Comparing different legal structures

Particulars

Partnership firm

LLP

Private Limited

Creation

Created by Contract

Created by Law

Created by Law

Registration

formalities

The registration is Not

Mandatory

The registration is Mandatory

The registration is Mandatory.

Incorporation

documents

Partnership Deed is the

main incorporation

Document

Limited liability partnership

agreement is the main

incorporation document

Memorandum of Association and

Articles of Association are the main incorporation documents.

Maintenance of

Accounts and

Audit

Accounts are maintained as

per partnership deed

Accounts are required to be

audited if the turnover

exceeds Rs.40 Lakhs or

contribution exceeds Rs.25 lacs

Maintenance of accounts and audit

are Compulsory

Filing of Annual

Return and

Financials

Filing of Annual Return is

not compulsory

Filing of Annual Return is

compulsory within 60 days

from the close of the financial

year.

Accounts and Solvency to be

filed within 30 days from the

end of six months of the

financial year to which the

Statement of Account and

Solvency relates

Filing of Financials is compulsory,

within 30 days from the date of

Annual General Meeting.

Filing of Annual Return is

compulsory, within 60 days from

the date of Annual General

Meeting.

Number of

Partners /

Shareholders

Minimum two partners and

maximum twenty partners

are included.

Minimum two partners and

maximum limit is not

specified

Shareholders: Minimum Two and

maximum Two Hundred

Members

Liability of

Partners

Liability of partners is

Unlimited in all the cases

Liability of partners is Limited

to Capital Contribution in all

cases except ‘deliberate fraud

Liability of members is Limited to

Capital of the company

Management/

Directors

Management is done by the

working partners.

(Minimum 1)

Management is done by

Designated Partners.

(Minimum 2)

Management is done by

Board of Directors.

(Minimum 2 and maximum 15)

Director

Identification

Number

Partnership Firm doesn’t

require any of this.

Each designated Partner

requires having a DPIN before

being appointed as a Designated

Partner of LLP

Each Director requires to have a

unique DIN before being appointed

as a Director of Private Company

Taxation

Partnership profits are taxed at 30% plus surcharge and cess as applicable

No tax is to be paid on the distribution of profit by the partnership firm.

Profit is exempt in the hands of partners.

LLP profits are taxed at 30% plus surcharge and cess as applicable.

No tax is to be paid on the

distribution of profit by the

LLP.

Profit is exempt in the hands

of partners.

Private Limited Company profits are taxed at 22% plus surcharge and cess as applicable. SHs have to pay tax on dividend.

Thus, effective tax rate excluding Surcharge and Cess is:

~34% if half of profits are distributed as dividends

~28% if quarter of profits are distributed as dividends

Loan to Owners

Firm can give loan to Partners

LLP can give loan to members

Loan to Shareholders will considered as Deemed dividend and taxable to shareholders

Minimum contribution

There is no minimum capital requirement

There is no minimum capital requirement

Minimum capital contribution is Rs.1,00,000

FDI

in the form of

capital/

Foreigners are not allowed to start a Partnership

FDI in LLP is allowed for sectors eligible for 100% FDI under automatic route

FDI in a private limited company is allowed under the automatic route for most of the sectors or approval route for specified sectors.

Pvt Ltd can also take ECB

Cost of formation

Approx. Rs.6,000

Approx. Rs. 12,000 (MCA charges, stamp duty, DIN, DSC)

Approx. Rs. 15,000 (MCA charges, stamp duty, DIN, DSC)

Compliance burden

No compliance cost

Limited Liability Partnership is required to file only the Annual Return & a Statement of Accounts & Solvency

Approximately at least 4 to 5 compliances per annum are required to be made by a private limited company

Board and General Meetings must be conducted periodically

Ownership & Transferability

No distinction between owners and management.

Transfer of ownership will require the agreement to add or remove a partner in Firm

There is not a clear distinction between the owners and management

Transfer of ownership will require the agreement to add or remove a partner in LLP

There is clear distinction between the owners and management

Ownership can be transferred by way of share transfer

Termination process

Termination of business is a simple process

Termination of business is time consuming affair

Termination of business is time consuming affair

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