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Comparison Between LLP And Company
Limited Liability Partnership and company are two different forms of incorporated business. While limited liability partnership is governed by the rules and regulations of limited liability partnership act 2008, a company is governed by the rules and regulations of companies’ act 1956.
One of the biggest advantages associated with a limited liability partnership and a company is that both the forms of business enjoy a separate legal entity from its owners.
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A minimum of two members are required in both the cases. Two members in case of LLP are generally known as partners/designated partners whereas these two members in case of a private limited company are generally known as directors.
Comparison Between LLP And Company
Maximum Limit of Members
As mentioned above, minimum number of members (partners or directors, as the case may be) in LLP as well as Company is two. However, maximum limit of members differ in both the cases.
In case of limited liability partnership, there is no maximum limit on the number of members, that is, there can be unlimited number of members/partners in LLP. On the other hand, maximum number of members in case of private limited company is 50.
Business name of a limited liability partnership ends with the word “limited liability partnership or its acronym “LLP” whereas business name of a private limited company ends with the word “Private Limited or its acronym “Pvt. Ltd.”.
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Cost of Incorporation and Compliance Requirements
In comparison to a limited liability partnership, the cost of forming a private limited company is high. Further, there are more compliance requirements in case of a Company as compared to LLP.
While LLP is managed in accordance with the terms and conditions laid down in LLP agreement, Private limited company is managed in accordance with articles of association and relevant provisions of Companies Act.
Tax on Distribution of Profit
In case of a limited liability partnership, no tax is required to be paid while distributing profit to its partners. However, a tax rate of 15% plus surcharge and education cess is required to be paid on distribution of profit to the directors of the company.
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Appointment of Auditor
In case of a company, it is mandatory to appoint an auditor. However, in case of LLP, auditor’s appointment is necessary only in two cases. Firstly, if turnover of the LLP is Rs. 40 lacs or more. Secondly, if the amount of LLP’s capital contribution is Rs. 25 lacs or more.
In case of a private limited company, the liability of shareholders is limited to the value of shares held in the company. On the other hand, liability of partners is only limited to the amount of capital contribution made by them.
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Thus, it can be said that personal assets of both the shareholders (in case of a company) and partners (in case of LLP) are free from liabilities of company and limited liability partnership respectively.
In case of a limited liability partnership, a partner can transfer his/her ownership with the mutual consent of all the partners. In case of a company, transfer of shares by a shareholder results in transfer of ownership in favor of the transferee.