When starting a business you may have to choose between an LLP or a private limited company structure. Though both share common features like perpetual succession, limited liability etc, there are differences between the two that you must know about before you finalize on any of the ownership structure. Below, we look at four different types.
#1.Number of Members
A private limited company requires at least two members in order to be registered – two shareholders and two directors. The maximum number of directors allowed is 15, with shareholders limited to 200. When it comes to LLPs, two partners are required to register it, but it can add in as many partners as it wants. As such, LLPs are more suitable for small ventures which may collect funds from numerous people and may wish to give them a share of the business.
#2.Registration Process and Cost
While the private limited companies are registered under the Companies Act 2013, the LLPs are registered under the Limited Liability Partnership Act 2008. A company requires a Director Identification Number (DIN) to complete the process of registration while an LLP requires a Designated Partner Identification Number (DPIN). And when it comes to cost, registering an LLP obviously is cheaper than a private company, since the former is essentially targeted at small businesses. Other than these differences, most of the other registration processes of both types of businesses are same, including obtaining DSC, name approval from MCA etc. And if you want to make the LLP registration process easier and faster, you can use the registration services for Limited Liability Partnership by Quickcompany.in.
When it comes to filing audits, an LLP has fewer formalities to comply with than private limited companies. A company is required to audit its accounts and submit the report to the Ministry of Corporate Affairs every year. But in the case of an LLP, this is not required if the annual turnover of the business is less than Rs 40 lacs, with a capital contribution below Rs 25 lacs.
There are also differences in the way private companies and LLPs are taxed. For a private company, they will have to pay tax on their earnings. They are also liable to pay tax at the time of dividend distribution. Plus, an alternate minimum tax can also be charged. In contrast, the taxation structure of an LLP is more straightforward. All they have they have to file is an income tax, and then maybe an alternate minimum tax.
So, keep the above differences in mind while thinking of doing an LLP or a company registration. And when choosing between the two, remember to take into account the possibility of business expansion also.
f you plan to sell shares of your business in exchange for capital investment, then a limited company will be a better fit for you.
If you’re operating a non-profit company, then your decision is simple, you need to form a company limited by guarantee. You can’t have a non-profit LLP.
As the LLP is taxed on personal income, this needs to be submitted to Companies House for public record. Some people may prefer this information was not made public so may prefer a limited company.
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Sunanda is a super connector between affluent clients and Outreach experts like Submitcore. Her writing style is sharp, detailed and influencing