Choosing the right business form is the most crucial decision to make for entrepreneurs.
In order to make the right choice, one has to study the various forms of business carefully taking into account their differences. In India, the number of Private Limited Companies is more as compared to LLP.
The Limited Liability Partnership model is still new in the business and is slowly gaining mileage among entrepreneurs.
LLP is opted by several new businesses these days because it offers the features of a Private Limited Company but with limited liability.
All the partners in the LLP model have a limited liability which means that their personal assets will not be used for covering the company’s debts.
In a Private Limited Company, the shareholders are responsible for the company’s losses. However, the liability of each shareholder is limited to the assigned value of the shares issued or guarantee.
A Private Limited Company is a separate legal entity in the eyes of the law and can be tax efficient.
Check out the basic differences between a Private Limited Company and a Limited Liability Partnership below.
The cost of starting up a Private Limited Company is more as compared to a Limited Liability Partnership.
Every business will have registrations costs but in a Private Limited Company, an audit is also compulsory.
For Limited Liability Partnership, an audit needs to be conducted only when the business has a turnover of over Rs.40 lakhs and paid-up capital of over Rs.25 lakhs.
Taxes and Penalties
Businesses formed under Private Limited Companies have to abide by the MCA regulations. In case, any company is not complying with the MCA then it has to pay hefty fines.
On the other hand, LLP companies have easier policies and taxation processes because only two taxes are applicable namely, income tax and alternative minimum tax.
Ownership of the Company
In a Private Limited Company, the transfer of shares is easier than in LLP.
Private Limited companies distinguish between the shareholders and the management whereas in LLP there is no clear distinction between the management and the owner.
All the partners in an LLP have the right to manage the company.
Make sure you consider your industry before selecting a particular business form.
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