The distinction between private limited company and LLP

One of the most crucial aspects of starting a company is to choose the best suitable corporate structure for the company. There is a wide array of options like the private limited company, One Person Company, public company etc to choose from.  For selecting any option first you are required to go through the pros and cons of each type of business. There are multiple factors like the capital required, members, the scale of business, control, compliances etc that must be carefully assessed before taking any decision.  In this article, we will provide the major differences between Private Limited Company and LLP. 

Private limited Company V/s  LLP

Following are the differences between private limited Company and Limited Liability Partnership

Features

Limited liability partnership is a modified form of partnership firm which is incorporated by 2 or more person.  Unlike the traditional partnership firm the limited liability, Partnership provides the major benefit of Limited liability to the partners.  Moreover LLP is governed is by the rules and regulations outlined in LLP agreement.

The private limited company is a limited company and not a firm this is one of the main distinction between the two. Private limited Company has the features like limited liability, ease of transferability, perpetual succession etc.

Registration Process

The process of registration of private limited company includes the following 4 steps

1.    Obtaining Digital Signature Certificate (DSC) and DIN for the proposed Directors, 2. Filing electronic Documents including SPICE FORM, INC 33, and INC 34 3. Getting a certificate of incorporation.

At large the procedure of registration of LLP is very similar to private limited Company. However, there exist some significant distinctions also. Below we have listed out the steps to incorporate a Limited Liability Partnership. 

1.    Obtaining Digital Signature Certificate (DSC) for the proposed Partners, 2. Obtaining Director Identification Number (DIN) / Designated Partner Identification Number (DPIN) for the proposed Partners 3. Unlike private limited FORM LLP 1 is required to be for the name approval of LLP prior to filing any other forms 4. Filing FORM LLP 2 for submitting the various documents 5 certifications of incorporation is received 6. File LLP agreement in form LLP 3 for commencing the business activities. 

Cost of Registration

The fee of incorporating the LLP is significantly cheaper when compared to the Government fee for incorporation of a Private Limited Company. This is because the main motive of introduction of LLP was to meet the needs of small businesses. Moreover, the number of documents that have to be printed on Non-Judicial Stamp Paper and Notarized is lesser for LLP registration when compared to that of a Private Limited Company registration.

Tax Compliances

A private limited company is required to pay tax on its income at the rate of 30 %. Moreover, the dividend distributed by the private limited company is subject to dividend distribution tax. According to income Tax act, the rate of DDT to be charged is 16%. Also, there is a third type of tax called the Minimum alternate Tax that is levied on company’s book profit in case the income tax payable on the total income as is calculated under the Act is less than the minimum. The rate of MAT is 18% which is required to be paid by the company.

The tax compliances of LLP are comparatively easier than the private limited company. On the income of the Limited Liability Partnership, the 30 % tax will be levied. Moreover, the LLP is subject to Alternate Minimum tax at the rate of 18.5% on its total adjusted income.  One important thing to be noted here is that unlike private limited company LLP is not subject to Dividend Distribution Tax.

In all, we can say that LLP offers lesser tax liability in comparison to the private limited company.

Conclusion

To sum up we can say there is a clear distinction between private limited company and the Limited Liability Partnership. For more assistance feel free to get in touch with the experts at Registrationwala.