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July 13, 2016 Registrationwala

Comparison among PVT, Public and LLP on different parameter

Private Limited Company

Comparison among PVT, Public and LLP on different parameter

Selecting a business entity is a very difficult decision taken by the entrepreneur on the first stage of the business. There are different forms of business entity. When an entrepreneur starts their new business he needs to take a decision that which of the business will be best for him/her. A person can take a well-informed decision only when he has complete knowledge about all the forms of business. He can do business either in the form of a firm where he has unlimited liability or he can choose to do business in the form of a company where his liability is limited. He can start his business in any form. The various forms of business and comparison among those are described below:-

  1. Governing Law:-LLP is governed by the provisions of the Limited Liability Partnership Act, 2008 and various rules made thereunder on the other side companies are governed by the provisions of the companies Act, 2013 or the rules made thereunder.
  2. Difference in Naming:- Name of the LLP must end with the words LLP as prescribed under the LLP, Act,2008. In the case of the company, the name of a private company must end with the words private limited and the name of a public company must end with the words limited.
  3. Different requirements:- There are different requirements for different forms of business. For example in the case of LLP you need to have two designated partners to form the LLP but in the case of a private limited company you need to have at least two shareholders, two directors, and seven shareholder and three directors in case the company is a public limited company.
  4. Difference in registration procedure:- The procedure for the registration of an LLP and company is altogether different. Every company whether it is a private company or public company is get registered under the companies act, 2013 but an LLP is registered under the LLP, Act, 2008.
  5. Tax structure:- Tax is always important aspect because it affects the prior and post tax earning of the company. All legal entities such as LLP, private limited company, public limited companies are taxed at a flat rate which is 30% at present plus cess@3%, but in case of companies structure if dividends are distributed out of profit then again a tax called DDT (dividend distribution tax) is charged @ 17 appx. . But taxation in case of an LLP is different because profits distributed to partners are tax free in the hands of the partners. Therefore, this could be crucial factors in start-ups.
  6. Annual Meetings:-As per Companies Act, 2013 it is mandatory for every company to conduct board and general meetings within the prescribed time. However, there is no such requirement for a Limited Liability Partnership.
  7. Transfer of Shares:- In the case of public company shares are freely transferable however in the case of the private company right to transfer the shares is a restricted right. In the case of limited liability partnership, the right to transfer the share is governed by the provisions of the LLP agreement.
  8. Right to vote/voting rights:- In the case of a private or public company the voting rights are decided on the basis of the number of shares hold by the shareholders. But in the case of LLP voting rights are decided by the LLP Agreement.
  9. Cost of formation:- The cost of formation of a company is quite high than the cost of formation of limited liability partnership.
  10. Charter Document:- Memorandum and Articles of association is the charter for the company that defines its scope of operations. But for the LLP the charter is an LLP agreement which governs the scope of operations of the LLP.
  11. Audit of accounts:- Every company is required to get their accounts audited annually as per the provisions of the companies act, 2013.Therefore, audit is a mandatory requirement in case of company. However, an LLP is required to have its accounts audited only when its turnover or contribution in any financial year is equal to or exceeds Rs. 40 lacs or Rs. 25 lacs respectively.
  12. Proof of Ownership:- In the case of a company the proof of ownership is share certificate. But in the case of limited liability partnership LLP Agreement is the proof of ownership.
  13. Annual Filing:-In the case of companies, Annual financial statement and annual returns are required to be filed with the registrar of companies. In the case of limited liability partnership, an annual statement of accounts and solvency and annual returns is required to be filed with the registrar of companies every year.
  14. Statutory records:- All the companies are required to maintain books of accounts, statutory registers, minutes etc. LLP is required to maintain only books of accounts.
  15. Transferability of interest:-In the companies members can freely transfer their interest. But in the case of LLP partner can transfer their interest subject to LLP agreement.
  16. Closure:- A company can be dissolved either voluntary or by the order of national company law tribunal. In the case of LLP, it can be dissolved either voluntary or by the order of the national company law tribunal.
  17. Ownership:- The company independent of its members has ownership of assets. The LLP independent of its partners has ownership of assets.
  18. DSC:-In the case of a company at least one director must have a digital signature for filing e-forms electronically. In the case of an LLP, at least one partner must have digital signatures for filing the e-forms electronically.
  19. Whistleblowing:-In the case of private or public limited company no such provision exists. But in the case of LLP protection is provided to the partners or members who provide useful information by using whistle blowing mechanism.

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