Comparing different legal structures
Particulars | Partnership firm | LLP | Private Limited |
Creation | Created by Contract | Created by Law | Created by Law |
Registration formalities | The registration is Not Mandatory | The registration is Mandatory | The registration is Mandatory. |
Incorporation documents | Partnership Deed is the main incorporation Document | Limited liability partnership agreement is the main incorporation document | Memorandum of Association and Articles of Association are the main incorporation documents. |
Maintenance of Accounts and Audit | Accounts are maintained as per partnership deed | Accounts are required to be audited if the turnover exceeds Rs.40 Lakhs or contribution exceeds Rs.25 lacs | Maintenance of accounts and audit are Compulsory |
Filing of Annual Return and Financials | Filing of Annual Return is not compulsory | Filing of Annual Return is compulsory within 60 days from the close of the financial year. Accounts and Solvency to be filed within 30 days from the end of six months of the financial year to which the Statement of Account and Solvency relates | Filing of Financials is compulsory, within 30 days from the date of Annual General Meeting. Filing of Annual Return is compulsory, within 60 days from the date of Annual General Meeting. |
Number of Partners / Shareholders | Minimum two partners and maximum twenty partners are included. | Minimum two partners and maximum limit is not specified | Shareholders: Minimum Two and maximum Two Hundred Members |
Liability of Partners | Liability of partners is Unlimited in all the cases | Liability of partners is Limited to Capital Contribution in all cases except ‘deliberate fraud | Liability of members is Limited to Capital of the company |
Management/ Directors | Management is done by the working partners. (Minimum 1) | Management is done by Designated Partners. (Minimum 2) | Management is done by Board of Directors. (Minimum 2 and maximum 15) |
Director Identification Number | Partnership Firm doesn’t require any of this. | Each designated Partner requires having a DPIN before being appointed as a Designated Partner of LLP | Each Director requires to have a unique DIN before being appointed as a Director of Private Company |
Taxation | Partnership profits are taxed at 30% plus surcharge and cess as applicable No tax is to be paid on the distribution of profit by the partnership firm. Profit is exempt in the hands of partners. | LLP profits are taxed at 30% plus surcharge and cess as applicable. No tax is to be paid on the distribution of profit by the LLP. Profit is exempt in the hands of partners. | Private Limited Company profits are taxed at 22% plus surcharge and cess as applicable. SHs have to pay tax on dividend. Thus, effective tax rate excluding Surcharge and Cess is: ~34% if half of profits are distributed as dividends ~28% if quarter of profits are distributed as dividends |
Loan to Owners | Firm can give loan to Partners | LLP can give loan to members | Loan to Shareholders will considered as Deemed dividend and taxable to shareholders |
Minimum contribution | There is no minimum capital requirement | There is no minimum capital requirement | Minimum capital contribution is Rs.1,00,000 |
FDI in the form of capital/ | Foreigners are not allowed to start a Partnership | FDI in LLP is allowed for sectors eligible for 100% FDI under automatic route | FDI in a private limited company is allowed under the automatic route for most of the sectors or approval route for specified sectors. Pvt Ltd can also take ECB |
Cost of formation | Approx. Rs.6,000 | Approx. Rs. 12,000 (MCA charges, stamp duty, DIN, DSC) | Approx. Rs. 15,000 (MCA charges, stamp duty, DIN, DSC) |
Compliance burden | No compliance cost | Limited Liability Partnership is required to file only the Annual Return & a Statement of Accounts & Solvency | Approximately at least 4 to 5 compliances per annum are required to be made by a private limited company Board and General Meetings must be conducted periodically |
Ownership & Transferability | No distinction between owners and management. Transfer of ownership will require the agreement to add or remove a partner in Firm | There is not a clear distinction between the owners and management Transfer of ownership will require the agreement to add or remove a partner in LLP | There is clear distinction between the owners and management Ownership can be transferred by way of share transfer |
Termination process | Termination of business is a simple process | Termination of business is time consuming affair | Termination of business is time consuming affair |