Business 

Formations

Limited Liability 
Private Limited 
Partnership  Partnership
Company
(LLP)
Introduction

The foremost decision that one has to make before starting any business, is the form of business structure that will be the most suitable for the proposed business and its
owners.

The most common forms of business structures are namely the private companies, Limited Liability Partnerships and partnership firms (unlimited).

This document might help to a great extent, in solving the above confusion while selecting the most suitable business form as all the major pros and cons of each form of
business structure is given below.

However, before starting off with the pros and cons, let us get acquainted a bit with the basic information about them.
Private Limited Company

This is the most commonly known business form with quite a lot of pros alongwith some cons which will be discussed a little later. Here are a few of its basic information:
• This form of business structure is registered under the Companies Act, 2013. 
• It is a separate legal entity.  
• Name of the company has to have ‘Private Limited’ as suffix.
• Created by law.

Limited Liability Partnership (LLP)

This is a relatively new form of business structure. 
• This form of business structure is registered under the Registrar of LLP under the control of the Ministry of Companies Affairs (MCA)
• It is governed by the Limited Liability Partnership Act, 2008 and the Rules made thereunder.
• It is a separate legal entity.  
• Name of the business will have ‘LLP’ as suffix.
• Created by law.

Partnership

• This form of business is governed by the Indian Partnership Act, 1932 and various Rules made thereunder.
• Registration is optional.
• It is not a separate legal entity.
• Created by contract.
 Advantages & Disadvantages of various forms of business

Particulars Private Limited Company Limited Liability Partnership (LLP) Partnership

Incorporation related requirements
Minimum Capital  No minimum capital requirement for starting a No minimum capital requirement for starting No minimum capital requirement for starting a
Requirement private limited company as per the Companies a LLP. partnership firm.
(Amendment) Act, 2015, which has omitted the
words “of one lakh rupees or such higher paid‐
up  share capital”.

This is a welcome change for competing with its

rival LLP form of business which has no
minimum capital requirement.
Number of Members Minimum 2 to maximum 200 members in case of Minimum 2 and Maximum 100
Private Company 
ICAI Clarification dt. 02.09.2014
It is to be noted here that the earlier
restriction of maximum 20 partners
permitted for firms under section 11 of the
Companies Act, 1956, is no more applicable
as section 464 of the Companies Act, 2013,
has been notified w.e.f. 01.04.2014, wherein
sub‐section (1) provides for a maximum
number of partners permissible for business
firms at 100 and sub‐section (2) provides
that nothing in sub‐section (1) shall apply to
an association or partnership, if it is formed
by professionals who are governed by special
Acts.  Accordingly, as per proviso to the said section,
Accordingly, as per proviso to the said
section, Chartered Accountants firms are now
allowed to be registered / reconstituted with
more than 20 partners w.e.f. 01.04.2014
under the Indian Partnership Act as in the
case of a firm under the Limited Liability
Partnership Act.
Minimum 2 and Maximum 100
ICAI Clarification dt. 02.09.2014
It is to be noted here that the earlier restriction of
maximum 20 partners permitted for firms under
section 11 of the Companies Act, 1956, is no more
applicable as section 464 of the Companies Act, 2013,
has been notified w.e.f. 01.04.2014, wherein sub‐
section (1) provides for a maximum number of
partners permissible for business firms at 100 and
sub‐section (2) provides that nothing in sub‐section
(1) shall apply to an association or partnership, if it is
formed by professionals who are governed by special
Acts. 
Chartered Accountants firms are now allowed to be
registered / reconstituted with more than 20 partners
w.e.f. 01.04.2014 under the Indian Partnership Act as
in the case of a firm under the Limited Liability
Partnership Act.
 Advantages & Disadvantages of various forms of business

Particulars Private Limited Company Limited Liability Partnership (LLP) Partnership

Director  Each director is required to have a Director Each Designated Partner is required to have a
The partners are not required to obtain any
Identification  Identification Number (DIN) before being DIN before being appointed as Designated
identification number.
Number (DIN) appointed as  Director of any company. Partner of any LLP.

