Limited Liability Partnership Vs Private limited Company
Limited Liability Partnership (LLP) is a corporate business
vehicle that provides both the benefits of a company and flexibility of a partnership
firm i.e. limited liability and allows its members the flexibility of
organizing their internal structure as a partnership based on a mutually
arrived agreement.
Considering the compliances required to be made by the
Private Limited Companies as laid down in The companies Act, 2013, the LLP form
of organization is now a very convenient form for starting of any business.
Benefits of LLP over limited company:
1.
No limit
on owners of business
LLP requires minimum 2
partners. There is no limit on maximum partners unlike a private limited
company wherein there is a restriction of not having more than 200 members.
2.
No
requirement of minimum contribution
As against company there is no minimum capital requirement in
LLP. An LLP can be formed with least possible capital.
Particulars
|
Company
|
LLP
|
Minimum Capital contribution
|
Private Company -
1,00,000
Public Company
-5,00,000
|
No such mandatory requirement
|
Moreover, the contribution of a partner may consist of
tangible, movable or immovable or intangible property or other benefit to the
LLP.
3.
Lower
cost of Formation
The cost of registering LLP is low as compared to cost of incorporating
a private limited or a public limited company. An illustration can show the
approximate cost involved in formation of private limited company and an LLP.
Particulars
|
Company
|
LLP
|
Legal Cost to incorporate (having capital of Rs. 1 Lakh)
|
Rs. 10000/-
|
Rs. 2000/-
|
Legal Cost to incorporate (having capital of Rs. 5 Lakhs)
|
Rs. 26000/-
|
Rs. 4000/-
|
4.
No
requirement of compulsory Audit
All the companies, whether private or public, irrespective of
their share capital, are required to get their accounts audited. But in case of
LLP, there is no such mandatory requirement. A Limited Liability Partnership is
required to get the audit done only if:-
a. If the contributions of the LLP exceeds Rs. 25 Lakhs, or
b. If the annual turnover of the LLP exceeds Rs. 40 Lakhs
5.
Lower
compliance burden resulting in savings
Approximately at least 8 to10 compliances per annum are
required to be made by a private limited company whereas a Limited Liability
Partnership is required to file only the Annual Return & a Statement of
Accounts & Solvency
6.
Taxation
Aspect on LLP
For income tax purpose, LLP
is treated at par with partnership firms. Thus, LLP is liable for payment of
income tax and share of its partners in LLP is not liable to tax. Thus no
dividend distribution tax is payable. Provision of 'deemed dividend' under
income tax law, is not applicable to LLP.
Section 40(b): Interest to
partners, any payment of salary, bonus, commission or remuneration allowed as
deduction in the hands of Limited Liability Partnership
7.
Dividend
Distribution Tax (DDT) not applicable
In the case of a company, if the owners to withdraw profits
from company, an additional tax liability in the form of DDT @ 15% (plus
surcharge & education cess) is payable by company. However no such tax is
payable in the case of LLP and profits of a LLP can be easily withdrawn by the
partners.
8.
Converting from Partnership to LLP
LLP and general partnership is being treated as equivalent
(except for recovery purpose) in the Act, the conversion from a general
partnership firm to an LLP will have no tax implication, if the rights and
obligation of the partners remain the same after conversion and if there is no
transfer of any asset or liability after conversion. If there is a violation of
these conditions , the provision of capital gain will apply.
9.
Converting from company to LLP
Conversion from
company is possible. The capital gain on conversion of company in to LLP is
exempt if the conditions of section 47(xiiib) are followed.
10.
Demerits
of LLP
LLP as well have some limitations within. Some of them can be
summarized as below.
a)
Any act
of the partner without the other partner, may bind the LLP
b)
LLP Cannot raise money
from public
Contributed by
CA Nidhi Chatwani
|
