Difference Between Private Limited Company & LLP - Analysis (2024)

FAQs

What is difference between LLP and private limited? ›

The partners are the LLP owners and manage the LLP business. A partner in an LLP is a manager and an owner, while in a Pvt Ltd company, the owners, i.e. shareholders, do not have managerial powers. In a Pvt Ltd company, the management is different from the owners. The board of directors manage the company business.

The LLP itself pays no tax on its profits. A limited company, on the other hand, has shareholders with a fixed number of shares and fixed rights according to the articles of association of the company. It also has directors who are employees of the company.

LTD Company is also called public LTD Company as its shares are freely traded on the stock exchange. On the other hand, there are fewer shareholders in a PVT LTD company and even these are friend or relatives. By definition, PVT LTD Company is smaller in nature and operations than a LTD Company.

Both limited liability companies (LLCs) and limited liability partnerships (LLPs) combine aspects of corporations and partnerships. Differences between the two business structures include management requirements, liability protections, liability insurance obligations, and tax benefits.

An LLP is designed to be a halfway point between a traditional partnership and a private limited company. For those who like the idea, it's an opportunity to have the benefits of a partnership while also limiting your exposure.

Disadvantages of an LLP

Public disclosure is the main disadvantage of an LLP. Financial accounts have to be submitted to Companies House for the public record. The accounts may declare income of the members which they may not wish to be made public. Income is personal income and is taxed accordingly.

In many states, partners in an LLP are shielded from liability if another partner faces a malpractice claim. In LLCs, members may be held liable for other members' malfeasance or wrongdoing.

In general, however, an LLP provides a little more legal protection for the individual partners. As mentioned, this legal protection is mainly asset protection from lawsuits or collections of business debts.

A private limited company, or LTD, is a type of privately held small business entity, in which owner liability is limited to their shares, the firm is limited to having 50 or fewer shareholders, and shares are prohibited from being publicly traded. A company becomes an independent legal structure when it incorporates.

Why is private limited company better? ›

A limited company or private limited company is a separate legal entity from its directors, which presents less risk to lenders. While sole traders are still able to access funding, they would likely receive higher lending rates.

Differences Between a Private vs Public Company

The main categories of difference are trading of shares, ownership (types of investors), reporting requirements, access to capital, and valuation considerations.

An LLP has a separate legal entity under the law. A partnership firm has no separate legal status apart from its partners. The partner's liability of an LLP is limited to the extent of their capital contribution to the LLP. The partner's liability of a partnership firm has unlimited liability.

The Limited Liability Partnership (LLP)

There must be at least two partners to form an LLP. However, unlike a general partnership, an LLP is a separate business entity from its owners and its partners receive liability protection. Also, states require official formation paperwork to form an LLP.

A prevalent example of a Limited Liability Partnership (LLP) is a professional service firm, such as a law or accounting firm. In an LLP, partners share profits and liabilities while enjoying limited personal liability, protecting their assets from the firm's obligations.

Choosing to run your company as an LLC or LLP depends upon your profession and your state. If you're a professional who needs a license to do business, you're better off running your company as an LLP if your state allows it. If you are not a professional, an LLC is usually the best fit for your business.

In many states, partners in an LLP are shielded from liability if another partner faces a malpractice claim. In LLCs, members may be held liable for other members' malfeasance or wrongdoing.

Both an LLC and an LLP provide their owners with some protection against personal liability, typically reducing each owner's liability to the amount they invested in the business. For example, in this case, if an owner invested $8,000 into their company, then they'd only stand to, at most, lose their $8,000 investment.