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What are the Differences between Private Limited Company and Limited Liability Partnership

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What are the Differences Between Private Limited Company and Limited Liability Partnership

Private Limited Company is an old concept in India and Limited Liability Partnership is relatively new. The structure of both differs in materiality. In case of a Private Limited Company the entity forms a corporate structure however, in the case of Limited Liability Partnership the entity as the name suggest forms a Partnership. We will discuss the Differences Private Limited Company and Limited Liability Partnership in greater detail as below:

1. Governing Law

A Private Limited Company in India is governed by Companies Act, 2013 and the Limited Liability Partnership is governed by Limited Liability Partnership Act, 2008.

2. Name

Words “Private Limited” are used after Private Limited Company’s name however, letters LLP are used after Limited Liability Partnership’s name.

3. Structure Recommended for

Private Limited Company is recommended for startups and SME’s including those in the IT sector however, Limited Liability partnership is recommended for Professionals like Chartered Accountants, Company Secretaries, Architects, Lawyers etc.

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4. Audit

Audits are compulsory in the case of Private Limited Company but in the case of Limited Liability company an audit becomes compulsory only when the turnover exceeds 40 lakh rupees or capital contribution exceeds 25 lakh rupees. 

5. Funding

It is easier to take funding in the case of a Private Limited Company compared to Limited Liability Partnership. This is one of the important reasons why most startups choose to incorporate a Private Limited Company instead of a Limited Liability Partnership. If you estimate that a loan or funding will be required by your business which is obvious then you should incorporate a Private Limited Company.

6. Conversion

A Private Limited Company can be easily converted to a Public Limited Company. Limited Liability partnership cannot be converted to Private Limited or Public Limited Company or One Person Company.

Conclusion

Depending upon the nature of your business you can select the type of entity you would want to form. Normally if the business can undertake compliance of Registrar of Companies and requirement of Audits then Private Limited Company formation can be more helpful for a business in the long term.

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