A great idea is not enough to be a successful startup, which is quite proven. It is of foremost importance to decide about the kind of company one wishes to establish. In this context, often confusions arise on whether LLP is a better option or Pvt Ltd Company. Both these options certainly are having their own benefits. However, LLPs edge past Private Limited Companies for some obvious reasons as discussed below.
Similarities between LLP and PLC
Prior delving into the difference between the two, it would be wiser to identify the similarities of both.
Firstly, 2 directors or partners or shareholders are essential in both cases to start.
Both possess limited liabilities as far as personal assets are concerned.
Both are corporate bodies, as well as a legal entity distinct from that of partners.
Why is LLP better than Private Limited Company?
There are various similarities between LLPs and Private Limited Companies, as discussed above. At the same time, registration processes associated with both are equally simplistic in nature as well. It means those who want to choose between LLPs and Pvt Ltd Company simply based on the factor of ease of incorporation may not find enough reasons. A number of Private Ltd Companies is evidently no less than that of the LLPs. Still, it can be claimed that LLPs are the better options because of following reasons.
• LLPs provide the joint functional advantage of a company, and also provide the advantage of a partnership organisation.
• Charges applied for establishment of an LLP company is pretty minimal, in comparison to that of the Pvt Ltd. Company.
• The essentials of compliance in case of an LLP are considerably nominal in comparison to that of a Pvt. Ltd. Company. Best part is that LLPs don’t absolutely need any kind of audit unless and until they have a cross turnover of 40 lakh, or until they have crossed revenue contribution standard of 25 lakh.
• In case of Pvt Ltd Company, a number of ownership is quite limited. An owner of a Pvt Ltd Company has stretched the count of owners to a maximum of 200 shareholders. But the good news is that there are absolutely no such constraints associated with the LLPs.
• In case of a Private Limited Company, there are greater meeting requirements that the concerned owner(s) have to follow. It is essential for the concerned company to conduct at least four board meetings, as well as one general meeting per year. However, there is absolutely no such compulsiveness associated with the LLPs.
• Expenses associated with the Private Limited Companies are visibly three times greater in comparison to the LLPs. In case of a Private Limited Company, incorporation charge of INR 15k along with INR 15k compliance cost, and another INR 15k Audit charge is essential. In comparison, an LLP requires only incorporation charge of INR 11k and Compliance charge of INR 4k. Visibly, LLP is a much better option for cost perspectives.
• Going with Private Limited Company model for a startup can be repenting for its owners in many ways. It has been seen on most occasions that the Private Limited Companies fail to fulfil the compliance requirements between the stipulated time. This leads to fine amounting to even INR 1 lakh in some occasions. There are indeed no such hassles associated with LLPs, considering that the compliance amount that one has to pay is very less. Only in worst cases, fines are charged.
• LLPs provide major tax benefits over Private Limited Companies, which turn them into better options for start-up investors. In fact, there are certain taxes, like Wealth Tax, taxes of Dividend distribution, taxes of Surcharge, etc., are completely exempted for LLPs. However, all these taxes are very much imposed upon the Private Limited Companies
All said and done; Private Limited Companies have their own benefits. However, LLPs are certainly advantageous as far as the start-ups are concerned for the cited above reasons. To be specific, LLPs can be significant in terms of enriching the foundation of the concerned start-up. Ever since the LLP Act had been incorporated in 2008, it has certainly turned out to be one of the biggest boons for small companies with budget constraints.