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The previous article highlighted the various statutory registrations required for a sole
proprietor and a Partnership firm to carry on business. A Company and an LLP (Limited
Liability Partnership) also require such registrations with a few variations in
documentation.

This article contains a few pointers to differences between the 2 forms of organization
which are relevant for entrepreneurs to decide depending on their line of business
activity, operational flexibility, funding needs, kind of market they are catering to etc.

Company

A Company is an association of individual persons and/or other companies, who
provide some form of capital. A Company is an artificial person created by incorporation
under law, having common seal and perpetual succession. An incorporated company
enjoys perpetual (continuous) life until it is wound up in accordance with law.

Limited Liability Partnership

LLP is a corporate business vehicle that blends professional initiative and operational
flexibility, providing the benefit of Limited Liability to its partners. A limited liability
partnership provides the internal flexibility of a partnership i.e. by allowing the partners
to adopt whatever form of internal organization they prefer while at the same time
limiting their liability with respect to the LLP to their individual contributions.

Some of the important aspects (not an exhaustive list) about the above form of
organizations are as below:

Aspect          Company                              LLP
Regulated by    Companies Act, 1956 and              Limited Liability Partnership Act,
                Articles of Association and          2008 and LLP Agreement between
                Memorandum of Association of         partners.
                the Company.
Existence       This is a traditional form of        This form of business organization
                organization    which   is  in       was introduced recently in India in
                existence from a number of           the year 2008.
                years.
Members         A private limited company must       Minimum of 2 Designated Partners is
                have 2 members and can have          a must and there in no maximum
                members up to 50 and a public        cap on the number of partners.
                limited company should have a
                minimum of 7 members and can
#3

                 have any number of members.
Tax              Domestic Companies are taxed         LLPs are taxed at the flat rate of
                 at a all inclusive rate of 32.445%   30.9% (Base rate: 30%+Cess of 3%
                 (Base rate: 30% + Surcharge          on Base rate)
                 5% on Base rate + Education
                 Cess 0.96%)
Audit            Audit of accounts is mandatory       LLPs with the turnover of more than
                 for every company.                   Rs.40 lakh or having contribution of
                                                      Rs. 25 lakh or more should carry out
                                                      audit of their accounts.
Residential    It is not mandatory to have a          At least one resident Designated
Status      of Indian resident member in case         Partner is required to constitute an
Members        of the Company. All the                LLP. It is not possible to form an
               members of the company could           LLP with all the designated partners
               be non residents.                      being non-resident.
Meetings       • It is mandatory for a                There is no legal requirement to hold
                   Company to hold at least 4         any meeting. It is the prerogative of
                   Board meetings in a year i.e.      the partners whether to hold the
                   a meeting of Board in each         meeting or not.
                   quarter.
               • It is also mandatory for a
                   Company to hold 1 Annual
                   General Meeting every year.
FDI            There is no approval required          FDI is allowed in LLPs operating in
               for a foreign individual or entity     sectors /activities where 100% FDI is
               to invest in Indian Company            allowed through automatic route. An
               unless the investment to be            NRI or a Person of Indian Origin can
               made attracts sectoral caps            invest in LLP without any prior
               (limits   specified     by    the      approval. However a non-resident
               Government of India) in terms of       other than these 2 (say a foreign
               Foreign      Direct   Investment       company)       requires   prior  RBI
               Policy.                                approval for investing in an LLP in
                                                      India.
Filing      with Company has to file a number of      Only a limited number of forms are
ROC              documents and forms with ROC.        required to be filed by LLPs. They
                 For e.g., Accounts and Annual        include “Annual Statement of
                 Return Forms every year as           accounts and Solvency” & “Annual
                 also    event    based    forms      Return” to be filed every year and
                 (allotment of shares, change in      such other event based documents
                 directors, charge creation on        (change in partners, change in
                 borrowings etc.)                     contribution etc.)
Liability     of Limited to the amount of capital     Limited to the amount of capital
#3

Members        nominal   value     of    shares contribution.
               acquired.




The only place where success comes before work is in the dictionary. – Vidal Sassoon

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Entrepreneur's World #3

  • 1. #3 The previous article highlighted the various statutory registrations required for a sole proprietor and a Partnership firm to carry on business. A Company and an LLP (Limited Liability Partnership) also require such registrations with a few variations in documentation. This article contains a few pointers to differences between the 2 forms of organization which are relevant for entrepreneurs to decide depending on their line of business activity, operational flexibility, funding needs, kind of market they are catering to etc. Company A Company is an association of individual persons and/or other companies, who provide some form of capital. A Company is an artificial person created by incorporation under law, having common seal and perpetual succession. An incorporated company enjoys perpetual (continuous) life until it is wound up in accordance with law. Limited Liability Partnership LLP is a corporate business vehicle that blends professional initiative and operational flexibility, providing the benefit of Limited Liability to its partners. A limited liability partnership provides the internal flexibility of a partnership i.e. by allowing the partners to adopt whatever form of internal organization they prefer while at the same time limiting their liability with respect to the LLP to their individual contributions. Some of the important aspects (not an exhaustive list) about the above form of organizations are as below: Aspect Company LLP Regulated by Companies Act, 1956 and Limited Liability Partnership Act, Articles of Association and 2008 and LLP Agreement between Memorandum of Association of partners. the Company. Existence This is a traditional form of This form of business organization organization which is in was introduced recently in India in existence from a number of the year 2008. years. Members A private limited company must Minimum of 2 Designated Partners is have 2 members and can have a must and there in no maximum members up to 50 and a public cap on the number of partners. limited company should have a minimum of 7 members and can
  • 2. #3 have any number of members. Tax Domestic Companies are taxed LLPs are taxed at the flat rate of at a all inclusive rate of 32.445% 30.9% (Base rate: 30%+Cess of 3% (Base rate: 30% + Surcharge on Base rate) 5% on Base rate + Education Cess 0.96%) Audit Audit of accounts is mandatory LLPs with the turnover of more than for every company. Rs.40 lakh or having contribution of Rs. 25 lakh or more should carry out audit of their accounts. Residential It is not mandatory to have a At least one resident Designated Status of Indian resident member in case Partner is required to constitute an Members of the Company. All the LLP. It is not possible to form an members of the company could LLP with all the designated partners be non residents. being non-resident. Meetings • It is mandatory for a There is no legal requirement to hold Company to hold at least 4 any meeting. It is the prerogative of Board meetings in a year i.e. the partners whether to hold the a meeting of Board in each meeting or not. quarter. • It is also mandatory for a Company to hold 1 Annual General Meeting every year. FDI There is no approval required FDI is allowed in LLPs operating in for a foreign individual or entity sectors /activities where 100% FDI is to invest in Indian Company allowed through automatic route. An unless the investment to be NRI or a Person of Indian Origin can made attracts sectoral caps invest in LLP without any prior (limits specified by the approval. However a non-resident Government of India) in terms of other than these 2 (say a foreign Foreign Direct Investment company) requires prior RBI Policy. approval for investing in an LLP in India. Filing with Company has to file a number of Only a limited number of forms are ROC documents and forms with ROC. required to be filed by LLPs. They For e.g., Accounts and Annual include “Annual Statement of Return Forms every year as accounts and Solvency” & “Annual also event based forms Return” to be filed every year and (allotment of shares, change in such other event based documents directors, charge creation on (change in partners, change in borrowings etc.) contribution etc.) Liability of Limited to the amount of capital Limited to the amount of capital
  • 3. #3 Members nominal value of shares contribution. acquired. The only place where success comes before work is in the dictionary. – Vidal Sassoon