The following eforms alongwith the The following eforms are required to be filed No formality is required for an unregistered
Memorandum & Articles of Association are with Registrar of LLP alongwith prescribed partnership firm.
required to be filed with the Registrar of fees for incorporation. 
Companies with prescribed fees for However, it is to be noted that the Registrar In case of registered partnership, Partnership Deed
incorporation: of LLP is also under the control of the along with form / affidavit, is required to be filled
Ministry of Corporate Affairs (MCA). Hence, with Registrar of firms along with requisite filing fee.
i.       Dir‐3 – Application for allotment of DIN all the eforms are required to be filed at the
ii.      INC‐1 – Application for reservation of name MCA21 portal, similar  to company.
iii.    INC‐7 – Application for Incorporation of
Company. i.        Form 1 – Application for reservation of
iv.    INC‐22 – Notice of situation or change of name.
Formalities of  situation of registered office. ii.      Form 2 – Incorporation document and
Incorporation v.      DIR‐12 – Particulars of appointment of subscriber’s statement.
Directors and the Key Management Personnel iii.    Form 2A – Details in respect of
and the changes among them. designated partners and partners of Limited
Liability Partnership.
However, in order to simplify and fast track the
procedure for company registration in India, the 
Ministry of Corporate Affairs (MCA) has
introduced 'Simplified Proforma for
Incorporating Company Electronically (SPICe).

Memorandum of Association (MOA) and Articles LLP Agreement is the charter which denotes Partnership Deed is the charter of the firm which
Charter Document of Association (AOA) are the charter of the scope of operation and rights & duties of denotes its scope of operation and rights and duties of
company that defines its scope of operation. partners vis‐ LLP. the partners.
The Companies (Amendment) Act, 2015, has
Common Seal made the requirement for Common seal It is not mandatory to have a common seal. There is no concept of common seal in partnership.
optional.
 Advantages & Disadvantages of various forms of business

Particulars Private Limited Company Limited Liability Partnership (LLP) Partnership

Admission, cessation of members, partners and existence of the business form

Perpetual  It has perpetual succession and members may It has perpetual succession partners may It does not have perpetual succession as this depends
Succession come and go. come and go. upon the will of partners.

Admission as  A person can become member by buying shares A person can be admitted as a partner as per A person can be admitted as a partner as per the
partner / member of a company. the LLP Agreement. Partnership Agreement.

A person can cease to be a partner as per the

Agreement or in absence of the agreement as
Cessation as partner  A member / shareholder can cease to be a A person can cease to be a partner as per the
to the cessation of a partner, by giving a
/ member member by selling his/her shares. agreement
notice in writing of not less than 30 days to
the other partners, of his intention to resign. 

Ownership of assets, liability and rights/duties/obligation of Directors/Managing Partners/Partners
The company, independent of its members, has The LLP, independent of its partners, has Partners have joint ownership of all the assets
Ownership of assets
ownership of assets. ownership of assets. belonging to the partnership firm.

Rights / Duties / 
Rights / Duties / obligation of the directors are
obligation of the  Rights / Duties / obligation of partners are Rights / Duties / obligation of the partners are
governed by AOA and resolution passed by
Partners / Managing  governed by the Agreement. governed by Partnership Deed.
shareholders or directors.
Partners / Directors

Principal / Agent  The directors act as agents of the company and Partners act as agents of LLP, not of the
Partners are agents of the firm and other partners.
Relationship not of the members. partners.

Voting rights are decided as per the number of Voting rights may be as decided as per the
Voting Rights It depends upon the agreement.
shares held by the members. terms  of Agreement.

Limited, to the extent of contribution made Unlimited. Partners are severally and jointly liable for
Liability of members  Generally limited to the amount required to be
except in case of intentional fraud. Not liable actions of other partners and the firm and liability
/ partners paid up on each share.
for acts of  other partners. extend to their personal assets as well.

