Which type of entity to be incorporated- A Company or A LLP?

A Private Limited Company or Limited Liability Partnership

Which type of entity to be incorporated- A Company or A LLP?
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Giving insights of incorporating an entity in India along with statutory registrations, cost, time, Annual compliance and reporting. This article highlights whether a company or LLP should be preferred.

Every Country has its own laws to enter the market or make investment or to start a Business. Not everyone can find easy to take a decision of starting up a business however, there are many who would like to become an entrepreneur instead of an employee in a reputed company. 

Starting a business in India gives you many choices but to understand which option is best for your type of business, you will definitely need a proper guidance. Just think that you have to make the first and foremost important decision for your own business, i.e., whether to form a Private Limited Company (PLC) or Limited Liability Partnership (LLP). Many of you will start looking for professionals to understand the concept of both PLC and LLP and their difference in the near future. Any startups which starts its business usually gives at least 5 years to build something new and to be recognized in the market.

I understand that entrepreneurs already have a lot of pressure in terms of creating a business plan, a team of people to work with, a place to start work from and an investor to get funding from and so on.  With all these important decisions, forming a Company or LLP is another important decision to make because once you start a company or LLP all statutory fees, registrations, compliances, filings and reporting and returns will come into picture.

Hence, it is advisable to first understand the basic points between these two:

  1. Registration cost/Preliminary Expenses: the statutory fee for incorporating of LLP is significantly cheaper than PLC

  2. Statutory Registrations: Post incorporation, there are PAN, TAN and Bank account opening requirements which need to be fulfilled in each case

  3. Ownership: LLP has no clear distinction between owners and management but PLC is a separate legal entity

  4. Statutory compliances: Filing of Income Tax returns are same for both but annual returns under the Companies Act, 2013 are more in PLC

  5. Audit requirement: PLCs are required to appoint Statutory Auditor irrespective of their turnover or capital but LLPs are required to get the accounts audited only if the annual turnover is more than INR 40 Lakhs and total capital contribution is more than INR 25 Lakhs.

  6. Reporting and returns: PLCs have large number of reportings than LLP

  7. Board Meetings: In case of PLC, mandatorily 4 meetings should be held in a year wherein Directors meet and discuss the day-to-day activities, growth of the company and other statutory agenda should be taken in account.

    However, such compulsion is not there for LLP.

There are many factors which need to be taken into consideration while going for any business activity in India or any other country. Hence, it is required to get an opinion from a professional who has relevant experience in the same.

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