LLP vs Private Limited? [Part 2]

In the last part we gave you an outline of what an LLP is and how much profitable can it be for you. It is important to develop an understanding of the organization structure, before you take a decision.
So you know what a Limited Liability Partnership is (or even if you didn’t get it), but still not able to make a decision. Let us help you.

1. We are 4 partners looking to form a manufacturing company. One of us is foreigner and we are looking to invest around 1 crore. What should we go for? Private Limited Or LLP?

Inc42’s Take:
In our point of view, going for Private limited company would be the right option for you.
Reason: Private Limited company entitles you to many benefits including FDI. Also the creditworthiness of a private limited company is higher. LLP cannot hold any property, it is not considered as an entity in view of the registration act. In case of private limited company, no concern regarding foreign partner or investor is their. And for a business of your concern, the scope is wide. Go for Private limited company.

2. Me and my friend want to go for an internet startup and don’t know anything about which company to form or what to do? Please help.

Inc42’s Take:
Go for general Partnership. Minimum 2 partners are needed. This form is more cost effective and less statutory requirements.
Reasons: In case of your startup, a general partnership firm can also be incorporated and would cost you lesser than the LLP. It releases you from the shackles of compliance you would face after incorporating a LLP or Pvt. Ltd. After you startup grows, you can convert it to LLP or Private limted as per your requirement of that point of time.

3. We are 3 partners and have formed a LLP, want employ a manager but are bootstrapped, and cannot pay salary. So we would like offer him equity. Is it possible?

Inc42’s Take:
No, Until and unless you include the employee in the partners agreement , it is not possible for you to offer him equity.
Reason: The only way to offer equity to the employee is to include him in the partners agreement. In case of LLP, every partner has a vote and to pass any resolution you need vote of every partner. It is upto you to decide if you are comfortable with your employee also being a partner in your firm. And , giving him the authority to make decisions.

4. We are 2 partners, and have a product idea in our mind. We don’t have any finances and looking forward to find somebody to invest in our business. In this case what organization form is apt for us?

Inc42’s Take:
You should go Private Limited Company, as you are thinking of raising funds from public or even from VCs.
Reason: You need somebody who can invest in your idea, and this can be done from getting finance from VCs. For this, you would need to give them a share in the companies equity, which in LLP s case is not possible.
For you, forming a Private limited company is beneficial for long term.

What we say?

Every business has different requirements and different scope. Organization structure is subject to a startups business concern, finances and the number of people involved. LLP is a new structure introduced in India few years ago. There are procedural issues yet to be faced by startups. We are trying our best to provide solution to this tricky problem.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.