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When Should I Register My Company or LLP or Partnership Firm

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When Should I Register My Company or LLP or Partnership Firm?

Every organizational structure and entity type has its merits and demerits. When it comes to choosing a structure everyone has a different opinion but one should select it purely based on their needs. There are various aspects that need to be looked into. For instance, if you need a separate legal entity then formation of a company or an LLP is preferable because partnership firms do not enjoy the status of a separate legal entity. A partnership firm dissolves when a partner dies or retires. There is an interesting read on our blog about the differences between a Private Limited Company, LLP, OPC and Partnership

Maximum number of members

If you do not want any cap on the maximum number of members then registering an LLP is the best option as a partnership firm can have a maximum of 20 members while a private limited company can have 200. In case of an LLP the governing Act is silent on the maximum number.

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Legal compliances

If you do not want to spend too much time and money on legal compliances then choosing a partnership firm or an LLP is a good option because a company, whether private or public, requires a lot of compliance. Companies Act, 2013 applies too many compliance procedures that are required to be complied with from time to time.

Raise money from public

A company is the best structure if one wants to raise money from public because it can do so by allotting shares or debentures. But when it comes to an LLP or partnership firm, both are forbidden by law to raise money from public. They can borrow funds but only from financial institutions, not from public in general.

Limited liability

A company as well as an LLP enjoys limited liability but thats not the case with partnership firms. Every partner is unlimitedly liable in case of partnership firms.

Compulsory audit

When it comes to companies every company irrespective of share capital or it being public or private need to get their financial statements audited compulsorily. But thats not the case with an LLP or partnership firm. An LLP only needs to get compulsorily audited only if its annual turnover increases ₹40 lacs or contribution increases ₹25 lacs.

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