Many Entrepreneurs starting a new business are curious and confused as to which type of registration is best i.e LLP registration or Private Limited Company Registration. Although approving authority for both LLP registration in India as well as private limited company registration in India is ROC, however, there are some difference between both types of entities.
What is a Private Limited Company?
A private limited company is a voluntary association of not less than two and not more than two hundred members, whose liability is limited to shares held by them in the company.
What is a Limited Liability Partnership?
In India, An LLP is treated like any other partnership firm. No partner is made liable on account of the independent or unauthorized actions of other partners.
LLP vs Private Limited Company, Birds Eye Comparison:
- Registration Process
For registration of an LLP, minimum of 2 Partners are required. There is no limit to the maximum number of Partners. A body corporate can be a member of an LLP.
The minimum number of shareholder required for private limited company registration is 2 and there can be upto 200 shareholders, in case of a private limited company.
- Registration Cost
The Government fee for LLP registration is significantly cheaper when
compared to the Government fee for registration of a Private Limited Company. Also, the number of documents that have to be printed on Non-Judicial Stamp Paper and Notarized is lesser for LLP registration when compared to that of a Private Limited Company registration.
- Foreign Nationals as shareholder / Partner
In case of LLP registration, foreign nationals can be partners.
In case of private limited company registration, foreign national can be either director or shareholders or both.
- Foreign Investment
In case of both LLP registration as well as Private Limited Company registration, foreign investment is allowed on automatic or approval basis on various sectors in accordance with FDI policy.
- Meetings:- In case of companies minimum statutory meetings are required to hold, there is no such criteria in case of LLP.
- Audit- Statutory audit is required to be done for all the companies irrespective of the size of company. In case of LLP audit is required to be done if the capital contribution is min. 25 lakh or if the annual turnover criteria is above 40 lakhs.
- Annual Returns-
In both the cases annual returns are required to file with the ROC.
In case of companies, financial statement are required to file along with audit report, director report or any other mandatory documents. Annual statement of accounts and solvency is to be filed in case of LLP.
In private limited company shares can be issued but a Limited Liability Partnerships cannot issue shares, and are thereby unable to attract equity funding.
- Tax Compliances
Tax compliances are similar for both private limited company and LLP. However A Pvt. Ltd. Company is required to pay a Dividend Distribution tax @ approx. 16.50 % at the time of distribution of profits to its shareholders. Such dividend income is tax free in the hands of the shareholders. LLP is subjected only to Income tax. Dividend Distribution is not applicable on LLP. Also, MAT is applicable in case of Private Limited Companies.
- Fines and Penalties
The penalty for non-compliance or late filing of documents with the Ministry of Corporate Affairs are most of the times higher for a LLP since flat fee of Rs.100 per day is levied when the non-compliance continues with no cap on the liability.
Therefore, LLPs could incur larger penalty or fines from MCA due to non-compliance. Therefore, it is important for the promoters of a LLP to be aware of the due dates and file the required documents with the registrar on time.
- Existence or Survivability
LLP- Existence of a LLP is not dependent on the Partners. Could be dissolved only voluntarily or by an Order of the Regulatory Authorities.
Private Limited Company- Existence of a Private Limited Company is not dependent on the Directors or Shareholders. Could be dissolved only voluntarily or by Regulatory Authorities.