Difference between a Private Limited Company and a Limited Liability Partnership

Shivani Sinha | 07-Mar-2016

“The Smaller a Company, the bigger the share. The bigger the Company, the merrier the Play.”
                                                                                                                                Manx Proverb

Are you planning to start your own business and you are in two minds which company you should register? You have often come across companies that have a suffix Ltd. or LLP attached with their names. Ever wondered what do these suffixes mean at all? Well they must be thought of as two different types of body corporate. Ltd. stands for Private Limited Company which generally has the shareholders who have a limited liability and its shares are not sold or offered to the general public. The LLP on the other hand stands for Limited Liability Partnership and it gives a limited liability to the Partners of the LLP and pass-through income taxation is followed. Their nature sound quite similar but there is enough difference between the two types of the body corporate which are rendered based on their various features. 

Before we explore the difference, let's take a quick look at the similarities between the two :

  1. Both are registered through a relatively similar registration process.
  2. Both separate the assets and liabilities of company/LLP and promoters/Partners.
  3. Both are transferable.
  4. Both come with a perennial life and continue to be alive in the eyes of law until promoters or any other competent authority closes them.

There are differences between the liabilities that the owners have in the company/LLP, the way the taxes are levied on these business entity, the number of shareholders/partner that are allowed etc. Both have certain advantages as well as disadvantages. Knowing the differences and the advantages and disadvantages between the two, one can accordingly decide which of the two are best suited for their interests. I’ll be presenting a detailed description of the two types of business entity in order to give you a clear and a better understanding of how these two functions.

Incorporating the companies

First of all when you establish a Limited Liability Partnership, a minimum of two partners are required. However, there is no limit to the maximum number of partners that can be incorporated in an LLP. In case of a Private Limited Company you need a minimum of two shareholders and for a maximum you can have up to 50 shareholders. When it comes to establishing an LLP the first thing is to apply for DPIN (Designated Partner Identification Number) for the two partners and get the Digital Signature for one of the partners. Then comes the application for name of the LLP followed by an agreement and other forms available on the government website and finally you get the Certificate for registering your LLP. However, for a private limited company, the first step is selecting the name for your company, apply for Director’s Identification Number and obtain Digital Signatures. Once you are done with this then you go on to draft Memorandum and Articles of Association. Then you get to the registrar to get all the paper work done and finally you obtain the Certificate of Incorporation for your Limited Private Company. 

How do the two Differ ?

Having given a clear account of the differences between the two ventures you can easily decide the type of body corporate that best suits your interests. And as it stands today in the current scenario, you cannot change your LLP into a Private Limited Company. So you need to be really sure about all the minute details of these 2 types before registering your firm. And, if you have already decided, which one to go with then hire a lawyer from Fagnum.com today and get your firm registered without any hassles and get your business started today!

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Fagnum.com. The writers are solely responsible for any claims arising out of the contents of this article.
About the Author
Shivani Sinha
A Master degree holder is a Content Developer and an SEO specialist. Having more than 6 years of experience into content development and marketing, she has contributed substantially in this arena. She is good at brainstorming and fast in writing crispy content, bold slogans, catchy captions and punchy one liners. Her stories are well researched and provide for an interesting read. She enjoys working in association with entrepreneurs while spearheading business launches providing marketing advice.