Wednesday, 6 February 2013

Pvt Ltd Company Vs Partnership Vs LLP

Selection of the appropriate form for your business depends on many factors such as the type of business, the number of persons involved, whether you want full control or prefer to share responsibilities, capital requirements, tax regulations and business liability. Thus in order to help you decide on which legal form to choose, here’s a feature comparison between the LLP, Partnership firm and a Company:
CategoryPartnershipCompanyLLP
Prevailing LawPartnership is prevailed by ‘The Indian Partnership Act, 1932’ and various Rules made there underCompanies are prevailed by ‘Companies Act, 1956’Limited Liability Partnership are prevailed by ‘The Limited Liability Partnership Act, 2008’ and various Rules made there under
RegistrationRegistration is optionalRegistration with Registrar of Companies required.Registration with Registrar of LLP required.
Creation Created by ContractCreated by LawCreated by Law
Distinct entity Not a separate legal entityIs a separate legal entity under the Companies Act, 1956.Is a separate legal entity under the Limited Liability Partnership Act, 2008.
Name of EntityAny name as per choiceName to contain ‘Limited’ in case of Public Company or ‘Private Limited’ in case of Private Company as suffix.Name to contain ‘Limited Liability Partnership’ or ‘LLP’ as suffix.
Cost of FormationThe Cost of Formation is negligibleMinimum Statutory fee for incorporation of Private Company is Rs.6,000/- and minimum Statutory fee for incorporation of Public Company is Rs. 19,000/-Minimum cost of Formation of LLP is Rs. 800 only, comparatively much lesser than the cost of formation of Company
Perpetual Succession It does not have perpetual succession as this depends upon the will of partnersIt has perpetual succession and members may come and go.It has perpetual succession and partners may come and go
Charter Document Partnership Deed is a charter of the firm which denotes its scope of operation and rights and duties of the partnersMemorandum and Article of Association is the charter of the company which defines its scope of operation.LLP Agreement is a charter of the LLP which denotes its scope of operation and rights and duties of the partners vis-à-vis LLP.
Common SealThere is no concept of common seal in partnershipIt denotes the signature of the company and every company shall have its own common sealIt denotes the signature and LLP may have its own common seal, dependant upon the terms of the Agreement
Formalities of Incorporation In case of registration, Partnership Deed along with form / affidavit required to be filled with Registrar of firms along with requisite filing feeVarious eforms along the Memorandum & Articles of Association are filled with Registrar of Companies with prescribed feesVarious eForms and the LLP Agreement are filed with the Registrar of LLP along with the prescribed Fee.
Time lineIt will take 7 days (approx.) to incorporateIt will take 10 days (approx.) to incorporate (inclusive of time taken to obtain DIN)It will take 10 days (approx.) to incorporate (inclusive of time taken to obtain DPN)
Legal ProceedingsOnly registered partnership can sue third partyA company is a legal entity which can sue and be suedA LLP is a legal entity can sue and be sued
Foreign ParticipationForeign Nationals can not form Partnership Firm in IndiaForeign Nationals can be a member in a Company.Foreign Nationals can be a Partner in a LLP.
Number of MembersMinimum 2 and Maximum 202 to 50 members in case of Private Company and Minimum 7 members in case of Public Company.Minimum 2 partners and their is no limitation of maximum number of partners.
Ownership of AssetsPartners have joint ownership of all the assets belonging to partnership firmThe company independent of the members has ownership of assetsThe LLP independent of the partners has ownership of assets
Rights / Duties / obligation of the Partners / Managing Partners / Directors Rights / Duties / obligation of the partners are governed by Partnership Deed.Rights / Duties / obligation of the directors are governed by AOA and resolution passed by shareholders or directors.Rights / Duties / obligation of the partners are governed by LLP Agreement.
Liability of Partners/MembersUnlimited. Partners are severally and jointly liable for actions of other partners and the firm and liability extend to their personal assets.Generally limited to the amount required to be paid up on each share.Limited, to the extent their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.
Tax LiabilityIncome of Partnership is taxed at a Flat rate of 30% plus education cess as applicable.Income of Company is Taxed at a Flat rate of 30% Plus surcharge as applicable.Income of LLP is taxed at a Flat rate of 30% plus education cess as applicable.
Principal/Agent RelationshipPartners are agents of the firm and other partners.The directors act as agents of the company and not of the membersPartners act as agents of LLP and not of the other partners.
Transfer / Inheritance of Rights Not transferable. In case of death the legal heir receives the financial value of share.Ownership is easily transferable.Regulations relating to transfer are governed by the LLP Agreement .
Transfer of Share / Partnership rights in case of death In case of death of a partner, the legal heirs have the right to get the refund of the capital contribution + share in accumulated profits, if any. Legal heirs will not become partnersIn case of death of member, shares are transmitted to the legal heirs.In case of death of a partner, the legal heirs have the right to get the refund of the capital contribution + share in accumulated profits, if any. Legal heirs will not become partners