Contracts with  Restrictions on Board regarding some specified

Partners are free to enter into any contract. Partners are free to enter into any contract.
Partners/ Director contracts, in which directors are interested.
 Advantages & Disadvantages of various forms of business

Particulars Private Limited Company Limited Liability Partnership (LLP) Partnership

Share Certificates are proof of ownership held The ownership of the partners in firm is The ownership of the partners in the firm is
Share Certificate
by the members of the Company. evident by LLP Agreement. evidenced by the Partnership Deed, if any.
Tax liability
    ‐    Status Domestic Company Partnership Firm Partnership Firm

   ‐     Tax Rate 30% plus education cess as applicable. 30% plus education cess as applicable. 30% plus education cess as applicable.

At the rate of 7% of Income Tax, where total

income exceeds Rs. 1 crore but not exceeding Rs.
10 crores.
At the rate of 12% of Income tax where the
At the rate of 12% of Income tax where the total
  ‐     Surcharge total income exceeds Rs. 1 crore, subject to
At the rate of 12% of Income tax, where total income exceeds Rs. 1 crore, subject to marginal relief.
marginal relief.
income exceeds Rs. 10 crores,

subject to marginal relief.
    ‐   Minimum  Companies are liable to pay Minimum Alternate
        Alternate Tax  Tax (MAT) @ 18.5% plus 3% cess and surcharge Not Applicable Not Applicable
       (MAT) as applicable.
LLPs are liable to pay Alternate Minimum Tax LLPs are liable to pay Alternate Minimum Tax (AMT)
    ‐  Alternate 
(AMT) @ 18.5% plus cess and surcharge as @ 18.5% plus cess and surcharge as applicable, on
       Minimum Tax  Not Applicable
applicable, on their adjusted total income their adjusted total income (equivalent to adjusted
      (AMT)
(equivalent to adjusted taxable income). taxable income).
    ‐  Dividend 
Companies are liable to pay Dividend
       Distribution  Not Applicable Not Applicable
Distribution Tax (DDT)
       Tax (DDT)
    ‐  Presumptive 
Not Eligible Not Eligible Eligible for certain businesses.
       Taxation
Income tax treatment of a company converted
    ‐  Capital gain on  into LLP is more or less tax neutral provided Conversion of LLP into a private limited  No capital gain on conversion of partnership firms
       conversion conditions specified in section 47(xiiib) are company is currently not possible in India. into LLP, if prescribed conditions are complied with.
satisfied.
    ‐  Remuneration 
Remuneration to directors will be taxed as Remuneration to partners will be taxed as Remuneration to partners will be taxed as “Income
       to Directors / 
'Income from salary'. “Income from Business & Profession”. from Business & Profession”.
       partners
 Advantages & Disadvantages of various forms of business

Particulars Private Limited Company Limited Liability Partnership (LLP) Partnership

Transferability of ownership and rights
A member can freely transfer his interest. A partner transfer his interest subject to the
Transferability of  A partner can transfer his interest subject to
However, the transfer of shares is attracted to be Agreement. Since the interest is considered
Interest & its tax  the Partnership Agreement. Further, if it is considered
taxed under "Income from other sources" if the as a capital asset, hence, any gain on transfer
implication as capital asset, then it is taxable under capital gains.
price is not at Fair Market value (FMV) is taxable.

