10 Major Differences between Proprietorship, Partnership, LLP & Private Limited Company

Updated: Jun 4, 2020

For anyone who wants to start a new business, there are many options to choose from. One can opt for Sole Proprietorship, Partnership, Limited Liability Partnership or Private Limited Company. The form of business organisation one opts for will be the deciding factor of forthcoming events in the organisation like tax benefits and legal charges.




In this article we would cover the following 10 major differences in Proprietorship, Partnership, LLP, & Private Limited Company


1. What are different type of Business entity available?

2. Identification of Name through Proprietorship, Partnership, LLP, & Private Limited Company

3.Governing Act of Proprietorship, Partnership, LLP, & Private Limited Company

4. Registration of Proprietorship, Partnership, LLP, & Private Limited

5. Ownership under Proprietorship, Partnership, LLP, & Private Limited

6. Income tax liability for Proprietorship, Partnership, LLP, & Private Limited

7. Minimum and Maximum members for Proprietorship, Partnership, LLP, & Private Limited

8. Compliance for Proprietorship, Partnership, LLP, & Private Limited

9. Estimated yearly compliance cost of Proprietorship, Partnership, LLP, & Private Limited

10. Benefit for Proprietorship, Partnership, LLP, & Private Limited


1. What are different type of Business entity available?

Sole proprietorship

Sole Proprietary is one man entity where there is no difference between owner and the entity. All the responsibility is on the owner himself. Likewise, he takes all profit and losses himself

Partnership

Partnership is owned by two or more people where the ownership and share in profit and losses are split between the owners in a certain agreed ratio and it establish through the partnership deed.

Limited Liability Partnership

LLP is like a blend of sole proprietorship and partnership. Here few or all partners have limited liability in the organization and establish through registration on MCA site http://www.mca.gov.in/.

Private Limited Company

It is a business entity formed under Companies Act, with a minimum of 2 members. Shareholders are the owners of Private Limited Company and establish through registration on MCA site http://www.mca.gov.in/.

2. Identification of Name through Proprietorship, Partnership, LLP, & Private Limited Company

● Sole proprietorship and Partnership entities can choose any name of their choice. For Example: Ram & Shyam Associates, Ram & Co.


● In case of Limited Liability Partnership, its name should end with LLP For Example: Ram & Shyam Trading LLP


● Private Limited Company's name should end with Pvt Ltd For Example: Ram & Shyam Trading Private Limited


However, before choosing any name for your organisation you would have to ensure that no company has already registered with that name through this link http://www.mca.gov.in/mcafoportal/viewCompanyMasterData.do and then you would have to check whether there is any trademark registered with that name through this link https://ipindiaonline.gov.in/tmrpublicsearch/frmmain.aspx

If neither a company has registered or nor trademark has registered with your desired name then you may go with that name provided that is allowed under the trademark act, 1999 and not violating the other Indian act also.

3. Governing Act of Proprietorship, Partnership, LLP, & Private Limited Company

  1. Sole proprietary is not bounded legally by any law. It means that anyone who wants to start a sole proprietary can do it without any legal charges

  2. Partnership is governed by Indian Partnership Act,1932. Every partnership should comply with the laws of Indian Partnership Act, 1932.

  3. The act which governs Limited Liability Partnership is LLP Act, 2008

  4. To start a Private Limited Company, one should abide by laws of Companies Act, 2013

Before commencing a business one should know the rules of its respective law and proceed accordingly as the law states

4. Registration of Proprietorship, Partnership, LLP, & Private Limited

● Sole proprietorship is not regulated by any act. So, there is no registration required.

For example- To open a new grocery store, there is no registration required. However one may proceed with the compulsory GST registration when the once cross the threshold limit of turnover. The limit for the goods turnover is more than 40 lakhs in one financial or in case of services if the turnover is more than 20 lakhs


● For a Partnership entity, a partnership deed is to be created for registering it legally. Also registration with the registrar of firms can be done by filling an application form signed by all partners. Even if the registration is not done, partnership will be legally valid.


