When a business enters the world of trade, the first step it has to take is to get its business registered. To do so, you have to pick any of the business formations. There are many business structures like proprietorship, partnership, limited liability partnership, and private company. Therefore, a person needs to understand the pros and cons of every business entity. This will help you to choose the right one according to the preference. So, to make this process easier, we have taken out the main features of all the business structure. All the structures are deeply analysed for understanding which business they suit better.
Look at the below-given comparison of Proprietorship, Partnership, LLP and Pvt Ltd companies and then make a correct decision.
1. REGISTRATION
Partnership
A partnership can be both: Registered as well as Unregistered. Hence, the registration of such a firm is optional. If you want to register your partnership firm, then it should be registered under the Partnership Act 1932.
Proprietorship
You don’t need any formal registration to open a proprietorship.
LLP
You have to register your LLP firm with the Ministry of Corporate Affairs under the Limited Liability Partnership Act, 2008.
Private Ltd
It is a must to register a private company with Ministry of Corporate Affairs under the Companies Act, 2013.
2. LEGAL STATUS OF ENTITY
Partnership
A partnership firm is not recognised as a separate legal entity. Hence, all the promoters are personally liable for all the liabilities of the firm.
Proprietorship
Just like a Partnership, in proprietorship also, all the members are personally liable. It is not a separate legal entity.
LLP
LLP is a separate legal entity which is registered under the LLP Act, 2008. Hence, partners in LLP are not personally liable for any liabilities of the LLP.
Private Ltd
It is registered under the Companies Act, 1832 and hence, it is recognised as a separate legal entity. Directors and Shareholders of a Private company are not liable for companies liabilities.
3. MEMBER’s Liability
Partnership
Partners have unlimited liability. Therefore, they are responsible for any liability of a firm.
Proprietorship
They have unlimited liabilities. Therefore, Proprietors are responsible for all the liabilities of a proprietorship firm.
LLP
In an LLP, partners has limited liability. Hence, their liability is only to the extent of their amount of contribution to LLP.
Private Ltd
Shareholders have limited liability. So, they are liable only to the extent of their share in the capital.
4. MINIMUM and MAXIMUM NUMBER of MEMBERS
Partnership
Minimum of 2 persons are to be there to start a partnership firm. While a maximum of 20 partners can be there.
Proprietorship
There can be only one person in a proprietorship. Hence, there is no minimum and maximum limit on the number of members.
LLP
To start an LLP, you require a minimum of 2 persons. On the other hand, there is no limit to the maximum number of partners. However, you can have unlimited partners in an LLP.
Private Ltd
Minimum of 2 persons should be there to start a Private Limited Company. Also, it can only have a maximum of 200 shareholders and members in a company.
5. TRANSFERABILITY
Partnership
A partnership is a non-transferable firm.
Proprietorship
You cannot transfer the ownership of a proprietorship firm as it is also non-transferable.
LLP
Ownership in an LLP is transferable.
Private Ltd
You can transfer the ownership in a private company by transferring the shares.
6. TAXATION
Partnership
On Partnership profits, you have to pay tax at 30% plus surcharge as well as cess as applicable.
Proprietorship
Taxed as an individual where you will have to pay tax if your income exceeds INR 2,50,000.
LLP
An LLP is liable to pay tax at a flat rate of 30% on the total income.
Private Ltd
Private Limited Company has to pay tax at a flat 30% plus surcharge and cess.
7. REGISTRATION COST
Partnership
Rs. 6,000 is the registration cost of a Partnership firm.
Proprietorship
registration can be done at the price of Rs. 6,000.
LLP
LLP registration cost is Rs. 8,000.
Private Ltd
For a Private Company, you need Rs. 16,000 as registration cost.
These features will help you to reach a decision. Since this decision is very crucial for a lifetime working of the business. So, you must do a deep study of all the types of business structures before coming to a conclusion.
