more flexibility in matters of transferring of ownership. Both LLP as well as Private Limited Company have a perennial life.

Ownership

As mentioned above, Private Limited Company provides more flexibility for promoters to transfer or share ownership rights. Private Limited Company’s ownership is being determined by its shareholding. Private Limited Company can have up to 200 shareholders. One of the major features of Private Limited Company is that the shareholders do not participate directly into any management activities of the company and there is a complete distinction between the shareholders and the management, which gives an edge over Limited Liability Partnership (LLP) when it comes to management and ownership features.

In case of Limited Liability Partnership (LLP) there is no distinction between shareholders and management. In a LLP, Partners hold both ownership as well as the powers to manage the company.

Compliance

Tax compliances of both Private Limited Company and Limited Liability Partnership (LLP) are similar. But when it comes to compliances related to Ministry of Corporate Affairs (MCA), Limited Liability Partnership (LLP) enjoys significant advantages. If annual turnover of a LLP is less than Rs.40 lacs, then the company need not to audit its accounts. On the contrary, a Private Limited Company need to audit its account with Ministry of Corporate Affairs (MCA) each year.

Fines and Penalties

The fines and penalties on Limited Liability Partnership (LLP) regarding noncompliance with the filing of documents to Ministry of Corporate Affairs (MCA) is much higher than Private Limited Company. The penalty is of Rs.100 per day for non-compliance.

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