Learn About the Difference Between LLP and Private Limited Company
When starting a new business, entrepreneurs often get confused about choosing the right form of business structure. There are different types of business forms, and the most common forms are LLP and Private Limited Company. These two business forms differ from each other in many areas.
However, they have some similarities. This piece thoroughly discusses the difference between LLP and Private Limited Company. Keep reading!
What Is the Difference Between an LLP and a Private Limited Company?
Refer to the table to learn about the difference between Private Limited Company and LLP.
| Pointers | Private Limited Company | LLP |
| Meaning | Private Limited Company refers to a company that is privately held for small businesses. | Limited Liability Partnership refers to a business form that offers the benefits of limited liability of a company and the flexibility of a partnership. |
| Governed By | The Companies Act, 2013 governs this type of business form. | The Limited Liability Partnership Act, 2008 governs this type of business form. |
| Number of Members | Minimum - 2, Maximum - 200 | Minimum - 2, Maximum - No Cap |
| Number of Directors | Minimum - 2, Maximum - 15 | Minimum designated partner -2, Maximum designated partner - Not applicable |
| Capital Requirement | No minimum share capital needed | No minimum share capital needed |
| Abides by | The AoA and MoA of a company | The company’s LLP agreement |
| Meetings Required | Minimum 4 board meetings needed in a financial year. 1 general meeting of shareholders in a year. | There is no mandate to conduct any meeting in LLP companies. |
| Tax Structure | Complicated (Company must pay dividend distribution tax) | Easier (This type of business need not pay dividend tax) |
| Statutory Audit | Required | Required if partners contribution crosses the threshold of ₹ 25 lakh and annual turnover crosses the threshold of ₹ 40 lakh |
| Reliability | High | Low |
| Compliances | Higher legal compliances | Lesser legal compliances |
| Investment | Companies have to follow section 73 and other provisions and rules stated in there | No cap for investment by any third-party |
| Company Name | Should end with Pvt. Ltd. | Should end with LLP |
| Foreign Ownership | Must proceed with the approval of Reserve Bank of India and Foreign Investment Promotion Board (FIPB) | Must proceed with the Automatic Approval route |
What Are Similarities Between LLP and Private Limited Company?
LLP and Private Limited Company have similarities in various pointers. These are as follows:
1. Limited Liability
Both Limited Liability Partnership (LLP) and Private Limited Company (Pvt. Ltd.) have limited liability. In both cases, shareholders and owners are not personally responsible for a company's debt and shares.
2. Separate Legal Identity
Both Limited Liability Partnership (LLP) and Private Limited Company (Pvt. Ltd.) have separate legal entities.
3. Registration Process
LLP and Private Limited Company must register with the Ministry of Corporate Affairs.
4. Perpetual Succession
Both Limited Liability Partnership (LLP) and Private Limited Company (Pvt. Ltd.) have perpetual succession. This means that irrespective of changes of partner, these organisations continue to exist.
Frequently Asked Questions
Is the dissolution process in LLP is different from Private Limited Company?
Yes, the dissolution process is different in LLP and Private Limited Company. In case of LLP, the dissolution is less procedural than a Private Limited Company.
Does an LLP have the same voting rights as a Private Limited Company?
No, an LLP does not have the same voting rights as a Private Limited Company. Private Limited Company decides voting rights based on the number of shares a shareholder holds. On the other hand, LLP decides voting rights as per the LLP agreement.