Selection of business entity is the major aspect to be taken into mind by an entrepreneur before starting any new business. There are various options available but one needs to know major basic differences between the options available. The most popular among such options are establishing a private limited company or a limited liability partnership. Following comparison will be useful for taking a decision for starting a new business venture:
- Ideal for : A private limited company is ideal for founders who have a definite plan and vision and are looking to get funding whereas LLP is ideal for where an entrepreneur is of opinion that starting a Venture is an experiment and he is unsure of how it will run.
- Recommended for: A company is recommended for start-ups and any other business whereas LLP is recommended more for professionals.
- Governed by: In India, a private limited company is governed by Companies Act, 2013 whereas limited liability partnership is governed by Limited Liability Partnership Act, 2008.
- Name: For a private limited, name to end by words’ Private Limited Company’. For LLP, name to end with ‘LLP’ or ‘Limited Liability Partnership’.
- Capital Contribution: Minimum authorized capital Rs 1, 00,000. No restriction on paid up capital in case of private limited. There is no limit prescribed in case of LLP.
- Minimum number of directors/partners: For company, 2 directors out of which 1 director has to be resident of India and for LLP 2 designated partners out of which 1 director has to be resident of India.
- Annual filing: In case of Company, filing should be done within 30 days from date of AGM and for LLP to be filed before 30th October every year.
- Audit: Audit is compulsory for private limited company. For LLP, audit is mandatory in case contribution is above Rs 25,00,000 or if annual turnover above Rs 40,00,000.
- Conversion: Company Can be converted to public company/LLP whereas LLP Cannot be converted to public/private/OPC.
- Annual Statutory meetings: Board and general meetings should be conducted periodically in case of company. For LLP, there is no such requirement.
- Pvt ltd- Mandatory, Tax Returns in Form ITR 6, Due date:31st October
- LLP- Mandatory, Tax Returns in Form ITR 5
If Audited: 31st October If not audited: 31st August
- Investors Perspective: A private limited company is most preferred and shows seriousness of founders. LLP is less preferred as compared to company.
Thus, we can conclude that choosing the best form of business is as important as the execution of the idea. If your idea needs funding, then a private limited company will be what your business needs. So, before choosing, look at the overall aspects and then make the decision.