A comparison of LLP Vs other forms (Company / Partnership)iica.in/images/A comparison of LLP Vs other forms.pdf · A comparison of LLP Vs other forms (Company / Partnership) By:

A comparison of LLP Vs other forms

(Company / Partnership)

By:

Rajesh Batra

Head, Centre for MSME

Comparative Chart showing the difference between the three forms of business

organization

Features Company (incorporated under the

Company’s Act, 1956)

Partnership Firm LLP (incorporated under the LLP

Act, 2008

Governing Law The Company’s Act, 1956 and Rules

made therein

The Indian Partnership

Act, 1932 and various

Rules made there

under.

The LLP Act, 2008 and various

Rules made there under

Registration Compulsory registration required

with the ROC. Certificate of

incorporation is the conclusive

evidence.

Registration is not

mandatory.

Unregistered

partnership firms shall

not have the ability to

sue.

Compulsory registration is required

with the ROC.

Nature/Status Company is a body corporate formed

and incorporated under the

Company’s Act, 1956 and which has

a legal entity separate from its

members having perpetual

succession and the liability of its

members shall be limited.

Partnership is a

relation between

persons who have

agreed to share the

profits of business

carried on by all or any

of them acting for all

with unlimited liability.

An LLP is a body corporate formed

and incorporated under the LLP Act

and which has legal entity separate

from that of its partners having

perpetual succession and the

liability of its partner shall be

limited.

Comparative Chart showing the difference between the three forms of business

organization




Act, 2008

Name Public company: to end with the

“limited”

private company : to end with the

words “private limited”

No guidelines. Name to end with “LLP” “Limited

Liability Partnership”

Change of name The name of the company can be

changed by a special resolution and

with the prior approval of the

Central Government. (Section 21)

The name can be

changed.

The name of the LLP can be

changed by filing with the Registrar

a notice of such change of name in

the prescribed form and manner

along with the payment of an

application fee as LLP Rules (Section

16)

Change of the

registered office

within the same

state.

Company can change its registered

office from one place to another

within a State only upon

confirmation by the Regional

Director (Section 17 A)

LLP may change the place of its

registered office by following the

procedure laid down in the LLP

Agreement and file the notice of

change with the Registrar in the

prescribed form and manner and

such change shall take effect only

upon such filing. (Section 13(3) read

with Rule 17(1) & (2)




Act, 2008

Memorandum

and Articles of

Association / LLP

Agreement

Memorandum and Articles of

Association is a charter of the

company which, inter alia, defines

the objects and scope of operation

of the Company.

LLP Agreement is a charter of the

LLP which specifies the mutual

rights and obligations between LLP

and its partners, and partners inter

se.

Internal

Governance

structure

Regulated the Articles of

Association, which are based on the

provisions of the Companies Act,

1956.

The management of the affairs of

the company ought to be conducted

through board/shareholders

meetings, resolutions other defined

provisions etc.

Governed by an agreement

between partners / between LLP

and the partners (LLP Agreement).

No statutory stipulations. LLP

offers far greater flexibility.

Management

ownership

distinction

Inherent in the company. There is no distinction between

management and the ownership.

Minimum paid-up

Capital /

Contribution

Through enactment of Companies

(Amendment) Act, 2015 notified on

25th May, 2015, the amendment

included Omitting requirement for

minimum paid up share capital at

time of incorporation.

No minimum capital

prescribed

No minimum capital prescribed




Act, 2008

Legal entity status

and Perpetual

succession.

Company is a Separate legal entity,

separate from its members and

directors.

A partnership firm is

neither a separate

legal entity nor has a

perpetual succession.

It is not distinct from

the several persons

who compose it.

LLP is a Separate legal entity,

separate from its partners and

designated partners and has

perpetual succession

Legal Proceedings

(Capacity to sue

and to be sued)

Company can sue and be sued in its

own name.

Only registered

partnership can sue.

LLP is a separate legal entity and

therefore, can also sue and be sued

in its name, without involving the

partners.

Purchase of

property

Company can purchase

movable/immovable property in its

name.

Partnership firm

cannot purchase

movable or immovable

property in its name,

the same must be

purchased in the name

of its partners.

LLP can purchase

movable/immovable property in its

name.

Ownership of

assets

Company has ownership of assets

and members own share in the

company.

Partners have joint

ownership of all assets.

LLP has ownership of assets and

partners own capital contribution in

the LLP.




