Company or LLP Registration: Which is Better?

Promising Land for Promising Business

An entrepreneur could actually start by registering a company, depending on the type of business and requirements. Choosing the most ideal company set-up is considered critical in its success.

India is fast becoming a favourite place for entrepreneurs to invest, considering its huge population deemed as a potential market in itself.

However, putting up a business, much less registering one in India would require a lot of research if only to be able to determine which type of business suits best for a company wanting to make a fortune in the land of 1.35 billion people.

India’s Ministry of Corporate Affairs offers a wide range of business types to choose from and incorporate.

Wide Choices to Choose From

Among the types of business one could register in India include:

• Private Limited Company – Considered the most ideal for entrepreneurs who are into Information Technology, e-commerce and manufacturing. Its features include a limited liability on shareholders, which guarantees less risk in case of a mess up. It also maintains particulars of the company on a public database for transparency, which in effect helps establish the company’s credibility.
• Limited Liability Partnership – This business type is recommended for entrepreneurs who are into trading, construction and family-owned businesses. This business type doesn’t allow fund infusion from external sources. It provides limited liability to partners.
• One person company – As the name suggests, it is founded, operated and registered under the name of just one person. That one person, crafts its policy and marketing strategy. He or she is in total control of the business.
• Partnership Firm – This type of business is considered ideal but only for short-term business engagement or project. It embarks on an unlimited liability on partners.
• Proprietorship Firm – Ideal for those who are not inclined to forming a business structure embarking on partners or incorporator. This business type works for an entrepreneur wanting to try out on something new in the market.
• Non-Government Organization (NGO) – Entrepreneurs are not keen on this one because its nature and concert in its formation won’t yield profit.
• Trust – This business type is conducive for those into the business embarking on education.
• Public Limited Company – Oddly though, the word “limited” is not as limited in this business format because it embarks on a big business where stakes are high and funds seem to overflow from both internal and external sources.

Top Business Form Choices

The choice on what type of business type to register boils down to just two choices, it’s either a private limited company or LLP registration.

For instance, millions of SMEs in India register businesses as Private Limited Company because of its guarantees which include limited liability protection to shareholders, provisions to raise equity funds, and a status of being a separate legal entity. A significant fraction of these businesses is family businesses.

Essentially, the decision of whether to adopt a private limited company or LLP registration would largely depend on the business needs and its structure. Current circumstances embarking on resources should also be equally given due consideration.

Before making a choice between the private limited company or LLC registration, it is imperative to know the differences in these two formal business structures.

Will it be a private limited company or LLP registration?

Private Limited Company

Just like any business type, those registered as Private Limited Company have their own attributes. Allow us to enumerate the salient points of a Private Limited Company:

• It is primarily designed to make a lawful limit on the liability of its shareholders. These shareholders, however, are not eligible to own full or part of the company.
• As the name suggests, the PLC is private – and designed for small businesses. Further, the liability of the members of a Private Limited Company is limited to the number of their held shares, which by the way cannot be traded in public.
• As one of the most popular forms of Business Registration in India, the PLC is eligible for registration with a minimum of two people.
• It embarks on an easy online registration through India’s Ministry of Corporate Affairs which replaced SPICe form with a new web form called SPICe Plus.
• It can be incorporated with a single application that integrates Name Reservation, Incorporation, DIN allotment, Mandatory issuance of PAN, TAN, EPFO, ESIC, Profession Tax (Maharashtra), and Opening of Bank Account.
• A PLC requires no minimum capital. A loose change of Rs. 10,000 as total Authorized Share capital is enough.
• You can transfer the Private Limited Company shares to another person.
• A PLC may exist for as long as they want to. It actually embarks on an eternity of business, until dissolved. Death, retirement, replacement, resignation or termination of one does not affect the company’s existence.

Other Characteristics of a Private Limited Company

• It allows 100% Foreign Direct Investment.
• There is a restriction in transferring shares by its articles.
• A PLC can only have a maximum of 50 shareholders.
• A PLC cannot issue prospectus to the public.
• Private Limited Company’s shares of stocks cannot be quoted in the stock exchange.

Limited Liability Partnership [LLP]

A Limited Liability Partnership is highly recommended for those falling under start-ups, small and medium scale businesses. Among its salient points include the following:

• LLP is basically an alternative corporate business form that wields benefits of limited liability of a company and the flexibility of a partnership.
• Just like the Private Limited Company, it also promises an eternity of business regardless of changes in partners.
• Parties cannot enter into a contract and hold properties under the company’s name.
• As a separate legal entity, LLP is also liable to the full extent of its assets. However, the liability of the partners is limited to their company contribution.
• A minimum of two members can form an LLP, with one of the two an Indian national. There is no limit as to the maximum number of members.
• There’s a limitation in LLP members’ liability.
• LLP holds the distinction of having the easiest registration method. Notably though is the transparency in the process.
• LLP has the flexibility of a partnership firm.
• LLP is easy to start and manage. It can in fact be registered with lesser cost and formalities as compared to the Private Limited Company.
• LLP can outlive partners.
• The LLP does not need minimum capital.
• LLP may not have a compulsory Audit.
• LLP has to file an income tax return and MCA annual return annually – operational or otherwise. Failure to comply will lead to a heavy penalty, which could be in the form of fines or suspension in its operation.
• LLP partners cannot just transfer ownership rights without formal consent from other partners.
• The LLP with just two partners can be dissolved if one member chooses to leave.
• LLP cannot operate without prior approval of the Reserve Bank of India (RBI).

Choosing the One

With clearly outlined attributes on India’s top two choices to consider — Private Limited Company or LLP Registration, a serious entrepreneur should by now have an idea as to which may seem fit for his or her business. However, sheer familiarity with their attributes may not be enough.

As it is, it is better for the entrepreneurs to consider tapping the services of top business advisors, with an excellent track record in the field of incorporating a business in India.

3E Accounting maintains a dynamic team of Incorporation Experts in India.

For more information, please Contact Us.

3E Accounting India

3E Accounting India is a corporate service provider and accounting firm assisting clients with company formation and incorporation. We offer company secretary and business-related services in India.