In case of death of a partner, the legal heirs In case of death of a partner, the legal heirs have the
Transfer of shares / 
In case of death of member, shares are have the to get the refund of the capital right to get the refund of the capital contribution +
Partnership rights 
transmitted to the legal heirs. contribution + share in accumulated profits, share in accumulated profits, if any. Legal heirs will
in case of death
if Legal heirs will become partner. not become partners.
Legal proceedings and Dissolution
A company is a legal entity which can sue and be A LLP is a legal entity which can sue be sued Only registered partnership can sue and be sued upon
Legal Proceedings
sued upon. upon. by third party.
By agreement, mutual consent, insolvency, certain
Dissolution Voluntary or by order of Tribunal. Voluntary or by order of Tribunal.
contingencies, and by court order.
Compliances to various laws & regulations
Annual Return Annual Return No such Annual return is required to be filed.
All companies, according to the requirements of All LLPs have to file an Annual Return in
the Companies Act, 2013 and the rules made Form 11 to the Registrar within 60 days
thereunder, have to file an Annual Return in from the end of the financial year, i.e., within
Form MGT 7 to the Registrar of Companies at 30th May.
the MCA21 portal, within 60 days from the date
of AGM or from the end of the due date within
which the AGM should had been held.
  ‐  Annual 
Compliances (filing)

Filing of Annual Accounts Filing of Annual Accounts No such filing of Annual Accounts is required.

All companies, have to file their Annual Accounts All LLPs have to file their Annual Accounts in
to the Registrar in Form AOC 4, within 30 days Form 8, within 30th October, to the
from the date of AGM or from the end of the due Registrar.
date within which the AGM should had been
held.
 Advantages & Disadvantages of various forms of business

Particulars Private Limited Company Limited Liability Partnership (LLP) Partnership

Audit Requirement under Companies Act,
2013
All companies need to get their accounts audited
by a qualified Chartered Accountant or a firm of
Chartered Accountants.
Audit Requirement under Income Tax Act
  ‐  Requirement for 
Audit of accounts is mandatory if the total sales,
Audit of Accounts
turnover or gross receipts, as the case may be,
exceeds Rs. 1 crore or in case, of profession, if
the gross receipts exceeds Rs. 50 lakhs (from AY
2017‐18 onwards)
Audit Requirement under LLP Act, 2008 No such requirement of audit.
Only those LLP whose annual turnover
exceeds Rs. 40 lakhs or whose contribution
exceeds Rs. 25 lakhs are required to get their
accounts audited by a qualified Chartered
Accountant.
Audit Requirement under Income Tax Act
Audit Requirement under Income Tax Act Audit of accounts is mandatory if the total sales,
Audit of accounts is mandatory if the total turnover or gross receipts, as the case may be,
sales, turnover or gross receipts, as the case exceeds Rs. 1 crore (Rs. 2 crore from AY 2017‐18 for
may be, exceeds Rs. 1 crore (Rs. 2 crore from assessees opting for presumptive taxation u/s 44AD)
AY 2017‐18 for assessees opting for or in case, of profession, if the gross receipts exceeds
presumptive taxation u/s 44AD) or in case, of Rs. 50 lakhs (from AY 2017‐18 onwards).
profession, if the gross receipts exceeds Rs.
50 lakhs (from AY 2017‐18 onwards).

Annual General Meeting No formal requirement to hold any Annual There is no provision in regard to holding of any
Every company has to hold its first Annual General Meeting. meeting.
General Meeting (AGM) within 9 months from
the date of closing of the first financial year of
the company and in any other case, within a
period of 6 months from the date of closing of
the financial year. Further, not more than 15
   ‐   Statutory  months shall elapse between the date of one
       Meetings AGM to that of the next.

There is no provision in regard to holding of any

Board Meetings meeting.
Every company has to hold board meetings No formal requirement to hold any such
regularly and the gap between two meeting meeting of the partners.
should not be more than 120 days.
 Advantages & Disadvantages of various forms of business

Particulars Private Limited Company Limited Liability Partnership (LLP) Partnership

Proper minutes of the meetings, both general

    ‐  Minutes of  Minute book to be maintained to record the
and board meetings, to be maintained according No such requirement.
        Meetings decisions made in meetings held, if any.
to the Secretarial standards issued by ICSI.

