Why LLP is better than Private Limited Company

LLP vs Private Limited Company(PLC)

Great! You have the perfect idea for a startup, you’re driven and have a team who backs you and are raring to go. But, wait! Have you thought about what type of company you will form? How many directors? What amount of capital you’re ready to dispose of? What direction will the company take? No? Well, with this article we hope to clear that up for you. We’re going to look at LLPs(Limited Liability Partnership) their merits and try to articulate the point that LLP is better than Private Limited Company.

Before we paint PLCs in a bad picture and LLPs as the ultimate choice, there are many upsides to Private Limited company incorporation as well as similarities between PLCs and LLPs. You can check out When to opt Private Limited Company over LLP. For a more detailed insight into when it could be wiser to go with PLCs.

Similarities between  LLP and PLC

  • LLPs and Private Limited Companies both require a minimum of 2 directors/shareholders/partners to start incorporation.
  • Private Limited Companies as well as LLPs both have Limited Liability to personal assets. (Limited to a nominal value of shares of shareholders)
  • LLPs and Private Limited Companies both are a body corporate and a legal entity separate from its partners and shareholders.

Registration Procedures

The procedures for Private Limited Company Registration, as well as LLP registration, are simplistic and very similar to each other. We list down the basic steps in the incorporation of these companies.

Private Limited Company Limited Liability Partnership LLP
Obtain Digital Signature Certificate (DSC) for Proposed Directors Acquire Digital Signature Certificate (DSC) for Proposed Partners
Acquire Director Identification Number (DIN) for Proposed Directors Obtain DIN or Designated Partner’s Identification Number(DPIN)
Name Approval from Ministry of Corporate Affairs (MCA) Name Approval from MCA
Filing for Incorporation Incorporation Filing

The Ministry of Corporate Affairs (MCA) is also taking steps to ensure faster processing of company incorporation procedure with One-Day Company incorporation with SPICe.

Why LLP is better than Private Limited Company

It is easy to see that both Private Limited Companies as well as LLP Registration procedures are rather simplistic. Thus, it is not a question of ease of incorporation it comes down to deciding the path and future of the company. We have also seen that it could be beneficial to incorporate a private limited company sometimes. However, we provide you with a comprehensive argument for why LLPs should be preferred as compared to Private Limited Companies.

  • LLPs combine the operational advantages of a Company as well as the flexibility of Partnership Firms.
  • The fee for incorporation of an LLP firm is very nominal as compared to that for Private Limited Company.
  • The compliance requirements for an LLP are significantly lower than those for a private limited company. The frequency of mandatory audits for an LLP are 0 if they haven’t crossed the 40 lakh turnover mark or 25 lakh revenue contribution mark.
  • A private limited company has restricted ownership and can only extend the number of owners to a maximum of 200 shareholders. However, there is no such limit which applies to LLPs.
  • The requirements for meetings are substantially higher for PLCs with the requirement of holding 4 board meetings and 1 Annual general meetings of the company.In an LLP, there is no compulsory requirement of holding meetings.
  • The cost of incorporating and maintaining a PLC (Rs. 15000 Incorporation+ Rs.15000Compliances + Rs.15000 Audit) is 3 times higher than that of an LLP(Rs. 11,000 Incorporation + Rs.4,000 Compliances) . This makes LLP an economical choice.
  • Adopting the PLC model could be economically hurtful to  startup owners . Many a time, PLCs either are unable to pay or do not pay their compliances requirements in time , leading to fines of up to Rs. 1 lakh sometimes. However, with LLPs you can skip the hassle of fines altogether. The fees for compliances of LLP are very nominal and rarely lead up to a fine.

Conclusion

Thus, there are many benefits of LLPs over PLCs. In light of all these benefits, it is a wise choice for early-phase startups to do LLP registration. While PLCs have their benefits, LLPs have been grossly underestimated to help shape a company’s foundation. LLPs have proven to be an absolute miracle for Brick and Mortar type businesses ever since the incorporation of LLPs in the LLP Act, 2008.

At LegalRaasta, we specialize in helping you incorporate a company whether it is LLP registration  or Private Limited Company registration along with GST registration and ITR filing. With our daily updates on the blog, we help you stay up to date with the latest law changes, compliance requirements, taxation among others such as food licenses. Talk to us about your requirements at +91-8750008585 or send us an e-mail at contact@legalraasta.com.

By |2018-10-24T09:25:53+00:00September 3rd, 2018|Categories: LLP|Tags: , , , , , , |Comments Off on Why LLP is better than Private Limited Company

About the Author:

Himanshu Jain is the founder of LegalRaasta – India's top portal for registration, trademark, return filing and loans. Himanshu is a CFA (US) & MBA (ISB). He has over 8+ years of corporate / consulting experience with top firms like McKinsey