1. Topic :
- Should the promoter incorporate a LLP or private
limited company
Facts :
-
-
SME enterprise
Promoter a professional individual;
Additional funding by friends;
Later on some angel investor might come;
Business – ecommerce;

2. CONTENTS
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2
3
4
5

3. An Overview
1. LLP:- The Limited Liability Partnership Act 2008 was published in the official Gazette of
India on January 9, 2009 and has been notified with effect from 31 March 2009.
However, the Act, has been notified with limited sections only.[4] The rules have been
notified in the official gazette on April 1, 2009. The first LLP was incorporated in the first
week of April 2009.
2. Private limited Company :- As per Company Act 1956, “private company" means
a company which, by its articles,(a) restricts the right to transfer its shares, if any;
(b) limits the number of its members to fifty not including-
(i) persons who are in the employment of the company, and
(ii) persons who, having been formerly in the employment of the company, were members
of the company while in that employment and have continued to be members after the
employment ceased ; and
(c) prohibits any invitation to the public to subscribe for any shares in, or debentures
of, the company: Provided that where two or more persons hold one or more shares,
in a company jointly, they shall, for the purposes of this definition, be treated as
a single member;

4. Rational (requirement) of LLP
To provide an alternative effective and more
structured corporate business vehicles.
Fill the gaps between business firms.
Maximum growth of the service sector.
Perfect reform initiation
Flexibility in structure and operation

5. Facts Analysis
LLP is a new corporate structure that combines the flexibility of a partnership
and the advantages of limited liability of a company at a low compliance cost
LLP Provides the benefits of Limited Liability of a Company but allows it’s
member the flexibility of organizing internal management on the basis of
mutually arrived agreement , as in the case of partnership firm.
Owing to flexibility in LLP’s structure and operation, it would be useful for small
and medium enterprises and for the enterprises in services sector.
the SME sector largely works through the regular partnership or proprietorship
structures, wherein the partners and sole proprietor, as the case may be, are
personally liable for all liabilities of the business vehicle whereas in LLP the
liability will not arise personally.
LLP is a business vehicle which would offer simple and flexible procedures in
terms of its formation, maintenance and termination while simultaneously has
the necessary dynamics and appeal to be able to compete domestically and
internationally.

6. Facts Analysis (Continued…..)
No issuance of share in case of LLP
Flexibility in making decisions
No formal requirement to convene Annual General Meetings like
Company.

7. Comparision Between LLP and Private ltd company
Particular
LLP
Private Limited Company
No. Of Member
Minimum 2 Partner
2 to 50 Shareholders
limited.
Liability
Liability of the Partner is limited up
to their contribution however, a
partner act with an intension to
conduct fraud , they are personally
libel.
Labiality of the members is
only limited to the share
held by them.
Transfer / Inheritance Transferrable
of share
Transferrable
Document to be filed
Designated partner have to file
annual accounts, and submit and
an annual statement on solvency
Annual statements of
accounts, Minutes of Board
Meetings, share register ,
register of charges etc.
Legal Proceedings
Can sue and be sued
Can sue and be sued
Manner of keeping of Cash Basis or Accrual basis
Books of Accounts
Accrual Basis

8. Continued…..
Particular
LLP
Private Limited Company
Drawings
Drawings are permitted as
per the LLP Agreement
Drawings are not permitted.
Tax Liability
Flat rate without surcharge
Flat rate with surcharge(if
applicable)
Dividend Distribution tax
Not Applicable
Applicable
Applicability of Accounting
standards
The necessary rules in
regarding to the application
of Accounting Standards
are not yet issued
Companies has to
mandatory comply with the
accounting standards
Cost of formation
Minimum Incorporation fee
is Rs. 1,000
Minimum Incorporation fee
is Rs. 6000
Admission as Partner or
Member
As per LLP Agreement
By Buying shares of the
company.

9. Opinion
After Analyzing above few points it can be said that LLP is better option to
opt rather than pvt ltd company. As LLP contains two salient feature i.e
the feature of Private Limited Co as well as partnership.
It enables the SME basically individuals and the professionals to run the
business as per their own internal rules and regulation (as per LLP
agreement) by putting together the scope of partnership and Private
limited company.
For small and medium size entrepreneur funding is more painful to startup
the business, But by incorporation of LLP it can be done through Financial
institution or other interested investors as it contains the feature of
corporate. Also Funding is described in LLP Act as “Contribution” which
can be either tangible or intangible , movable or immovable property by
partner and hence the funding can be in cash or in-kind. In case of Pvt.
Ltd Company initially funding should be by issue of share in cash.

10. Continued….
E-Commerce business can be done by establishing LLP which enables the
members to become the part of the business by contributing their shares either
in cash or in kind. Modern Electronic commerce typically use the world wide
web. LLP provides the facility to hold members universally which will help the
business to grow world wide. As LLP provides the partner libel separately and
hence the chances of fraud within the LLP is very less.
So LLP has multiple feature with low rate of risk and hence incorporating LLP is
better than Private Limited Company for the present scenario.
Thank You