LLP vs Pvt. Ltd. Company: Difference Between Pvt. Ltd. and LLP


Posted On : June 14, 2022
LLP vs Pvt. Ltd. Company: Difference Between Pvt. Ltd. and LLP

Startups are often stuck over LLP vs Pvt. Ltd. when it comes to giving a separate identity to their business. There are various similarities like both Limited Liability Partnership (LLP) and a Private Limited Company are separate entities in the eyes of law, separate from the members running them. Even the liability of designated partners in LLP is limited just like the directors or shareholders in a Pvt. Ltd. company. Then what is the difference between an LLP and Pvt. Ltd. company? What are the pros and cons of LLP vs Pvt. Ltd.? And then ultimately, LLP vs Pvt. Ltd. - Which is better for a startup business? All such doubts have been addressed till the end of this page.  

 

LLP vs Pvt. Ltd.

In the business world, it is a crucial task to give an identity to the same. A company is a renowned term which is governed by the Companies Act, 2013 in India. Section 2 (20) of the Act defines a company as the one incorporated under the same Act. Basically, there are certain legal formalities for incorporation of a company with the Registrar of the Companies which is overlooked by the Ministry of Corporate Affairs. A private limited company is the one with limited liability which can be incorporated by two or more members. In case of any losses in business carried out by a Pvt. Ltd. Company, the directors or shareholders are liable to the extent of their shares or interests in the company. They do not need to sell off their private assets in order to discharge the liability of the company.

 

A partnership is governed by the Partnership Act, 1932. It provides rules and regulations for a partnership firm in India. It can be understood as two or more partners coming together to run a business but share the whole liability for any losses incurred. In case of business loss beyond the assets held by partnership firms, the partners will have to discharge the same through their own private assets.

 

To evade such a situation while still keeping the identity of a partnership shielded as a separate entity, the Limited Liability Partnership Act, 2008 came into force. It can be said as a look alike of both partnership firms and a Pvt. Ltd. company. An LLP also enjoys corporate features like limited liability, separate entity, perpetual succession, etc. The LLP vs Pvt. Ltd. advantages and disadvantages are quite similar but eventually different as well.

 

What is the Difference Between an LLP and Pvt. Ltd. Company?

Basis

LLP

Pvt Ltd

Governing Statute

Limited Liability Partnership Act, 2008

Companies Act, 2013

Governing Body

Ministry of Corporate Affairs

Ministry of Corporate Affairs

Identity

Partnership

Company

Minimum Capital

No

No

Governing Document

Partnership Deed/ Agreement

Memorandum of Association (MoA) and Article of Association (AoA)

Name Requisites

LLP at the end of name

Pvt. Ltd. at the end of name

Liability

Limited liability

Liability limited to no. of shares held by members

Members

Min - 2 designated partners

Max - No limit

Directors - 2 to 15

Members 2 to 200

Members and Owners

Partners are owners of LLP and manage the business

Directors are the Managers of Business while Shareholders are the owners

Investors

Only partners can invest into business. (Angel investors or other ventures are rare)

Can seek investment by giving shareholding in the company

Audits

Not required immediately. Audit is not mandatory unless partners contribution exceeds 25 lakhs and annual turnover exceeds 40 lakhs

Auditor has to be appointed within 30 days, form filled within 45 days and audit has to be conducted on annual basis

Meetings

No legal requirement

Provisions for Annual General Meeting (AGM) and Extraordinary General Meeting (EGM)

Compliance

Comparatively less compliance requirements

A lot of compliance work

Annual Filing

Form 8 and Form 11

AOC 4 and MGT7

 

 

What are the Advantages of LLP over Pvt. Ltd.?

Although the LLP vs Pvt. Ltd advantages and disadvantages may vary for people and businesses, some pros of an LLP over the other have been pointed below:

  • LLP vs Pvt Ltd top advantage is the least compliance work, ie. formal legal documentation in case of LLP as compared to a Private Limited Company. In case of otherwise, statutory compliance for companies begins even before a company is incorporated and goes on even till the winding up of a company. In addition, regardless of whether some business activity is done, or some profits are made, compliance work has to be duly accomplished.
  • In case members or partners are not looking for any external investments, at least in the near future, LLP is more preferred than a Pvt. Ltd. Company.
  • Just like a Pvt. Ltd. Company, an LLP also enjoys protection of name since a registered LLP name can not be copied by anyone else across the country.
  • Partners in an LLP do not need to conduct any meetings and keep record of minutes of such meetings.

 

What are the Disadvantages of LLP?

To explore LLP vs Pvt. Ltd. company, which is better among the two, a Private Limited Company is a more recognized and reliable entity among the general public as compared to an LLP. Even for international business purposes, a Pvt Ltd. company is more preferred over the LLP. The difference between Pvt Ltd and LLP also does not allow startup LLP to raise funds from outsiders who are not partners. In case of wishful business partners who plan to escape any liability in business after a certain limit, LLP is always a better option. In other words, LLP often suffers from lack of credibility as compared to a Pvt. Ltd. company. More clarity on the concept can be sought through corporate law firms in Kolkata or the local firms in the said location of the proposed business partners.

 

Is Pvt Ltd Better than Partnership?

In case the members of the business are planning to seek investments from venture capitalists or other investors and wondering ‘LLP vs Pvt. Ltd. company, which is better?’, the answer lies with a Pvt. Ltd. It is also considered a more recognized and reliable form of business organization among the people. If there are any further doubts over LLP vs Pvt. Ltd company, consultation with a corporations lawyer may be of great help.

 

Can we Convert LLP to Pvt Ltd Company?

Yes, people planning for business startups are legally enabled to first register as a Limited Liability Partnership and later on get the same registered as a Private Limited Company. Since the difference between Pvt. Ltd. and LLP has been explained above, one can understand the pretext of what is the need of the hour. But since there is no universal delineation when it comes to pros and cons of LLP vs Pvt. Ltd., registering as a Private Ltd. company should be no harm. 

Written By:
Ridhi Khurana

Ridhi Khurana

Gurgaon

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