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Partnership Firm or Private Limited Company

Are you in a dilemma to choose your registration between a private limited company or partnership firm? You need to consider the business structure on priority before you can go ahead and make your final decision. You need to check on the factors that might affect your business structure in the long run and decide accordingly.

In this article, you will know about some associated details for both private limited companies and partnership firms to help you choose your registration amongst the two options and help you out of this dilemma.


What Are Private Limited Company and Partnership Firm?


Registering a partnership firm will agree with a partnership agreement that intends some responsibilities and objectives associated with the partner. Along with that, the agreement will also consist of an exit strategy for the partners and share allocations for each of them.

Private Limited company registration might seem a bit complex and comes with some essential perks for the business. It is meant to create a special legal identity for the business that will help in limiting the liability for the involved members.


Perks Of Partnership Firm Registration Over A Private Limited Company


Here are some of the perks that will clearly state the advantages of a partnership firm over private limited company registration:
It is just a simple agreement between people to start the partnership firm, whereas registering a private limited company, there are certain procedures and formalities that need to be fulfilled at all costs.
The flexibility to take different business-oriented decisions is high with partnership firm registration, whereas, for the private limited company, all the actions taken are governed by several organizations such as MCA, RBI, and others.
Partnership Company can also be terminated easily as compared to the private limited firms as the agreement is only validated between the business partners. Moreover, the closer policy is also mentioned briefly in the agreement. The private limited company closure will put up a winding-up schedule for every authority and person involved with it.


Differences Table To Help You Give Brief Insight About Both Structures


Here are some of the practical attributes that you must keep in mind while choosing one amongst the two business structures:
Private Limited Company registration is liable under the Companies Act, 2013, whereas the Partnership firm is under the Indian Partnership Act, 1932.
For registration under the private limited company, you need to set up a business to comply with the act. But under the partnership firms, both registered as well as unregistered partnerships are considered legal, but the preferable entities are mostly registered.
For a private limited company, you must have a minimum of 2 and a maximum of 200 shareholders, whereas the partnership firm can be formed with a minimum of 2 partners and not more than 50.
A private company has the ability to own assets to its name as it is a separate entity. The partnership firms have no special identity as it is known from its partners.
An auditor needs to be appointed within the next 30 days after incorporation is completed in a private limited company. Under the partnership firms, the statuary audit is not applicable, whereas only tax audits areessential based on the turnover of the company.
With private limited companies, ownership is possible to be transferred with mutual consent of the shareholders, whereas ownership might not be easy to transfer under partnership registration firms. Here, they might need to consider the partnership deed clause for getting it done.
A private limited company’s existence is not affected by a change in directors or members. In partnership firms, the exit of a partner might lead to the firm❜s dissolution, and a new partnership needs to be formed.
Foreign nationals can invest in Private Limited Company, whereas they cannot be made partners under partnership firm registration.


Conclusion

These are a few of the associated details of partnership firm registration and private limited company registration. You just need to consider these factual details to know the pros and cons of either business structure and make your decisions accordingly.

Keep a transparent view of both the business structures along with its compliance requirements for making a better choice. You can check out other information related to annual compliances to get a better idea of the efficacy of either structure.

Disclaimer:
Important: Please note that the information on this page / site is provided as general information for better understanding for the user and does not constitute tax, legal, or other professional advice and must not be used as such. Please consult your professional adviser(s) if you have any questions / doubts regarding the above.

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