When starting any business, one of the preliminary questions raised by an entrepreneur is which kind of entity, a private company incorporated under the Companies Act, 2013 (Companies Act) or a limited liability partnership established under the Limited Liability Partnership Act, 2008 (LLP Act), would be most suitable for his business.

Let us Analyze which one is a More Efficient Vehicle and then decide which structure is best for your business.

Similarities between Private Limited Company and LLP

Both LLP and Private Limited Company offer many of the same features.

  1. Separate legal entities – LLP and Private Limited Company are both separate legal entities and have assets and liabilities that are separate from that of the promoters
  2. Transferability – LLP and Private Limited Company are both transferable, though a Private Limited Company offers more flexibility when it comes to transferring or sharing of ownership.
  3. Perpetual life – LLP and Private Limited Company both have perpetual life, unless and otherwise closed by the promoters or competent authority.
  4. Start-up India Registration – LLP & Private Company can be registered under the Start-up India program.

Difference between Private Limited Company and LLP

Basis of difference

Private limited company

Limited liability partnership

Name of Entity Name to contain ‘Private Limited’ in case of Private Company as a suffix. Name to contain ‘Limited Liability Partnership’ or ‘LLP’ as a suffix.
Cost of Formation  Relatively High Comparatively lesser than the cost of formation of a Company.
Number of Members 2 to 200 members Minimum 2 partners and there is no limit of a maximum number of partners.
Liability of Partners/Members Generally limited to the amount required to be paid upon each share. Limited, to the extent their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.
Statutory Meetings Board Meetings and General Meetings are required to conducted at the appropriate period and time. There is no provision in regard to holding any meeting.
Maintenance of Minutes The proceedings of the meeting of the board of directors/shareholders are required to be recorded in minutes. An LLP by agreement may decide to record the proceedings of meetings of the Partners/Designated Partners.
Voting Rights Voting rights are decided as per the number of shares held by the members. Decided as per the agreement.
Annual Filing Annual statement of accounts & annual return with ROC. These are filed in form AOC 4 and MGT 7. Annual accounts and annual returns to be filed with RoC. These returns are filed in LLP form 8 and LLP form 11.
Cost of running High Comparatively Low

The advantages of registering a business as an LLP

  1. LLP is much easier to manage as compared to a Private limited company
  2. It is comparatively cheaper to register an LLP.
  3. LLP is like a corporate body having its existence other than its partners.
  4. Managing LLP and ROC Compliance costs are minimal.

The advantages of registering a business as a Private Limited Company

  1. A Private Limited Company in India is the only form of business except for Public Limited Companies that can raise funds from Venture Capitalists or Angel investors.
  2. Shares of a company limited by shares are transferable by a shareholder at any other person.
  3. A Private Limited Company has ‘Perpetual Succession’, that is continued or uninterrupted existence until it is legally dissolved.
  4. In a Private Limited Company, 100% Foreign Direct Investment is allowed that means any foreign entity or foreign person can directly invest in a Private Limited Company.

For Registration of LLP – you can check our latest article – CLICK HERE.

Startup evaluation criteria

Criteria

Private Company

LLP

External Investment – Angels / VC / PE etc. The best suitable business model for attracting External Investments from Angels / VC / PE External Investment and even Foreign Direct Investment is Possible. However, attracting Investors to LLP is a difficult task.
Employee Stock Options Plans for attracting Employees Only a Private / Public Limited Company can issue Employee Stock Options Plans for attracting Employees Not Possible

Conclusion

So the choice of the business organization depends upon the owner’s 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 investors. However, If you have just started the business and want to run the business at minimal cost, then you should register an LLP. If at any point, you need to switch from an LLP to a private limited company, it can be easily done.

At Udyog Buddy, our team of professionals will help you seamlessly Incorporate your LLP or Private Limited and start your dream business with hand-holding support and affordable price. Apply now and get a Quote for LLP/ Private Limited– https://udyogbuddy.com/contact-page/

Write to us at [email protected] or connect through WhatsApp at +91 9301789019 for more details.