Private Limited Company – The Most Successful Business Type.
Many Entrepreneurs when starting a new business are eager to learn about the differentiation between a Private Limited Company vs LLP.
Both entities offer many similar features required to run a small, medium and large-sized business, while also appear to be different on certain aspects.
In this article, we attempt to distinguish between a Private Limited Company vs LLP from the point of view of an Entrepreneur who’s starting a new business.
Why Private Limited Companies Are Popular
Private limited companies have greater applicability. In addition to all an LLP offers, a Private Limited company differentiates between shareholders and directors.
This makes it possible to raise funding and attract talent by offering ESOPs (employee stock ownership plan). If you’re looking to do either of the two in the near term, go ahead and register your startup as Private Limited.
- In a Private Company, the business owners hold all shares of the company privately.
- Shareholders may operate the business themselves, or hire directors to manage the company on their behalf.
- Registering Private Limited Company results in protection of personal assets, access to more resources, financial assistance and greater credibility.
A Private Limited Company offers more flexibility when it comes to transferring or sharing of ownership.
The ownership of a Private Limited Company is determined by its shareholding and a Private Limited Company can have upto 200 shareholders.
Further, since the shareholders do not directly participate in the management of the company, there is a clear distinction in a Private Limited Company between the owners of share and the management.
Hence, a Private Limited Company is advantageous when it comes to ownership and management features.
In an LLP, there is not a clear distinction between the owners and management. In an LLP, the LLP Partners hold ownership of the LLP and also hold powers to manage the LLP. Therefore, a Partner in an LLP will be both an owner and a manager.
Liability of shareholders is limited to the value of shares taken in the Pvt. Ltd. company. Therefore the personal assets of shareholders are free from the liabilities of the company. Liability of partners of an LLP is limited to his contribution. However, if LLP has committed a fraud or a willful misconduct, the liability of LLP and partners committed fraud become unlimited.
The basic rules and regulations of a Private Limited Company are mentioned in the Memorandum of Association and Article of Association. However, in a Limited liability Partnership, the same is mentioned in the LLP agreement.
A Private Limited Company Registration is recommended for any business that is considering FDI or Employee Stock Options or Equity funding or Venture Capital funding.
Tax compliances are similar for both private limited company and LLP. However, when it comes to compliance relating to the Ministry of Corporate Affairs, LLP enjoys significant advantages.
Both forms provide limited liabilities, however, the liability of members is limited to shares in Private Limited Company. In an LLP the liability is limited not only to shares but up to whatever amount has been invested in the firm in any form.
Private limited companies have been in existence for longer than LLPs and enjoy widespread recognition in India and the world. Therefore, there are well-established processes and procedures for Private Limited Companies.
LLPs, on the other hand, is a recently introduced entity in India. Therefore, some of the rules, regulations, and procedures are continuing to evolve. LLPs are also not as recognized in India as a private limited company since it is a relatively new concept.
- The concept of PRIVATE LIMITED in INDIA since 1956. That’s why they are more famous in a country like India and hence are preferred more.
- Whereas LLP introduced in INDIA 2008.
- LLP is a copy paste idea from US, UK, EUROPE, SINGAPORE.
Unveiling the Myths Surrounding Private Limited Company Registration
The tendency to avoid choosing to register a Private Limited Company as a form of business, especially amongst startups, is due to certain notions and myths surround the private limited company.
MYTH#1: Private Limited Company is expensive
A few years ago, incorporation of a Private Limited Company used to be expensive with the incorporation charges reaching the limit of Rs. 50,000 or more. This used to make one think that incorporating a Private Limited Company would burn a hole in his/her pocket.
Now in the present, you can register your company as Private Limited with HG Corporates in just `13,700/-. in less than 10 working days.
Call: 82608-82609 Now!
MYTH#2: Shareholders Meetings Are Required More Often
As per Companies Act, 2013, it is mandatory for a Private Limited Company to hold an Annual General Meeting. However, Board meetings are necessary only when special resolutions need to be passed.
Meetings related to the maintenance of legal compliances of a Private Limited Company is a matter of minutes and is not a tedious or hefty task to perform.
Hence, whether it is Annual General Meeting or Board Meetings, it should not come in the way of choosing to register a Private Limited Company as a form of doing business.
MYTH#3: Limited Liability Partnership Have Lower Tax Rate
As per the Finance Act, 2016 in case of partnership firm and Limited Liability partnership tax rate is 30% while in case of a domestic company following tax rates are applicable:
- 25% tax rate: It is applicable only in case of newly setup domestic company engaged solely in the business of manufacture or product of article or thing u/s 115BA
- 29% tax rate: It is applicable to companies whose turnover/gross receipts in the previous year 2014-15 does not exceed 5 crore
- 30% if not covered under above 2 points
Hence, considering the above-mentioned facts, it is wise to incorporate a company as Private Limited Company rather than a partnership firm.
MYTH#4: Limited Liability Partnership doesn’t require an Audit
It is a misconception that Limited Liability Partnerships does not require an audit. Rather if certain criteria are met they are required to furnish the audit reports when the contributions of LLP exceeds Rs. 25 lakh or annual turnover exceeds Rs. 40 lakh.
Problems with LLP:
- LLP can be bind by the act of one partner without the other partner i.e. one partner can make all other liable or bind them.
- They cannot raise money from the public.
Market Dominance and fundraising: If you’re considering raising funds in India you should register as a company and not LLP. Private Limited Companies command more respect in the market, and that is why investors are more likely to invest in this form of business when compared to an LLP. Private companies are considered more credible by the investors than the LLP.
Private limited company offers its promoters a better image or standing than that of an LLP. Private Limited Company also enjoys better access to funding from banks and foreign direct investment.
When you’re first starting out in business, it’s not uncommon to be “caught up in the moment.” You’re consumed with getting the business off the ground and usually aren’t thinking of what the business might look like five or ten-let alone three-years down the road?
What will happen to the business after you die? What if, after a few years, you decide to sell your part of a business? Private Limited Compay is the most suitable form of Business for future requirements as it enables the owners to bring capital, change the ownership, expansion, consolidation, merger with other firms etc.
On the other side, once you decide to register an LLP, you will likely get several licenses and approvals in its name (profession tax or shops and establishments registration, for example). If at any point, you need to switch from an LLP to a Private Limited Company, considerable effort would be required.
Visibility and Brand, Capability, Reputation will come with the Private Limited Company Registration and it’ll have the advantage of separate personality from it members, you will get more acceptance from your clients, suppliers, financiers, and customers.
For Any Help in Pvt. Ltd Company Registration & Compliance:
Email us: firstname.lastname@example.org
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