LLP And Company Differences
LLP and company are two common legal structures mostly preferred by entities with moderately-sized management. At the onset, these entities appear to be identical, but, in reality, they adhere to distinct legalities and compliances. The LLP stands for Limited Liability Partnership. It is often recognized as the blend of a private limited company and a partnership firm. Meanwhile, a private limited company refers to a joint stock company that requires 2 members in order to be legally incorporated. Knowing LLP and company differences can boost your understanding of how these entities operate legally, financially, and structurally.
What is a Limited liability partnership?
Limited liability partnership refers to a closely held entity helmed by a minimum of two partners. Although it seems akin to a partnership model, LLP offers a host of benefits to the partners, including flexible management, limited liabilities, and tax exemption. LLPs in India fall under the LLP Act 2008 which governs several aspects, including annual filing, incorporation, winding up, etc.
An agreement is used to incorporate an LLP in India. This agreement boasts key details such as the partner’s rights and responsibilities, company operations, partner details, and fiscal information. Besides, it also spans voting rights and methods for hiring and discarding a member. LLP is easy to incorporate as compared to entities belonging to the Companies Act 2013.
LLPs do have some downsides as well which should be taken into account. These include addressing defaults committed by other partners, moderate exposure to investment opportunities, moderate credit accessibility, and disagreements among partners.
What is a Private limited company?
According to the Companies Act 2013, a Private limited company refers to an entity that:
- Has a minimum paid-up share capital of Rs 100000
- Is not allowed to trade shares with general public
- Can accommodate up to 200 members (excluding its existing and former employees)
- Is not allowed to entice the public to subscribe to any securities.
Private limited companies have moderate scalability potential, making them suitable for smaller businesses seeking to augment their market presence with time. Besides, it poses a zero risk to members’ assets whenever financial crises arise. More or less these entities experience hassle-free run throughout their lifecycle from a compliance standpoint.
As with LLP, private limited companies also have certain limitations, including strong regulatory oversight, compulsion for holding annual and general meetings, BOD intervention in decision making, and restriction on share transfer.
Underlining Key LLP And Company Differences
The table below would give you more clarity on LLP And Company Differences
| Feature | Limited Liability Partnership (LLP) | Company |
| Legal Structure | Governed by LLP Act | Governed by Companies Act |
| Members/Partners | Partners | Shareholders |
| Liability | Limited to the extent of partner’s contribution | Limited for shareholders; unlimited for directors and members in some cases |
| Management | Managed by partners or designated partners | Managed by directors and officers |
| Compliance Requirements | Less complex and fewer regulatory requirements | More extensive compliance obligations |
| Taxation | Taxed as a partnership, with partners being taxed individually | Taxed separately from its members, often subject to corporate tax rates |
| Ownership Transfer | Restrictions on transferring ownership interests | Shares can be freely transferred |
| Minimum Requirements | Requires a minimum of two designated partners | Requires a minimum of two directors and two shareholders |
| Name | Must end with “Limited Liability Partnership” or “LLP” | Must end with “Limited” for a public company and “Private Limited” for a private company |
| Continuity | Dissolved upon the death, insolvency, or withdrawal of partners | Continues to exist despite changes in ownership or management |
| Annual Filings | Annual return and statement of account filing required | Annual general meetings, financial statements, and other filings are required |
| Audit Requirements | Mandatory if turnover exceeds specified limits | Mandatory based on company size and turnover |
| Public Disclosure | Fewer disclosure requirements compared to companies | More extensive disclosure requirements for public companies |
| Regulatory Body | Regulated by the Ministry of Corporate Affairs | Regulated by the Securities and Exchange Board of India (SEBI) and Ministry of Corporate Affairs |
FAQs around LLP and Company
Q: What is the difference between a company and an LLP?
A: A company has shareholders and is governed by the Companies Act, while an LLP has partners and is governed by the LLP Act.
Q: Can LLP be called a company?
A: No, LLP cannot be referred to as a company.
Q: Is LLP better than Pvt Ltd?
A: Whether LLP is better than Pvt Ltd depends on factors like business goals, structure, and legal requirements.
Q: What is the disadvantage of an LLP?
A: One disadvantage of an LLP is that partners have unlimited liability, unlike in a Pvt Ltd where liability is limited.
Conclusion
LLP and company are two distinct legal structures that come with various perks as well as downsides. While figuring out which structure to choose, you need to take several factors into account. These include business goals, management requirements, risk tolerance for managing compliance, tax implications, etc. By going through this elaborate take on LLP And Company Differences, you will be able to make an informed decision.
Read Our Article: Public And Private Limited Company Differences
