Factors to be considered to choose between Limited Liability Partnership (LLP) and Private Limited (Pvt Ltd)

Many times our clients face problem to choose whether to register LLP or Private Limited company. The points mentioned below will help an entrepreneur make an informed decision for themselves

  1. Both the options provide us with a separate legal entity having an identity of its own and is not liable for the acts of its promoters or partners. Even if the owners leave the company or LLP, the entity will still exist unless it is wound up lawfully
  2. If your are looking for low investment and less cost an LLP would be a better option. Since the cost of formation of a LLP is less than that of forming a Private Limited company. Also the amount of paperwork required is comparatively less in a LLP, though the steps involved in formation of both kind of entities are similar.An LLP can be started with any amount of contribution. But now with an amendment in the Companies Act, 2013 even incorporation a Pvt Ltd company does not require any minimum prescribed capital
  3. A Company demands a lot of compliance’s annually as per the Companies Act, 2013 like holding of Board meetings, statutory audits, annual filings etc, Whereas an LLP requires audit only after its capital exceeds Rs 25 lakhs or turnover exceeds Rs 40 lakhs. 
  4. The Companies MOA & AOA are quite stringent and not easy to amend. Whereas an LLP agreement gives a flexibility to the partners.
  5. In relation to ownership Companies are more flexible since the shareholders have the option to transfer their shares. But in case of an LLP the partners are the Owners and any change in the ownership is to be done with the consent of all the partners.
  6. A Pvt Ltd Company being in existence since years is more recognized in India than an LLP which came into light since 2009, with the enactment of the LLP Act, 2008. Even banks & other financial institutions also prefer to provide loan to Private Limited Companies rather than Partnership firms or Proprietor. 
  7. An LLP being a partnership entity cannot sell its share in public. But a private company can do so by converting itself into a Public Limited Company. Conversion of LLP into a Pvt Ltd Company is not mentioned in the LLP act, and might also be a time consuming and tedious job.

Make a FREE account at CompanyKanoon for any further queries and hassle free online company registration process.

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