Act, 2008

Agency

relationship

Directors act in fiduciary capacity. Partners are considered as agents

of an LLP, not of other partners.

Director

identification

Number

(DIN)/Designated

Partner

Identification

Number (DPIN)

Each Director is required to have a

DIN before being appointed as a

Director of a company.

The partners are not

required to obtain n

any identification

number.

Each designated partner is required

to have a DPIN (which includes DIN

issued under section 226A, 226B

and 266E of the Companies Act,

1956) before being appointed as a

designated partner of an LLP. If a

person holds both DIN and DPIN,

his DPIN shall stand cancelled and

DIN shall be sufficient for being

appointed as Designated Partner

under LLP Act.

Digital Signature

Certificate (DSC)

At least one Director of the Company

should have a digital signature,

required for e-filing of documents.

Not applicable

Documents are filed

manually.

At least one designated partner

should have; a digital signature,

required for e-filing of documents.

Offences Company/Directors are liable for

offences committed under the

Companies Act.

Partners are personally

liable. Joint and severe

liability of partners.

LLP/Partners/designated partners

are liable; for offences committed

under the LLP Act.

Compounding of

offences

Offences punishable with fine are

compoundable.

Offences punishable with fine are

compoundable.




Act, 2008

Formalities of

incorporation

Various documents / declarations

executed in prescribed formats

prefilled in e-forms (including

consent of Directors) are required to

be filled with the ROC along with the

filing fee. The MOA and AOA are

required to be filed as per provisions

of the Companies Act.

The procedure is mentioned in detail

in Part II of the Companies Act

(Incorporation of Company and

Matters Incidental Thereto.)

In case of registration,

partnership deed along

with form/affidavit

required to be filed

with Registrar of firms

along with requisite

filing fee.

Various documents / declarations

executed in prescribed formats pre-

filled in designated e-

forms(including consent of

designated partners) are required

to be filled with the ROC along with

the filing fee.

The “ incorporation document” is

akin to the MOA of a company. In

addition, LLP Agreement is to be

filled.

The procedure is mentioned in

Chapter III of the LLP Act, 2008

(Incorporation of Limited Liability

Partnership and matters incidental

thereto.)




Act, 2008

Formation for

charitable / not-

for-profit

activities.

A company can be formed with not-

for-profit/charitable purposes

(popularly known as section 25

Companies)

Profit motive is essential.

According to Section 11(1)(a) of the

LLP Act, an LLP to be incorporated

there has to be two or more

persons associated for carrying on a

lawful business with a view to

profit. In view of this, an LLP

structure is not available for non-

profit activities like philanthropy or

trust.

Liability status of

members /

Partners

Limited to the extent of unpaid

capital (to the extent of unpaid

amount on shares held by them)

Unlimited, can extend

to the personal assets

of the partners

Liability of partners Limited to the

extent of their contribution to the

LLP (capital contribution)

However, in case a partner acts

with an intention to defraud

creditors or any other fraudulent

purpose, then the LLP and the

partner who acts in such a manner

shall have unlimited liability. Every

partner shall indemnify the LLP for

any loss caused to it by his fraud in

the conduct of the business of the

LLP.




Act, 2008

Power of

members/partner

s/Directors

Directors have power to conduct

day-to-day affairs of the Company.

Members practically have no say in

the day-to-day affairs of the

company. Members exercise their

powers on the matters which require

their approval in a shareholders

meeting or through postal ballot.

All partners have day

to day management or

as specified in

partnership deed, if

any.

The powers of partners /

designated partners to conduct the

day to day affairs of the LLP are set

forth in the LLP Agreement.

Rights/duties/obli

gations of

Directors/partner

s/designated

partners.

Rights/duties/obligations of

Directors are largely governed by the

AOA and resolutions passed by

shareholders or Directors.

Rights/duties/obligatio

ns of the partners is

governed by the

Partnership deed.

Rights / duties / obligations of

Directors are governed by the LLP

Agreement. Partners not to

compete with the LLP by carrying

any other business of similar

nature. Partners to account to the

LLP for any unjust enrichment.

No. of share-

holders/Partners

Private company: minimum of 2

shareholders

Maximum of 50 shareholders.

Public Company: minimum of 7

shareholders & no limit for max. No.

of shareholders

2-100 partners (After

Companies Act, 2013,

the maximum number

of partners in case of

partnership would be

100)

Minimum of 2 partners and no

maximum limit




Act, 2008

Foreign nationals

as shareholders/

partners

Foreign nationals can be

shareholders

Foreign nationals can

not form partnership

firm

Foreign nationals can be partners.

