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Incorporations

Comparison and Difference between Incorporations

Posted by admin on 28rd july 2016

Comparison and Difference between Private Limited Company, Once Person Company(OPC), Limited Liability Partnership(LLP), Partnership(Firm) and Proprietorship

Being a startup consultant and experience of dealing with various entrepreneurs, we interact with several startups, eStartIndia team found that the most common question bothering startups and new founders is which business entity to form and their compliance cost associated with entities. Hence, we felt a need to summarize this essential information in a comprehensive manner and layman language.

The most preferred three business entities in India by new startups are Pvt. Ltd. Company, Limited Liability Partnership (LLP), and One Person Company (OPC) have some important differences in their compliance structure which impacts their running costs as well. In this article our focus is on detailing the end-to-end compliance requirements of the entities referred above and two old basic form of entities Partnership Firm and Proprietorship. There are different laws and regulations which govern each business type.

Pvt. Ltd. Company and OPC are governed by The Companies Act, 2013, and rules thereto. There are various norms right from maintaining books of accounts to financial statements preparation & getting most of legal events of your company intimated or approved by way of conducting board and general meetings with corresponding Registrar of Companies (RoC). Whereas, in case LLP after incorporation, LLP should comply with the statutory requirements of the Limited Liability Partnership Act, 2008, LLP Rules and annually comply with annual filing with (RoC). In order to achieve this, the books of accounts, records of partner’s meetings, changes in partners, and LLP Agreement should be prepared and vetted or prepared by qualified professionals.

It becomes essential to take a note of all the key compliances required or an understanding from your advisors so that you, as an entrepreneur is aware of the basic regulatory framework of your business and see through the differences in each of these entities to take best suitable decision.

The comparison chart will give you a clear difference between Pvt. Ltd., OPC, LLP, Partnership and Proprietorship and the compliance requirements of all these forms of business.

Comparison Basis Pvt. Ltd. OPC LLP Partnership Proprietorship
Governing Law and Regulatory Authority The Companies Act, 2013 and the Ministry of Corporate Affairs(MCA) The Companies Act, 2013 and the Ministry of Corporate Affairs(MCA) The LLP Act, 2008 and the Ministry of Corporate Affairs (MCA) Partnership is prevailed by ‘The Indian Partnership Act, 1932’ and various Rules made there under State level Municipal Department
Minimum Requirement of persons for formation Shareholders-2 Directors-2 Shareholder and Director can be the same person Shareholders-1 Directors-1 (One nominee of sole member also required) Shareholder and Director can be the same person 2 Designated Partners 2 Partners 1 Proprietor
Maintenance of Books of Account(Accounting) Mandatory Mandatory Mandatory Mandatory If Audit required as per Income Tax Act
Board Meeting
  1. First Meeting within 30 days from the date of Incorporation
  2. At least Four board meetings in a calendar year
  1. No board meeting required if company has only one director
  2. In case of more than one director, First Meeting within 30 days from the date of Incorporation
  3. At least one meeting one meeting of the board of directors has to be conducted in each half of a calendar year and the and the gap between the two meeting not less than 90 days
  1. No such compulsory meeting is prescribed in the LLP Act or Rules.
  2. However meeting of the partners may be called if prescribed in the LLP Agreement.
No such compulsory meeting is prescribed in the Partnership Act or Rules unless specifically prescribed in the partnership deed Not Applicable
Maintenance of Basic Statutory Records Board Resolutions and Minutes of the Board Meeting and General Meeting Board Resolutions and Minutes of the Board Meeting and General Meeting Minute Book to be maintained to record minutes of meetings of Partners Not Applicable Not Applicable
Annual General Meeting (AGM)

One AGM must in every calendar year

1st AGM within 9 months of closing of first financial year and subsequent AGM within 6 month from the date of closing of financial year
Not Applicable Not Applicable Not Applicable Not Applicable
Annual RoC Filings/Annual Return Profit & Loss Account, Balance Sheet, Cash Flow Statement(Where applicable), statement of change in equity in Form AOC-4 and Annual Return in Form – MGT-7 Profit & Loss Account, Balance Sheet, Cash Flow Statement(Where applicable), statement of change in equity in Form AOC-4 and Annual Return in Form – MGT-7 Statement of Accounts, Solvency in e-Form 8 and Annual Return in e-Form 11 Not Applicable Not Applicable
Statutory Audit Mandatory Mandatory If Turnover is more than Rs. 40 lakh or partners contribution is more than Rs. 25 Lakh Not Applicable Not Applicable
Tax Audit As per Income Tax Act, 1961 If Turnover Exceeds specified limit If Turnover Exceeds specified limit If Turnover Exceeds specified limit If Turnover Exceeds specified limit If Turnover Exceeds specified limit
Changes in Name, Address, Objects, Directors, Shareholders etc. Possible, Filing required with ROC and approval from central Govt. required in some cases Possible, Filing required with ROC and approval from central Govt. required in some cases Possible, Filing required with ROC Can be changed internally Can be changed internally
Conversion May be converted into OPC if paidup capital is upto 50 Lakh or Average annual turnover does not exceeded 2 Crore It must be converted into Pvt. Ltd. or Ltd. if paid-up capital increased to 50 Lakh or Average turnover exceeded Rs. 2 Crore during three preceding financial years Can be converted into Pvt. Ltd. directly Can be converted into Pvt. Ltd. directly, subject to other conditions Can be converted into Pvt. Ltd. directly, subject to other conditions
Taxation Taxed at 30% plus Cess Taxed at 30% plus Cess Taxed at 30% plus Cess Taxed at 30% plus Cess Individual Tax Slab Rate Applicable
Filing of ITR Mandatory Mandatory Mandatory Mandatory Not Mandatory
Liability of Partners/Members Generally limited to the amount required to be paid up on each share. Generally limited to the amount required to be paid up on each share. Limited, to the extent their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner. Unlimited. Partners are severally and jointly liable for actions of other partners and the firm and liability extend to their personal assets. Unlimited. Proprietor is liable for liability extend to their personal assets.
Perpetual Succession It has perpetual succession and members may come and go. It does not have perpetual succession as this depends upon the only one person and its nominee It has perpetual succession and partners may come and go It does not have perpetual succession as this depends upon the will of partners It does not have perpetual succession as this depends upon the will of Proprietor.
Fund Raising Options Most Preferred Option by Investors Less Preferred Less Preferred Less Preferred Less Preferred
Compliance Cost Maximum Medium Medium Low Low

Best option is to choose is Pvt. Ltd. from investors point of view and credibility of Pvt. Ltd., however cost and compliance also needs to be considered, if anybody wants to take it slow and steady simplest option is LLP with equivalent credibility.

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