Private Limited Companies V/S Partnership Firm

Updated: Jun 3

Who is Better Private Limited Company or Partnership Firms/LLP in terms of compliance, tax benefits and other areas.


Many Entrepreneurs has a confusion which form of organisation to be open for better expansion and get the more benefits under the compliance, taxation, msme and other government benefits to ease of his business. Please read the our full post related to private limited company V/S partnership firms in Bollywood Style.


Private Limited Company


A Private Limited Company is a business entity and registered under the Companies Act,2013. Private Limited Companies registered by the promoters of the company for the per-defined objectives. It is created by the association of person who invest the money in companies shares.


The business entity gets recognised as a Company through its registration under Companies Act of 2013 in India. The governing body is Ministry of Corporate Affairs headed by Ministry of Finance. The definition of Private Company is defined under the Companies Act, 2013 to provide basic terms. Section 2 (68) of the Act defines a Private Company as under:

A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,—

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of its members to two hundred;

(iii) prohibits any invitation to the public to subscribe for any securities of the company.



Partnership Firm or LLP (Limited Liability Partnership)

Partnership Firms /LLP in which, two or more persons agree to carry on the business, on behalf of the firm or partners and to share profits & losses mutually. These Firms governed by the Indian Partnership Act, 1932 and Limited Liability Partnership Act, 2008. Partnership business depends on following points:

  • Agreement – There must be an agreement between partners, irrespective of oral or written.

  • Profit & Loss of the Business– The profit & loss of the business must be distributed between the partners, in the specified ratio decided at the of agreement.

  • Capital – Each partner contribute the capital in the partnership for running the business.

Comparison Between Private Limited Company and Partnership Firm/LLP

  1. Governed Body

Private Limited Company Incorporated under Companies Act, 2013 and

Partnership business registered or governed by Indian Partnership Act,1932 and

Limited Liability Partnership Act, 2008.


2. Minimum Members,Directors & Partners

In Private Limited Companies , Minimum two shareholders and director required

for forming of company. In Partnership Firm, two person required to constitute the

partnership business.


3. Management of Business

Business of Private Limited Companies managed by the Directors appointed by the

shareholders in annual general meeting. Directors of company participate the day

to day business activities. In Partnership firm, partners create and execute the

business plans and managed the activities of the business.


4. Ownership and Liability

In Private Limited Companies, Share holder is the owner of the company and

liability of the shareholder is limited to the paid up capital of the company. In

partnership firm, partner having a unlimited liability to pay the debts of the firm

from his own money except in case of LLP.


5. Audits of Books of Accounts

Every Private Limited Company get the audit of books of accounts from the

Practicing Chartered Accountant under the Companies Act, 2013. In Partnership

Firm, books of accounts audited by Chartered Accountants if turnover is exceed by

Rs 2,00,00,000 under Income Tax Act,1961 or Rs 40,00,000 in case of LLP Firm under

LLP Act, 20008.


6. Taxation

Rate of Income Tax on Private Limited Company is 22% on net profit.If Private

Limited Company engaged in manufacturing activities, rate of income tax is 15%

on net profit. In Partnership firm/LLP, rate of Income Tax is 30% on net profit earned

during the year.


7. Expansion of Business and Availability of Funds

Private Limited Company can easily expand the business by issuing fresh shares to

relatives or friends of the promoters, directors and shareholders. Today Present

scenarios , many customers trust on those organisation who registered under

Government Act. In Partnership firms, partner can add the partners for financing or

taken a loans from banks, relatives or any other sources.



Conclusion

From last previous years, More than 450,000 private companies incorporated due to huge benefits in Taxation and startup schemes. Due to unlimited liability of partners in partnership firms, many entrepreneurs incorporate private limited companies and partners of partnership firms converted his business in to private limited companies.


For more information or want to incorporate private limited company, call us on this number +91 76 111 666 04 or mail us compliance@solvesto.in





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