Designated

Partners/Director

s

/Managing

Partners

Minimum 2(two) Directors in case of

a Private company and minimum 3

(three) in case of a public company.

Appointment of Managing Director,

Whole-time Director or Manager to

be made in case of public companies

having paid-up share capital of Rs. 5

crore or more. Further, appointment

of Company Secretary is mandatory

in case of companies having paid up

share capital of Rs. 5 crore or more.

No cap on the

minimum number of

managing partners.

Managing 2 (two) designated

partners. No other mandatory

requirement viz. Appointment of

Managing Partner, Whole-time

Partner, Manager or Company

secretary.

Need for

Designated

Partner / Director

/ Managing

Partner to be a

partner /

Member.

Director need not be a member /

shareholder of the company.

Managing Partner shall

be a partner of the

firm.

Designated partner has to be a

partner of the company. However,

in case of body corporate partner,

the designated partner need not be

a partner of the LLP.




Act, 2008

Change in

Directors/partner

s/ designated

partners

Notice of change of Director is to be

given to the ROC.

Notice of change of

partners should be

given to Registrar of

firms, particularly in

the case of registered

partnership firms.

Notice of change in partner /

designated partner is to be

furnished to the Registrar.

Cessation as

partner/member

A member/shareholder shall cease

to be member if he sells his shares.

A person can cease to

be a partner and will

be entitled to his share

of profit and capital at

the time of retirement

A person may cease to be a partner

of an LLP in accordance with an

agreement with the other partners,

or, by giving notice in writing of not

less than 30 days to the other

partners of his intention to resign

as a partner.

Transferability/as

signment of

interest in a

company/LLP

Share of every company (except in

case of a private company) are freely

transferable.

Transferability of

interest subject to

manual consent of all

members.

Rights/interests of partners in LLP

are transferable as per the

provisions of the LLP agreement.




Act, 2008

Transfer of shares

/ partnership

rights in case of

death

In case of death of a member, shares

are transmitted to the legal heirs by

operation of law.

In case of death of a partner, the

legal heir shall be entitled to

receive an amount equal to the

capital contribution of the former

partner actually made to the LLP

along with his right to share in the

accumulated profits of the LLP.

Share Certificate Right/interest of the members in the

company is evidenced by the

accompanying share certificate(s)

There are no

provisions for issuing

of share certificate.

Rights/interest of the

partners in the firm are

evidenced by

partnership deed, if

any.

There are no provisions under the

LLP Act for issuance of share

certificate. Rights/interest of the

partners in the LLP are evidenced

by the LLP agreement.




Act, 2008

Taxation and

Taxability

Company is treated as a separate

taxable entity under the Income-tax

Act, 1961.

Income Tax rate

for Company upto Rs. 50 Cr

Turnover is 25% from current

financial year.

Surcharge :

If the income is more than 1 Cr. But

less than 10 Cr. , Surcharge is 7%

If the income is more than 10 Cr.,

the surcharge is 12%

Cr. But less than 10 Cr. , Surcharge is

7%

Taxed as “Firm’’at 30%

+ cess = 30.9%

The surcharge is 12% if

the income is more

than Rs. 1 Cr.

LLP is treated as a partnership firm

under the income-tax Act, 1961.

The income is taxed at 30% + cess =

30.9% (effective A.Y. 2010-11) The

surcharge is 12% if the income is

more than Rs. 1 Cr.

Dividend/Profit

share

Subject to Dividend Distribution Tax,

which is 20% (approx.) after grossing

up and Surcharge.

Dividend/Profit share

is exempt.

Dividend/Profit share is exempt.

Wealth Tax Applicable Not Applicable Not Applicable




Act, 2008

Meetings Quarterly board of directors

meetings and annual shareholders

meeting is mandatory and as per

the provisions of the Companies Act.

Not required As per the provisions of LLP

Agreements.

Minutes Decisions taken in the meeting of

Board of Directors / shareholders

must be recorded within the time

prescribed under the Companies

Act.

LLP to follow the timelines for

recording of decisions of

partners/designated partners as

provided in the LLP Agreement. In

the absence of any such provision,

the first schedule of the LLP Act

provides that every LLP shall ensure

that decisions taken by it are

recorded in the minutes with in 30

days of taking such decisions and

are kept and maintained at the

registered office of the LLP.