LLPs covered under Transfer Pricing

Companies covered under Transfer Pricing
provisions
To be filed within 30th November each year.
   ‐  Income Tax  Where the LLP does not fall under audit
      Return
Other Companies
To be filed within 30th September each year.
Firms covered under Transfer Pricing provisions
provisions
To be filed within 30th November each year.
To be filed within 30th November each year.
Where the firm does not fall under audit
requirement
requirement
To be filed within 31st July each year.
To be filed within 31st July each year.
Where audit is required
Where audit is required
To be filed within 30th September each year.
To be filed within 30th September each year.

   ‐  Maintenance of
Required to maintain books of account, Required to maintain books of account as per
      Statutory  Required to maintain books of accounts as Tax laws
statutory registers, minutes, etc. LLP Act.
      Records
   ‐  Cash or 
      Mercantile  Only Mercantile basis of book keeping is Can be either Cash or Mercantile basis of
Can be either Cash or Mercantile basis of accounting.
      basis of book  allowed. accounting.
      keeping
   ‐   Applicability of 
Companies have to mandatorily comply with Accounting standards shall not be applicable
       Accounting  No Accounting Standards are applicable.
accounting standards. to LLPs.
       Standards.
 Advantages & Disadvantages of various forms of business

Particulars Private Limited Company Limited Liability Partnership (LLP) Partnership

Credit Worthiness of organization
Will have a comparatively higher
Due to Stringent Compliances & disclosures
Credit Worthiness of  creditworthines from Partnership due to Creditworthiness of firm depends upon goodwill
under various laws, Companies enjoys high
organization Stringent regulatory framework but lesser and creditworthiness of its partners
degree of credit worthiness.
than company.

Every company has to create charge on its assets

if fund is borrowed against its assets, by filing to
No such charge creation is required by the Since there are no stringent regulation, hence, the
the Registrar of Companies. Hence, it is under
   ‐  constraints LLP Act. Hence, the lendors are reluctant in partnership firms find it difficult to borrow secured
stringent regulatory controls, therefore, lendors
giving loans to LLPs. funds.
feel sale in lending to companies as compared to
LLPs and partnerships.

   ‐  External  
      Commercial 
Can avail ECB for specific end uses. Cannot avail ECB. Cannot avail ECB.
      Borrowing 
      (ECB)
Outbound Investment / Direct Investment (ODI)

Under Automatic Route, an Indian party, which

includes company, can make direct investment
by way of contribution to the capital or
Partnership firms registered under the Indian
subscription to the MOA of a foreign entity or by
ODI ‐ Automatic  Partnership Act, 1932 can make overseas direct
way of purchase of existing shares of a foreign Same as company.
route investments subject to the same terms and conditions
entity, in Joint Ventures (JVs) and Wholly Owned
as applicable to corporate entities.
Subsidiary (WOSs) outside India, except
Pakistan, in which case it is allowed under
approval route.
 Advantages & Disadvantages of various forms of business

Particulars Private Limited Company Limited Liability Partnership (LLP) Partnership

Foreign Participation and Foreign Direct Investment (FDI)

A person resident outside India (other than a

citizen of Pakistan or Bangladesh) or an entity
Foreign  incorporated outside India, (other than an entity Foreign Nationals cannot form Partnership Firm in
Same as company.
Participation incorporated in Pakistan or Bangladesh) can India.
invest in India, subject to the FDI policy of the
Government of India.

Investments can be made by non‐residents in Foreign investment in LLP is permitted under A Non‐Resident Indian (NRI) or a Person of Indian
the equity shares/fully, compulsorily and the automatic route if the LLP is engaged in Origin (PIO) resident outside India can invest in the
mandatorily convertible debentures/fully, sector where 100% FDI is allowed and there capital of a firm or a proprietary concern in India on
compulsorily and mandatorily convertible are no attendant FDI linked performance non‐repatriation basis provided certain conditions
preference shares of an Indian company, conditionalities to the sector. are fulfilled.
through the Automatic Route or the Government
Foreign Direct  Route. Under the Automatic Route, the non‐
Investment (FDI) resident investor or the Indian company does
not require any approval from Government of
India for the investment. Under the Government
Route, prior approval of the Government of
India is required