● Limited Liability Partnership's registration is made by filing under Ministry of Corporate Affairs(MCA)


● For Private Limited Company, the process is the same as that for LLP. Filing under MCA is compulsory

5. Ownership under Proprietorship, Partnership, LLP, & Private Limited


● Owner of sole proprietorship is the proprietor himself as it is an one man company

● Partnership is owned by its partners. There are different kinds of partners but regardless of if the partner is an active partner or sleeping partner all the partners are owners of the entity

● LLP’s owners are its designated partners

● A private limited company's owners are its shareholders. The board of directors run the company but ownership lies with the shareholders itself.

6. Income tax liability for Proprietorship, Partnership, LLP, & Private Limited


● Sole proprietor's tax is calculated in the same way as that of an individual's i.e. ,slab rate is applicable

● In case of partnership tax rate is 30%. The benefit of slab rate is not given

● For LLP, like partnership 30% tax is levied

For the private limited company the tax rate is 25% flat however if the company will forgo the benefit of various deduction available under the chapter VIA and the Section 10AA then the tax rate would be 15% if any new company will be incorporated and 22% if the company is old.

7. Minimum and Maximum members for Proprietorship, Partnership, LLP, & Private Limited

  1. As Sole Proprietorship is an one man company there will be single owner

  2. Partnership requires 2 members in minimum and up to 100 members maximum

  3. LLP also requires minimum of 2 members and can have unlimited membership

  4. In a private limited company, minimum membership is 2 and can go up to 200 members


8. Compliance for Proprietorship, Partnership, LLP, & Private Limited




a. GST Compliances (Applicable in case of Proprietorship, Partnership, LLP, & Private Limited)


● Registration under GST law is compulsory for entities with more than Rs 20 lakhs turnover in services and more than Rs 40 lakhs turnover in goods.

● After registration, returns are to be filed monthly or quarterly

● Filing annual return is also compulsory. However, annual audit is to be done with a Chartered Accountant only when turnover is more than Rs 5 crores

b. Income tax compliances (Applicable in case of Proprietorship, Partnership, LLP, & Private Limited)

  1. Filing income tax return is compulsory

  2. Tax audit is to be done, if the turnover is more than Rs 50 lakh in case of professional and Rs 5 crore for others

c. PF and ESI (Applicable in case of Proprietorship, Partnership, LLP, & Private Limited)


Every organization has to make a registration when the total number of employees exceed 20. And after registration its compulsory to file monthly return


d. Other compliances under the respective laws


In case of LLP and Private limited company there are other compliances which one needs to fulfil for the LLP Act and Companies Act respectively

In case of Private Limited Company the following are the indicative compliances needs to fulfil by a company

a. Statutory audit under the companies Act from a CA.

b. Maintenance of proper books of accounts as per the companies act, 2013

c. Filing of Annual return under Form AOC 4

d. Maintenance of compulsory registers under the companies act, 2013

e. Holding of 4 Board of directors meeting in one financial year

f. Minimum one lakhs authorised capital

In case of LLP the following are the indicative compliances needs to fulfil by a company

a. Statutory audit under the companies Act from a CA if the turnover is more than 40 lakhs.

b. Maintenance of proper books of accounts

c. Filing of Annual return


9. Estimated yearly compliance cost of Proprietorship, Partnership, LLP, & Private Limited


● In case of sole proprietorship and Partnership, there are no yearly compliance cost as there is no mandatory registration

● For LLP, there is cost of maintenance of books of accounts, statutory audit and annual return filing which can come up to Rs 25 thousand approximately

● For private limited company, there are many yearly compliances such as maintenance of books of accounts, return filing, BOD meeting and audit by a chartered accountant which can cost a minimum of Rs 50 thousand approximately

10. Benefit for Proprietorship, Partnership, LLP, & Private Limited


a. Benefits of Sole proprietorship and partnership

  1. For small scale businesses, where legal identity and large funds are not necessarily Sole proprietary and partnership can be chosen

  2. Less rules to abide by as there is no requirement of compulsory registration

  3. All the management and profit-sharing decision is taken by owners itself

b. Benefits of LLP and Private Limited Company

  1. In these forms of business, the entity acquires a legal identity separate from its owners

  2. As the owners and business is separate, liability of owners is limited to their share amount

  3. These entities have perpetual succession i.e., the business will continue to exist even if its members come and go

Many companies like Coca- Cola, Flipkart and Amazon started as sole proprietorship.

So for those who want to start business on a small scale, they can start from sole proprietorship or partnership. Then when the business grows it can be converted to private or public limited company

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