February 07, 2024 at 07:53 AM
If conducted comparison between LLP vs other business structure, LLP supersedes the chart. As the name suggests, LLP gives the partners running a business limited liability, in simple terms, it means the partners involved in a business have limited liability, no individual partner is liable for the liability and misconduct created by another partner. The Limited Liability Partnership Act, of 2008 governs the rights and duties of the partners, and these partners and responsible for compliance with the provisions of this act.
It is an alternate form of business, which is different from sole proprietorship, partnership and company. LLP gives limited liability to the patterns in a business and also flexibility in the independent decision-making to the partners who are operating a company besides that, it also has a very low compliance cost.
Choosing the business structure, as a business owner is a very important decision the blog draws a comparative analysis between LLP and all the forms of business, which would help business choose for themselves as per their requirement in the business
|LLP, needs atleast 2 partner for its formation who represent the ownership.
|Needs only one single owner to run.
|Better for scalability purposes
|Not good for scalability purposes.
|Limited liability, upto the contributions made, personal assets are protected
|Unlimited liability, personal assets are not protected
|LLP is a separate legal entity different from that of its partners.
|No separate legal entity, the registered partnership is not liable the partners operating the business
|LLP has limited Liability, only to the extent that they have contributed to.
|It has unlimited liability, personal assets are not safe.
|LLP can own, buy, rent tangible or intangible property be it movable or immovable.
|Partnership does not have perpetual succession,
|Minimum of two partners, no capital reuqirement
|Minimum of two shareholders, needs capital
|Partners, represent ownership and are involved in day to day management of the company. Do not have a complex management system.
|Shareholders cannot be involved in management they appoint, directors, CEO and Key Managorial Person ( KMP) for daily management. A person who is a shareholder can be in daily management provided it is mentioned clearly in the terms of the Memorandum of Assosiation of the company.
|Credibility as per attracting investors
|Investors dont find it credible to invest in LLPs, as compared to Private Limited.
|Investors find it very credible to invest in private limited as compared to LLP.
|Taxes are paid peronally by the partners at the individual level
|Taxing is applicable regardless , the turnover the company makes.
|Separate Legal Entity, different from its partner, cannot issue shares to the public
|Not a separate Legal Entity, can issue shares
|Purpose of formation
|Formed for the sole purpose of profit
|Formed for the purpose of doing charity, pro-bono company
|Operates for the purpose of doing business to generate profit.
|Dedicated to agro-centric and production-oriented activities, to get benefits exclusive to those activities.
|Engages in a broader business spectrum.
|Operates on the mutual benefit principle, involving inter-member financial transactions.
|Eligibility for formation
|An LLP formation or categorisation is free from the turnover .
|A company is small company based on the turnover , it is categorised as per this.
|Owned by Partners, who run the daily affairs and also own the company.
|Owned by the Government.
|Place of Incorporation
|Incorporated inside India
|Incorporated outside India
|Place of office
|The office of an LLP is located in India
|The office is located in a foreign company
Common considerations that are made while choosing the business structure are:
Liability Protection, Ownership and Control, Implications Tax, How easy is the compliance formation and administration, Capital Requirement to start a business, Scalability, Cost of maintain by doing the annual compliance, credibility. Choosing business structure, requires consideration in many forms.
To sum up, selecting a business structure is a crucial choice for entrepreneurs as it impacts the operational dynamics, legal obligations, and potential for future growth of their enterprises. In order to help business owners make wise decisions, this blog sought to shed light on how Limited Liability Partnerships (LLPs) and other business structures compare.
LLPs are adaptable organizations that combine the advantages of operational flexibility with limited liability. Their special qualities, like limited liability and shared management by partners, make them appropriate for a range of company sizes and sectors. The subtle differences in liability, ownership, and regulatory compliance were brought to light through comparisons with partnerships, sole proprietorships, and private limited companies.
The examination of factors related to scalability, perpetual succession, and tax implications in the different forms of business under Companies Act, 2013 clarified the complex issues.
Main difference lies in ownership and the day to day management of these business structures. Ownership in LLP is of the partners and that in a Private Limited is of shareholders. And Partners own and manage the business unlike Private Limited where the business is managed by a separate Board of Directors and owned as per the shares owned by the shareholders.
In sole proprietorship an individual is taxed personally, while in an LLP profits are passed through partners, who report them on the basis of their individual tax returns.
Factors that need to be considered while choosing between an LLP and Partnership are the protection of liability, involvement in management and the taxing benefits. LLPs provide limited liability and shared management whereas partnerships may have unlimited liability.
Perpetual succession ensures the business continues despite changes in ownership. While it’s a feature in structures like LLPs and private limited companies, traditional partnerships often lack perpetual succession.
Given the flexible nature and limited liability feature of LLP an LLP is flexible for both small as well as large scale enterprise.
In LLPs profits pass through individual partners, and they are taxed at individual levels and personal income tax rates. In contrast, private limited companies are taxed at the corporate tax rate before distribution to shareholders.