What is better Pvt LTD or LLP?

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LLP is regarded as “Limited Liability Partnerships”. Limited Liability Partnerships under Government route i.e. “Limited Liability Partnerships” are for those areas in which 100% FDI is allowed unconditionally. Whilst a joint-stock company of any type can be a Pvt Ltd company. Under this, all those companies are established under the Indian Companies Act 2013 or any other previous Act. This is a type of association that the people of the company prefer to create on their own, in which most of those people are present, all of which have a minimum paid-up capital of Rs. 1, 00,000. More than one member is required to open any private limited company. And a maximum of 200 employees can work in such a company.

Private limited companies are not allowed to sell their shares to anyone. And companies in which all these properties are present, have the right to set up private limited at the end of their name.

Let’s understand what is better by seeing the differences among Pvt. LTD and LLP:

  • The government fee for incorporation of an LLP in contrast to the government fee for incorporation of a Private Limited Company is considerably cheaper. In order to address the needs of small companies, LLPs are implemented and thus LLP enjoys lower government fees for incorporation. The number of documents to be issued on the Non-Judicial Stamp Paper and Notarized is also smaller for LLP registration compared to the registration of a Private Limited Company.
  • In terms of compliances, for both private limited company and LLP, tax enforcement is equivalent. Furthermore, LLP enjoys valuable benefits when it comes to compliance with the Ministry of Corporate Affairs. If the annual turnover of the LLP is less than Rs. 40 lakhs and the contribution of capital is less than Rs. 25 lakhs, the LLP does not have to have its accounts audited. On the other hand, a private limited company will have to regularly file audited financial statements with the Ministry of Corporate Affairs. Dividend Distribution Tax of approx. 16.50 % is required to be paid by the Pvt. LTD companies at the time profits’ distribution to its shareholders. In the hands of shareholders, such dividend income is tax-free.
    The LLP tax structure is easier. LLP is only subject to income tax and the dividend distribution for LLP does not apply. The distributed income is tax-free in the hands of the partners until the benefit is declared and tax is paid by LLP. At the rate of 30 percent, tax is imposed on the corporation.
  • Any LLP formation requires a minimum of 2 partners and can have a maximum number of members. On the other hand, a private limited formation must have at least 2 and a maximum of 50 shareholders.
  • For the formulation of LLP, one has to first apply for Designated Partner Identification Number (DPIN) and they must be at least two. In which you have to get a digital signature for anyone. On the other hand, to join a company in private limited, the first step is to select the name for the proposed company and then apply for Director Identification Number and Digital Signatures.
  • In LLP, you have to send an application for your name, through which you can give your mind’s name to your company and on the other hand, for private limited, you have to draft a memorandum and articles of association.
  • LLP requires the drafting of the LLP agreement and filing of incorporation documents with Forms 2, 3, and 4 available at llp.gov.in with the Registrar of Companies. Whereas private limited has to complete stamping, digital signature and e-filing and other documents of MoA, AoA, E-Form 1, 18 and 32 under Companies Act, 1956.
  • Getting the registration certificate for LLP is the last step and obtaining the certificate of incorporation of LLC in private limited is the last step.

Private limited companies have more applicability. Apart from all LLPs, a private limited company can differentiate between shareholders and directors. This makes it possible to raise funds and attract talent by offering ESOPs. If you want to do either of them in the near term, go ahead and register one. But if you are starting a web development shop or running a small business online, there is no need. Even if you are looking to raise funds, but not for a year or two, you should strongly consider LLP over a private limited company.

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