Difference between a Company and LLP

A private company and an LLP often seem to be same in their features, although there are several differences distinguishing both the forms of business organizations.

1. First of all, both the forms of organization have different governing acts. A company is incorporated and governed by The Companies Act, 2013. On the contrary, a Limited Liability Partnership is formed under the Limited Liability Partnership Act, 2008 (LLP Act).

2. A private company can have a maximum of 200 shareholders, whereas there is no upper limit of partners in the case of an LLP firm.

3. The liability of the shareholders in a company is limited to the unpaid amount of shares that he has taken in the company. Whereas a partner's liability in an LLP is limited to the amount agreed contribution by the partner.

4. The owners of a company are its shareholders. The ratio of ownership is decided by the percentage of shareholding of a person in the company. For example, if a person holds Rs. 10,000 value of shares out of total outstanding shares of Rs. 10,00,000. Then he owns 1% stake in the company.

On the other hand, the owners of an LLP are its partners. And partnership is gained through contribution in the LLP firm. However, the profit sharing ratio of the partners may be different from their contribution ratio, as it would be mentioned in the agreement.

5. In the case of a company, the management is in the hands of Board of Directors. A director need not be a shareholder of the company to get his position. On the contrary, LLP is managed by its designated partners. But here, the designated partner must be a partner of the firm as well. For taking his position as a designated partner, he shall have to become a partner at first.

6. A company has to follow a lot more formalities and paperwork as compared to an LLP firm. For instance, a company has to conduct a meeting of its directors for decision making processes, it has to conduct annual general meeting, as well as keep minutes book for the meetings done. But these all formalities are not required in case of an LLP firm.

7. A company has to compulsorily get its accounts audited by a Chartered Accountant in practice every year, regardless of the fact that the company is doing business or not. But an LLP is only required to do so when the turnover of the firm exceeds Rs. 40 Lakhs or contribution exceeds Rs. 25 Lakhs. (Contribution = Sales - Variable Costs)

8. Moreover, private and public companies are allowed to issue Employee Stock Option Plans (ESOP) to attract employees to work for their organization. Unlike companies, a Limited Liability Partnership doesn't have the permission to issue ESOP.

Thus, both the forms of business organization - a private company and LLP, though roughly seem to be identical, but there are a lot of differences with regards to their governance, management and business structure.

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