In this dynamic and fast-moving world of business, the choice of the business structure lays down the foundation, for how the business would be operating and its success. When business owners choose the business structure, they have a variety of choices, which include LLP and Partnership Business. Each of these structures has its registration process and its advantages and disadvantages. In this blog, we will be comparing and analyzing the difference between the registration process and the features of the LLP Registration and Company Incorporation.
Comparison Between LLP Registration and Company Incorporation
We will discuss the differences between the registration of an LLP Registration and Company Incorporation. The following table differentiates between the two business structures based on registration:
| Steps | LLP | Private Limited |
| Legal Structure | Flexible Structure, combining the features of Partnership & Private Limited | Separate Legal Entity Different from its members. |
| Liability Protection | Limited Liability for partners | Limited Liability for shareholder |
| Minimum no. of members | At least, two designated partners | At least two shareholders and two directors |
| Maximum no. of members | No maximum limit | Maximum 200 shareholder(Excluding Employees) |
| Perpetual Succession | Continues to exist despite changes in partners | Continues to exist despite changes in shareholders. |
| Management and Decision-making | Flexible management structure, management and ownership by the partners. | Management is different from ownership, ownership with the shareholders is managed by a Board of Directors who are appointed by the shareholders. |
| Compliance Requirement | Less formal compliances related to private limited | More compliance as compared to LLP and Partnership business structure |
| Public Disclosure | They have much less public disclosure requirement | They have a public disclosure requirement |
| Transfer of Ownership | Ownership is transferred or changed by change in partners, partners are changed not by shares but by changes as per the LLP Agreement. | Shares transfer easily but are subject to some restrictions. Ownership is transferred by share transfer. |
| Fundraising Options | They have difficulty raising funds, because of their limited liability structure and their being a separate legal entity. | They have easier access to investors or investment opportunities via the issuance of shares. |
| Regulatory Authority | Governed by the Ministry of Corporate Affairs, under the Limited Liability Partnership Act, 2008 | Governed by the Ministry of Corporate Affairs, under the Companies Act, 2013. |
| Name Regulatory | They have very less stringent name protection mechanism | They have a more stringent and comprehensive protection mechanism |
| Taxation | Pass- through the taxation process, profit is taxed in the hands of the partners. | Corporate Taxation with dividend distribution taxes. |
Pros & Cons of LLP Registration and Company Incorporation
Let’s discuss the pros and cons of LLP Registration and Company Incorporation:
Pros & Cons of LLP Registration:
| Pros | Cons |
| Separate Legal Entity, it has a separate legal identity from that of its partners. It can own, buy and rent properties be they tangible or intangible | Managing a separate legal entity involves adhering to many formalities, regulations and compliance requirements. |
| Limited Liability, keeps the personal assets of the partners safe. | The Limited Liability structure makes it difficult to raise investment. |
| The minimum no. of partners is two, which helps in having diversity in the business. | Having multiple owners doesn’t have full ownership,higher chances of conflict. |
| Partners, being the owners as well as managers, bring flexibility to management | Having a flexible form of management where the owner and management are the same can lead to ambiguity in important decision-making related to the business, lack of structure, lack of hierarchy |
Pros & Cons of Company Incorporation
| Pros | Cons |
| Separate Legal Entity, it has a separate legal identity from that of its partners. It can own, buy and rent properties be they tangible or intangible | Managing a separate legal entity involves adhering to many formalities, regulations and compliance requirements. |
| Limited Liability, in private limited which makes the shareholder liable to the extent of their contribution keeps the personal asset safe. | This creates trust issues among the shareholders because the shareholders are liable for their contributions only. And there might be ambiguity among the shareholders in decision-making. |
| Maximum there can be 200 shareholders, and their ownership is transferred easily through shares | Frequent change in ownership through the shares and more no. of owners, difficulty in decision-making. |
| Different Ownership and Management makes it a very structured process and avoids ambiguity in decision-making. | Having too many formalities and compliances in business in the fast-paced business world might hamper the productivity of the business. |
Conclusion
We have discussed the differentiation in the registration process, and the pros and cons of LLP Registration and Company Incorporation. Choosing the business structure is very important for running the business effectively and running it smoothly. Hence, business owners need to be aware of all the factors, features and considerations because this decision is going to drive the future and the running of the business in this competitive and fast-paced world.
FAQs
- Difference between LLP and Private Limited?
LLP and Private Limited, are differentiated mainly based on compliance, management and how the decision-making goes in this kind of business structures.
- Can both LLP and Private Limited do issuances of shares to raise capital?
No, an LLP cannot do issuance of shares whereas a private limited can issue shares to raise capital.
- Is the LLP registration process more straightforward than a private limited?
An LLP registration is considered is more simpler, having fewer formaltieis as compared to incorporating a company under the Private Limited Structure.
- Which business structure is suitable for small businesses with limited resources?
The suitabliliy depends on the specific goals of the business, and the way business owners want to operate their business . But LLPs might be suited for smaller setups, due to their simplicity, while private limited maybe considered for scalability and raising funds.
- Compliance requirement of LLP as compared to companies?
LLPs have simpler and less compliances as compared to that of companies.
- Differences between taxation between LLP and Private Limited?
LLP follows pass-through taxing structure, where are private limited and an incorporated company follow corporate taxation with dividend distribution structure.
- What are the benefits of choosing a Private Limited as compared to an LLP?
There are several benefits which include, easier to attract investors and raising money by issuing shares to the public these constitute the benefits over choosing private limited.