PRIVATE LIMITED COMPANY VS LIMITED LIABILITY PARTNERSHIP
A private limited company and a limited liability partnership (LLP) in India differ in their legal structure and liability of owners. Each has its own set of advantages and characteristics. Here are the key differences between the two:
LEGAL STRUCTURE:
- Private Limited Company: A private limited company is a separate legal entity from its owners (shareholders). It is incorporated under the Companies Act and is considered a distinct legal person. The liability of shareholders is limited to the extent of their shareholding in the company.
- Limited Liability Partnership (LLP): An LLP is a hybrid form of business that combines features of both a partnership and a company. It is governed by the Limited Liability Partnership Act, and like a company, it also has a separate legal identity from its partners. However, unlike a company, the partners have limited liability, protecting their personal assets from the debts of the LLP.
LIABILITY OF OWNERS:
- Private Limited Company: In a private limited company, the liability of shareholders is limited to the amount they have invested in the company. Personal assets of the shareholders are protected from the company's debts and liabilities.
- Limited Liability Partnership (LLP): In an LLP, partners' liability is limited to their agreed-upon contribution to the LLP. Their personal assets are shielded from the debts and liabilities of the LLP.
NUMBER OF OWNERS:
- Private Limited Company: A private limited company requires a minimum of two shareholders and can have up to a maximum of 200 shareholders.
- Limited Liability Partnership (LLP): An LLP requires a minimum of two partners, and there is no upper limit on the maximum number of partners.
TRANSFER OF OWNERSHIP:
- Private Limited Company: Shares of a private limited company can be transferred subject to certain restrictions as per the company's Articles of Association and the Companies Act. The transfer may require the approval of other shareholders.
- Limited Liability Partnership (LLP): The ownership in an LLP cannot be transferred to any outsider without the consent of all partners. If a partner wishes to leave, they must transfer their ownership to an existing partner or dissolve the LLP.
COMPLIANCE REQUIREMENTS:
- Private Limited Company: Private limited companies have more stringent compliance requirements, including the filing of annual financial statements, appointment of auditors, and adherence to various provisions of the Companies Act.
- Limited Liability Partnership (LLP): LLPs have relatively simpler compliance requirements compared to companies. They are required to file an annual return and a statement of accounts and solvency.
TAXATION:
- Private Limited Company: Private limited companies are subject to corporate tax rates, and the company's profits are taxed separately from the individual income of shareholders.
- Limited Liability Partnership (LLP): LLPs are taxed at the partnership level, and partners are taxed individually on their share of profits.
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