Director Identification Number(DIN)The partners are not required to obtain any identification numberEach director is required to have a Director Identification Number before being appointed as Director of any company.Each Designated Partners is required to have a DIN before being appointed as Designated Partner of LLP.
Digital Signature There is no requirement of obtaining Digital SignatureAs eforms are filled electronically, atleast one Director should have Digital SignaturesAs eforms are filled electronically, atleast one Designated Partner should have Digital Signatures.
DissolutionBy agreement, mutual consent, insolvency, certain contingencies, and by court order.Voluntary or by order of National Company Law Tribunal.Voluntary or by order of National Company Law Tribunal.
Transferability of Interest A partner can transfer his interest subject to the Partnership AgreementA member can freely transfer his interestA partner can transfer his interest subject to the LLP Agreement
Admission as partner / member A person can be admitted as a partner as per the partnership AgreementA person can become member by buying shares of a company.A person can be admitted as a partner as per the LLP Agreement
Cessation as partner / member A person can cease to be a partner as per the agreementA member / shareholder can cease to be a member by selling his shares.A person can cease to be a partner as per the LLP Agreement or in absence of the same by giving 30 days prior notice to the LLP.
Requirement of Managerial Personnel for day to day administrationNo requirement of any managerial; personnel , partners themselves administer the businessDirectors are appointed to manage the business and other statutory compliances on behalf of the members.Designated Partners are responsible for managing the day to day business and other statutory compliances.
Statutory MeetingsThere is no provision in regard to holding of any meetingBoard Meetings and General Meetings are required to conducted at appropriate time.There is no provision in regard to holding of any meeting.
Maintenance of MinutesThere is no concept of any minutesThe proceedings of meeting of the board of directors / shareholders are required to be recorded in minutes.A LLP by agreement may decide to record the proceedings of meetings of the Partners/Designated Partners
Voting Rights It depends upon the partnership AgreementVoting rights are decided as per the number of shares held by the members.Voting rights shall be as decided as per the terms of LLP Agreement.
Remuneration of Managerial Personnel for day to day administrationThe firm can pay remuneration to its partnersCompany can pay remuneration to its Directors subject to law.Remuneration to partner will depend upon LLP Agreement.
Contracts with Partners/Director Partners are free to enter into any contract.Restrictions on Board regarding some specified contracts, in which directors are interested.Partners are free to enter into any contract.
Maintenance of Statutory RecordsRequired to maintain books of accounts as Tax lawsRequired to maintain books of accounts, statutory registers, minutes etc.Required to maintain books of accounts.
Annual FilingNo return is required to be filed with Registrar of FirmsAnnual Financial Statement and Annual Return is required to be filed with the Registrar of Companies every year.Annual Statement of accounts and Solvency & Annual Return is required to be filed with Registrar of LLP every year.
Share CertificateThe ownership of the partners in the firm is evidenced by Partnership Deed, if any.Share Certificates are proof of ownership of shares held by the members in the CompanyThe ownership of the partners in the firm is evidenced by LLP Agreement.
Audit of accounts Partnership firms are only required to have tax audit of their accounts as per the provisions of the Income Tax ActCompanies are required to get their accounts audited annually as per the provisions of the Companies Act, 1956,All LLP except for those having turnover less than Rs.40 Lacs or Rs.25 Lacs contribution in any financial year are required to get their accounts audited annually as per the provisions of LLP Act 2008.
Applicability of Accounting Standards. No Accounting Standards are applicableCompanies have to mandatorily comply with accounting standardsThe necessary rules in regard to the application of accounting standards are not yet issued.
Compromise / arrangements / merger / amalgamation Partnership cannot merge with other firm or enter into compromise or arrangement with creditors or partnersCompanies can enter into Compromise / arrangements / merger / amalgamationLLP’s can enter into Compromise / arrangements / merger / amalgamation
Oppression and mismanagement No remedy exist , in case of oppression of any partner or mismanagement of PartnershipProvisions providing for remedy against Oppression and mismanagement existsNo provision relating to redressal in case of oppression and mismanagement
Credit Worthiness of organizationCreditworthiness of firm depends upon goodwill and creditworthiness of its partnersDue to Stringent Compliances & disclosures under various laws, Companies enjoys high degree of creditworthiness.Will enjoy Comparatively higher creditworthiness from Partnership due to Stringent regulatory framework but lesser than a company.
Whistle BlowingNo such provision is provided under Partnership Act, 1932No such provision is provided under the Companies Act, 1956.Provision has been made to provide protection to employees & partners, providing useful information during an investigation or convicting any partner or firm.

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