How Pvt Ltd company is better than LLP? 

November 23, 2021

If your questions are:

  • Which is better? LLP or Pvt Ltd Company?
  • Why Pvt Ltd company is better than LLP? and
  • Can Pvt Ltd be converted into LLP?

This article is for you!

Private Limited Company (PLC) and Limited Liability (Partnership) Company (LLC/ LLP) have a lot of common factors, but they are a little different in terms of the organization structure and its features. Both PLC and LLP/ LLC are privately owned only and cannot have public stocks/shares.

However, if one needs to have external funding like Venture Capitalists (VCs) to boost the annual turnover, then it is apt to be registered as Private Limited; whereas if one needs to restrict and would like to have a closely knitted structure and to have a start-up company then LLC/ LLP registration could be the better choice. Before we understand more about the key differences between the two structures, let us understand the definition of both the nomenclatures in brief.

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What is PLC (Private Limited Company)?

A Company which is Privately held with ownerships between 1 to specified number as per Company Act is called a Private Limited Company. Private Limited Company is for small businesses only. The members of ownership of PLC are limited to the number of shares respectively held by them. PLC cannot have shares traded outside its declared ownership like public traded.

What is LLC/ LLP (Limited Liability Partnership Company)?

A Limited Liability Partnership Company must have a minimum of two members declared as core ownership and there is no upper limit on the own members. The LLP/ LLC also cannot have public trading and outside shares/stocks. The turnover of the LLP/ LLC is limited as per the norms set forth by the LLP Act.

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Which is better? LLP or Pvt Ltd Company?

#DescriptionPrivate Limited CompanyLimited Liability Partnership Company
1   Audit Reports Annual FilingAnnual statement of accounts & annual return with Registrar of Companies. These are filed in form AOC 4 and MGT 7Annual accounts and Annual returns to be filed with RoC. These returns are filed in LLP Form 8 and LLP Form 11
2ComplianceHighLow
3LiabilityLimitedLimited
Transferability of sharesCan be transferred easily. It can only be restricted by Article of Association. Can be transferred by executing agreement before a notary public 
5Foreign Direct InvestmentEligible via automatic and government routeEligible via automatic route
6Suitable to which typeBusinesses having turnover; entrepreneurs who need external funding.Startups , Business, trade, manufacturers etc. 
7Company NameShould end with Pvt. Ltd.Should end with LLP.

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Why Pvt Ltd company is better than LLP? 

A Private Limited Company is the most popular form of business entity. It requires a minimum of 2 directors and no minimum capital investment to incorporate one. It protects members from unlimited liability if there is a time of closure. 

Private Limited Companies are treated as separate legal entities or an individual in the eyes of law. They are capable to own funds and other properties in their name. 

Furthermore, the liability of the shareholders in PLCs is limited up to the amount of shareholding. 

PLCs have perpetual succession and independent identity. They will not lose their identity even if the owners or shareholders die. The change in succession or shareholding will not negatively harm the company. 

The incorporation of PLC is comparatively easier and there is no minimum capital for the incorporation of the company. 

Which is better? LLP or Pvt Ltd Company?

Can Pvt Ltd be converted into LLP?

In short, yes, PLCs can become LLPs. Read more to know the how. 

The following documents are required for the conversion: 

  • Consent from all shareholders to convert to an LLP. 
  • Incorporation document attached with Form 2 
  • Form 3 should be submitted. 
  • No objection certificate from tax authorities. 
  • Balance Sheet, P&L Account, and Statement of assets and liabilities. 
  • All creditors must provide their consent. 

Step 1: Obtain Director Identification Number for all partners 

Step 2: A board meeting must be held and a resolution must be passed with everyone’s approval. 

Step 3: The company must apply for a reservation with ‘LLP’ next to their name and get approval from ROC. 

Step 4: File for an e-form and fill it with ROC with the documents. 

Step 5: Form 18 is the needs to be filled. 

Step 6: After all formalities are completed, the ROC will issue a COI for the conversion. 

Step 7: Form 3 must be filed within 30 days after the conversion of the company. 

Step 8: After receiving the incorporation certificate of LLP, it must be filed within 15 days. 

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