LLP vs Pvt Ltd | Advantages and Disadvantages

 

Private Limited Companies and Limited Liability Partnerships are two distinct business entities that are governed by two distinct acts. 

 

The Limited Liability Partnership Act of 2008 and the Companies Act of 2013, respectively. 

 

Thus, it is crucial to understand the difference between LLP Vs Pvt Ltd, to make the right decision.

 

Both organisations provide many of the same characteristics needed to manage a small to large business, but there are also numerous areas where they diverge the advantages and disadvantages.

 

 

What does "Limited Liability Partnership (LLP)" mean? 

A partnership in which some or all partners have restricted obligations is known as a limited liability partnership. 

 

As a result, it can show traits of corporations and partnerships. 

 

LLP is a different type of corporate business structure that combines a partnership's flexibility with a company's restricted liability. 

 

Individual partners are protected from joint liability caused by another partner's poor business judgement or wrongdoing since no partner is liable for the independent or unauthorised actions of other partners. 

 

An agreement between the partners in an LLP governs the partners' respective rights and obligations.

 

Advantages of LLP (Limited Liability Partnership)

• According to the LLP Act of 2008, LLP is a distinct legal person that is registered. It can purchase, rent, lease, own property, hire people, enter into contracts, and be held responsible when appropriate. An LLP's partners are not personally responsible for the obligations of the LLP.
• Members' personal assets are shielded from business liabilities by limited liability.
• Written agreements between the members govern the partnership's operations and profit distribution. Regarding their respective rights and obligations, the partners are allowed to design the agreement as they see fit.
• The minimum required a number of partners for an LLP is 2, and there is no upper limit. Contrast this with a private limited company, which is limited to having no more than 200 members.
• In LLP, there is no minimum capital requirement.
• The treatment of LLPs in terms of income tax is the same as that of partnership firms. As a result, LLP is responsible for paying income taxes, while its partners' shares are not. Any payment of a salary, bonus, commission or other compensation is permissible as a deduction under Section 40(b) of Interest to Partners.
• In the case of an LLP, no Dividend Distribution Tax is due, and the partners can readily remove the income of an LLP.
• As there are far fewer compliances, an LLP is significantly simpler and less expensive to operate than a private limited company. When compared to the expense of forming a private limited or public limited company, LLP registration is less expensive.
• In comparison to a private limited corporation, an LLP is also simpler to dissolve.
• Different categories of membership, including designated members and non-designate members, can manage the LLP.
• The holding of annual statutory meetings is not required.

 

 

 

What does "Private Limited Company" mean? 

A privately held firm for small businesses is called a private limited company. 

 

Members of a Private Limited Company are only responsible for the number of shares they really own. 

 

Private Limited Company shares cannot be exchanged publicly.

 

Advantages of Private Limited Company

• A private company is a distinct legal entity created in accordance with the Act. A firm can own property, incur debt, and have a wide range of legal capabilities.
• Members of a corporation, such as shareholders or directors, are not personally responsible to the firm's creditors for such debts.
• "Perpetual succession" exists in a private limited business. 
• Due to its status as a separate legal entity, a corporation is unaffected by the death or other termination of any member and can continue to operate as usual notwithstanding membership changes.
• In a limited liability company, as opposed to proprietorships and partnerships, the member's exposure to the debts of the firm is constrained. 
• Members of a corporation are only held responsible for the face value of the shares they have purchased.
• A company can purchase, hold, enjoy, and alienate property in its own name because it is a separate legal entity. 
• The assets of the corporation do not belong to the shareholders. The actual owner of the business is itself.
• A corporation may enter into a binding agreement with any one of its members under the company form of organisation. 
• It is also feasible for someone to work for a firm while also controlling it. As a result, a person may occupy the positions of shareholder, creditor, director, and employee at the same time.
• Better sources are available to a corporation for borrowing money. It is able to accept public deposits, issue secured and unsecured debentures, and more. 
• Even banks and other financial institutions favour giving substantial financial support to businesses rather than to partnership companies or proprietary enterprises.

 

Conclusion

LLPs have numerous advantages over PLCs as a result. Given all these advantages, LLP registration is a smart decision for early-stage firms. 

 

While PLCs have advantages, LLPs have been woefully underappreciated as a tool for laying the groundwork for a business. Since the LLP Act of 2008 established LLPs, they have proven to be an incredible miracle for brick-and-mortar enterprises.