Choice of Business Entity

Startup is new buzzword these days among youngster or otherwise who want to create something. And believe me if you are thinking to setup a startup, nobody has time in this world to read lengthy articles. But at some point of time the business requires to take a form of legal business entity and its very important to consider the legal aspects of the business entity. There are other structures to form a entity like sole propritorship, one person company etc but this article would be limited to the popular options like a Private Limited Company, Limited Liability Partnership (LLP) and Partnership Concern. If you have an idea which you think will grow big and would required fund requirement from outside then you probably should avoid  Partnership Concern or sole propritorship. 

Here is a comparison chart for the three options: 

CRITERIA

PRIVATE LIMITED COMPANY

LIMITED LIABILITY PARTNERSHIP

PARTNERSHIP

CONCERN

 

REGISTRATION , MEMBERSHIP AND CHARTER DOCUMENTS

 

Applicable Law

Companies Act, 1956/2013

 

LLP Act 2008

Partnership Act, 1908

Mandatory registration

 

Yes, with Registrar of Companies (RoC)

Yes, with Registrar of Companies

Optional

Charter Documents

 

Memorandum and 
Article of Association

 

LLP Agreement

Partnership Agreement

Charter Documents needs to be filed with regulator

 

Yes, with Registrar of Companies 

Yes, with Registrar of Companies

Optional

Identification number

Company Identification number granted by RoC

 

LLP Identification number granted by RoC

 

Optional. Partnership registration granted only to registered 
Partnerships

 

Number of members

Minimum - 2

Maximum - 200

Minimum - 2

Maximum - No Limit

 

Minimum – 2

Maximum - 20

 

Identity of Partners / directors

Mandatory, needs to obtain Director Identification Number

Mandatory,  needs to obtain Director Identification Number (earlier DPIN)

 Not required

Liability of Partners / members

 

Limited

Limited

Unlimited

Legal Entity

 

Yes , can sue or be sued in the name of Company

 

Yes , can sue or be sued in the name of LLP

No, only Partners can sue or be sued.

Perpetual Succession

 

Yes

Yes

No

Foreign Direct Investments

Yes

Yes

No

 

COMPLIANCE

 

Prior approval of Name

Mandatory.  Name should be in accordance with the Companies Act

Mandatory.  Name should be in accordance with the LLP Act

Not required.

Board meetings

Mandatory in every year, at least four or two depending on the capital or turnover.

Depends upon the procedure prescribed in the LLP Agreement.

Depends upon the procedure prescribed in the Partnership Agreement.

 

Shareholders meeting

 

Mandatory

Not applicable

Not applicable

Preparation of Minute Books

Mandatory

Depends upon the procedure prescribed in the LLP Agreement.

 

Depends upon the procedure prescribed in the LLP Agreement.

Appointment of Auditors

Mandatory

Mandatory

Mandatory

Maintenance of other statutory registers

 

Mandatory

Not Applicable

Not Applicable

Maintenance of Books of accounts

Mandatory

Mandatory

Mandatory

 

 

 

Filing of Annual return and Balance sheet with the statutory authority

 

Mandatory with ROC

Mandatory with ROC

Not required

Invitation to the public to subscribe for any Shares or debentures of the Company

 

Restricted

Restricted

Restricted

Listing on stock exchange

Restricted

Restricted

Restricted

Issue of shares / interest other than cash 

Not Possible  except sweat equity

Possible

Possible

Merger/ amalgamation

Possible

Possible

Not possible

 

ACCOUNTING AND TAXATION

 

Obtaining PAN /TAN

Mandatory

Mandatory

Mandatory

Audit requirement

Mandatory

Mandatory

Mandatory -  Above Turnover as prescribed in section 44AB of Income Tax Act, 1961

Filing of ITR

Mandatory

Mandatory

Mandatory