2. A private limited or Public limited company
Company registered under Companies Act 1956
Either limited by shares or limited by guarantee.
Separation of ownership from the management
Management will declare operations to the owners on
Management and owners are bound by the articles and
memorandum of company
Company is bound to pay income tax either on straight
basis or MAT ( minimum alternative tax)
Profit declarations are once again subject to the dividend
distribution tax in the hands of the company
Further whole of the profit cannot be withdrawn.
Limited Liability Partnership (LLP)
Hybrid between private ltd. company & partnership firm
Indian government passed LLP Act on 09/01/2009
LLP Act,2008 gets notified w.e.f March 31st, 2009
The first LLP was registered on April 2,2009
Need for LLP:- Major causes for the advent of LLP are-
To enable the professionals to deal in international activities on the concept
of Limited Liability which was earlier not possible due to various
To remove the restriction posed by Indian partnership Act, 1932 that
professionals are not allowed to have more than 10 or 20 partners.
LLP Act removed the obstacles formed by Indian
4. LLP is an alternative corporate business form that gives the benefits of
limited liability of a company and the flexibility of a partnership.
The LLP can continue its existence irrespective of changes in partners.
It is capable of entering into contracts and holding property in its own
The LLP is a separate legal entity, liable to the full extent of its assets
but liability of the partners is limited to their agreed contribution in
Further, no partner is liable on account of the independent or un-
authorized actions of other partners, thus individual partners are
shielded from joint liability created by another partner’s wrongful
business decisions or misconduct.
Mutual rights and duties of the partners within a LLP are governed by
an agreement between the partners or between the partners and the
LLP as the case may be. The LLP, however, is not relieved of the
liability for its other obligations as a separate entity.
Partners are eligible to withdraw the remuneration, interest and profit
subject to the agreement
5. 1. Suitability
5. Governing Law
7. Expenses for formation
8. Legal entity
9. Members needed to set up
10. Continuity of life
12. Agency relationship
6. 13. Power of Member Partner Director
14. Transferability of interest
15. Share Certificate
16. Minimum Capital requirement
17. Manner of Keeping Books of Accounts
18. Filing of Annual Accounts
19. Audit of Accounts
20. Applicability of Accounting standards
21. Director Identification Number/Designated Partner
22. Remuneration / Salary
23. Publication of name
24. Voting Rights
9. Combines advantages of both company and partnership.
Offers greater flexibility as unlike company firm can create
its own rules of management.
There is no requirement of minimum contribution as
compared to a company.
An LLP requires minimum 2 partners and there is no limit
on the maximum members.
There is no requirement of compulsory audit. It is
mandatory only when contribution exceeds Rs. 25 Lakhs or
turnover exceeds Rs. 40 Lakhs
An LLP only requires 2 regulatory compliances, Annual
return and Statement of Accounts and Solvency.
Share of partners in LLP is not liable to tax, so Interest to
partners, any salary, bonus, remuneration or commission is
allowed as deduction.
No dividend distribution tax is applicable(15% in case of
10. We are four friends who have an idea for a
social networking platform which enables
bloggers to showcase their blogs to like-
minded folk. How should we start?
Should go with simple partnership
In initial phase they do not require any legal
Should avoid investing money on incorporation
costs and invest money in business first.
11. We are scientists working on an interesting product.
But we do not have a business plan yet and are not
clear about how to monetize it. The idea came from
one of us initially, but we have now all worked on it
and contributed. How do we get started now?
Go for LLC as intellectual property is involved and a
company offers unmatched options to value and account for
intellectual property and it is easer to raise resources
needed in such kind of projects.
Should not go for LLP as process of bringing additional
human resources into the core group of founders is not as
easy and smooth as it is with a privately listed company.
12. Small to medium scale businesses.
Worldwide LLP are more used in service industry.
Businesses where different partners have different
roles to play.
Business where investors don’t wish to control affairs
of the firm and remain silent partner.
Startups, however this is not true in most cases as
angel investors and VCs do not prefer LLP.
13. Legal Existence: For a startup it is best to first consider whether he
wants to start business under a legal entity or under his own name.
No. of persons Involved: The second key fact for choosing a right form is
depend upon the no. of persons involved in the initial stage of startup.
Capital requirement: Choosing a right form is also depending upon the
initial capital eligibility and future funds availability.
Funding requirements: If in near future, funding is required in the
startup, then it has to be planned in the initial stage of business.
Restriction on Personal Liability: It has to be decided in the initial stage
whether the key persons is liable personally or there should be