Act, 2008

Voting rights Voting rights are in proportion to the

shares held by members.

LLP Agreement may specify the

manner of voting and the voting

right of partners. First Schedule of

LLP Act, however, provides that any

matter or issue relating to the LLP

shall be decided by a resolution

passed by majority in number of

the partners, and for this purpose,

each partner shall have one vote.

However, no change may be made

in the nature of business of the LLP

without the consent of all the

partners.

Authority to

conduct business

Individual member or non-

executive/nominee Director does

not have authority in conduct of

business of the company.

Unless the LLP Agreement provides,

To the contrary, every partner may

take part in the management of LLP.




Act, 2008

Admission as a

partner/member

A person can become a member by

subscribing to, or buying shares in

the company.

A person can be admitted as a

partner as provided in the LLP

Agreement. In the absence of any

provision in the LLP Agreement to

the effect, the first schedule of the

LLP Act provides that no person

may be introduced as a partner

without the consent of all the

existing partners.

Filing of Annual

accounts and

Annual Return

Annual Accounts and Annual Return

to be filed with ROC annually in the

prescribed format.

No Returns to be filed

with the Registrar of

Firms

Annual statement of accounts and

solvency & annual returns has to be

filed with ROC annually in the

prescribed format. Form # 8

Compromise/arra

ngements/merger

s/amalgamation

Provision for

compromise/arrangement/mergers

and amalgamations for companies in

Part VI, Chapter V of the Companies

Act. (Arbitration, Compromises,

Arrangements and Reconstructions)

There are no

provisions under the

Indian Partnership Act

for compromise/

arrangements or

reconstruction of

partnership firms)

Provisions exist for

compromise/arrangement/merger/

amalgamation for LLP in Chapter XII

of the LLP Act. (Compromise,

Arrangement or Reconstruction of

Limited Liability partnership)




Act, 2008

Books of Account Books of Account to be prepared and

maintained as specified in the

Companies Act.

Not applicable Books of Accounts to be prepared

and maintained as specified in the

LLP Act.

Manner of

keeping books of

Account

Accrual basis and double entry

system of accounting. (Section

209(3)(b))

Cash basis or accrual basis and

double entry system of accounting.

(Section 34(1))

Preservation of

books of account

8 years (Section 209(4A)) 8 years (Rule 24(3))

Jurisdiction of

NCLT, when

constituted

NCLT shall have jurisdiction over the

affairs of the company.

NCLT shall have jurisdiction over

the affairs of the LLP.

Audit As per provisions of the Companies

Act, 1956, books of account are

required to be audited annually.

Compulsory, irrespective of share

capital and turnover

Not compulsory As per provisions of the LLP Act,

books of account are required to be

audited annually. Exemption from

audit given to small-size LLPs if the

contribution is above Rs 25 lakhs or

if annual turnover is above Rs 40

lakhs.




Act, 2008

Profit sharing /

remuneration

Remuneration can be given to the

executive / non-executive Directors

in accordance with the provisions of

the Companies Act.

The firm can pay

remuneration to its

partners.

Profit sharing / drawings to be as

per the LLP Agreement. In the

absence of any provision to the

effect in the LLP Agreement, the

first schedule provides that all the

partners of an LLP are entitled to

share equally in the capital profit

and losses of the LLP. Remuneration

of partners should be as per the LLP

Agreement.

How do the

bankers view

High creditworthiness, due to

stringent compliances & disclosures

requirements

Creditworthiness

depends on goodwill

and credit worthiness

of the partners

Perception is higher compared to

that of a partnership but lesser

than a company

Dissolution

/Winding up

Very procedural. Either voluntary or

by order of National Company Law

Tribunal (Part VII of the Companies

Act), a company can be wound up.

Winding up cases to be heard by 2-

member Bench instead of a 3-

member Bench in NCLT.

By agreement of the

partners, insolvency or

by Court order

Less procedural compared to

company. A LLP can be wound up

Either voluntary or by order of

National Company Law Tribunal.

(Section 63)




Act, 2008

Dissolution by an

act of partner

Conventional

partnership firms,

being very small in

terms of number of

partners, are usually

dissolved upon

death/exit of any of its

partners.

Continuance of LLP is not affected

by the acts of its partners. The

retirement or death of a partner

would not dissolve the LLP.

Thank you