Operating as a business is one of the best ways to work on your terms and gain complete financial independence. But put in a lot of effort to set up your own business. Beginners in this field must develop the right business plan, which involves choosing an appropriate name for the company, planning operations and arranging funds. Aspiring entrepreneurs must also know the difference between LLP and Pvt Ltd to register their business accordingly.
LLP Vs. Pvt Ltd: An Overview
LLP, or a Limited Liability Partnership, is a business entity that offers the advantages of a partnership firm and a private limited company. All partners in an LLP have limited liability towards the firm. The limited liability also applies to their contributions, and one partner may not be held responsible for the liabilities of the other partners. An LLP in India operates as per the guidelines noted under the Limited Liability Partnership Act 2008.
A Private Limited Company or Pvt Ltd is where private investors hold shares, and the public cannot trade those shares on the stock exchange. The shareholders may be different from the owners of a Private Limited Company, and thus the liabilities and profits are shared among the company owners, according to the Companies Act, 2013.
LLP Vs. Private Limited: Advantages
Some major benefits of registering a business as an LLP are:
- Starting and managing an LLP is easier because of its fewer formalities.
- The death of any of the partners does not affect the survival and existence of a limited liability partnership firm as it has perpetual succession.
- The cost of registering an LLP is lesser than registering other forms of businesses or companies.
- You do not require huge capital to start an LLP.
- Partners in an LLP have limited liability.
The benefits of registering a business as a Private Limited Company include the following:
- You do not require a minimum paid-up capital to develop a Private Limited Company.
- Members of Pvt Ltd have limited liability.
- Such companies can raise funds very easily.
- A Pvt Limited Company has a separate legal entity from all its members.
- The company also has perpetual succession.
Understanding the Difference between Pvt Ltd and LLP
Now let us have a clear idea of the points of difference between LLP and private limited. They are as follows:
The registration procedure features key differences between LLP and a private limited company.
- You must register for a Pvt Ltd firm as per the Companies Act, 2013, along with the Registrar of Companies. A DIN or Director Identification Number is required to register a Pvt Ltd.
- An LLP is registered as per the Limited Liability Partnership Act, 2008, along with the Registrar of LLP. A DPIN or Designated Partner Identification Number is required to register an LLP.
Speaking of the ownership difference between Pvt Ltd and LLP Company
- A Private Limited Company is more flexible in ownership, and a maximum of 200 shareholders can hold it.
- In the case of an LLP, partners can hold ownership and operate the company without additional directors, share distribution, and shareholders.
There is also a certain level of tax structure difference between Pvt Ltd and LLP in India:
- Though the tax compliance is the same for both business entities, besides the tax on annual income applicable for both, private limited companies need to pay an additional dividend distribution tax when their profits are distributed among the shareholders.
The characteristic points of difference between LLP and Pvt Ltd India are as follows:
- LLP and Pvt Ltd are transferable entities, but the process is easier in the case of a Pvt Ltd firm where the shares can be moved easily to another shareholder.
- Also, private limited companies can hold general and board meetings within specified timelines which does not apply to the LLPs.
- While a private limited company must draft an Article of Association and Memorandum of Association that puts down its business activities, objectives, shareholding details and company information, a limited liability partnership contract suffices for an LLP.
Which is better, Pvt Ltd or LLP?
Coming to LLP vs Pvt ltd company, LLP will be the right fit for you if you plan to operate a small business with limited capital and a partner. However, go for a Private Limited Company if you want to operate a business with substantial funds and aggressive growth.
Why is LLP better than Pvt?
Once you know the difference between a private limited company and LLP, you will find that LLP is better than Pvt mainly because the cost of registering an LLP is lesser as compared to registering a Pvt Ltd. Similarly, there are fewer formalities, and you need to produce fewer documents to register as an LLP.
Can an LLP have employees?
Yes, an LLP can have employees. The Indian government has not barred any individual from business and employment.
Why do people prefer LLP?
you thoroughly review LLP and Pvt ltd differences, you will find that people prefer LLP mainly because it does not expose partners to unlimited liability. Additionally, the partners or members of an LLP company can be sued, or even they can sue an individual, as an LLP is a legal entity.
What is the minimum capital for LLP?
The difference between a Pvt Ltd company and LLP also points out that no minimal capital is needed for LLP, unlike a private limited firm where the minimum capital requirement is Rs. 1 lakh.
Is the GST number mandatory for LLP?
Yes, the GST number is mandatory for all the limited liability partnership firms supplying products and services. They are required to obtain GST registration based on their annual turnover.
What is the minimum tax for LLP India?
The AMT or Alternative Minimum Tax for LLP Indian is 18.5%. However, this tax is levied with other applicable surcharges and cess.
How many partners are required for LLP?
At least two partners are required to establish an LLP. However, the maximum number of partners cannot be restricted to form a limited liability company.