Legal Structure Comparison
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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