Why Entrepreneurs Prioritise Pvt Ltd Over LLPs?

As a common man out there with uncommon motives and inspired ideologies, starting afresh needs a lot more than just an idea. Building up a new company presents a whole set of challenges, known and unknown, with one single question preceding all others, ‘what should I choose: A Private Ltd venture or an LLP?’

Like two sides of a coin that represent the most powerful currency, LLP and Private Corporations battle every odd out on the largest of scales with no clear winner. But before engaging into this battle and choosing our allegiances, we must first know and understand the two participants.

LLP

LLP or Limited Liability Partnership is a kind of firm/venture where some or all the partners relish limited liabilities. In simpler words, in an LLP, no partner shall be held responsible or in this case, liable for the losses or any misconduct levied upon by another partner’s negligence. An LLP, therefore, manifests elements of both corporation and partnership.

Private Corporation

A Private ltd. organisation on the other hand, incorporates business owners or rather shareholders as one might know them as, who own/hold all shares of the company privately. Now, these shareholders may or may not operate the business themselves and hire directors to do the same. Thus, in a pvt. ltd., protection of personal assets, more accessible resources along with financial assistance and greater credibility is guaranteed.

Now that we know our two competitors, let’s decide who wins the game and why (based on true facts):

1. Registration Process

Both private corporations and LLP’s share rather similar registration processes for which both take about 10-20 days for completion. The registration process is as follows:
● Obtain DSC (Digital Signature Certificate)
● Obtain DIN (Directors Identification Number) – Pvt. Ltd.
● Obtain DPIN (Designated Partner Identification Number) – LLP
● Name Approval
● Filing for Incorporation
● File LLP Agreement – LLP

2. Capital Involved

Going by the current norms of the “business class,” there is compulsively no limit or rather no minimum capital required for both the sides. As for the minimum capital involved, a LLP requires a bit less than what is required to form a private organisation. But if we look at future aspects, the returns on a private organisation fare far better than an LLP.

3. Holding of Shares

If there is one thing missing in an LLP then it has got to be the feeling of being a stakeholder. Although in an LLP, the partners get to contribute the amount but the feeling of holding stakes/shares in the company is exclusive to private organization.

4. Being Investor Friendly

Here comes the trump card which changes the game and wins the private corporations the massive home run! Investors are welcome big time in private organisations for they get to own shares and be part of something potentially enormous in the future. LLP on the other hand, well, don’t make the cut in this one.

5. Promotion

In lieu of investors being a major factor in case of a private organisation, promotion comes naturally to them. More the number of investors, more the promotion. On the other hand LLP’s face somewhat rough time when it comes to promotion.

Clearly, private organisations stand out when it comes to determining the future of a start-up in the long run, potentially seeing it through to make it big in this heck of a world! Therefore, it becomes more than easy for an entrepreneur to opt for a Pvt. Ltd. when it comes to choosing between an LLP and a Pvt. Ltd.

[Mohit Chopra, works as a content writer at LegalRaasta, a site for Private Limited Company Registration in India.]