Startups are entrepreneurial enterprises, projects or undertakings which are usually young and growing. They have ambitions and aspirations to meet or create a marketplace by developing or offering an innovative products, processes or services.They are often financed by their founders own money or borrowed , incubators and venture capitalist for the development of the particular product, process or service for which they believe there is a demand. Due to their flexibility in forming and capital required , the startups in India have started to gain popularity In India.
If you are planning to start a startup in india , then you must first get company registration done and the get startup recognition In India. So when you go for company registration , you have to make choice of business entity. There are many business entities in india but In this article i’l guide to you best way to choose between Limited Liability partnership and private limited company registration only.
Limited Liability Partnership
Limited Liability Partnership or LLP, is a type of business format that combines the flexibility of a partnership and the edges of limited liability of a company at a low acceptance cost. It is a form of partnership firm in which the partners have limited liability and This is an important factor which differs it from an unlimited partnership.
Features of LLP
- It is a separate corporate and legal body from its partners. It has a separate act that administers the working of LLP that is known as LLP Act, 2008, thus the rules of Indian Partnership Act, 1932 does not apply to the LLP.
- Every Limited Liability Partnership should have Limited Liability Partnership or LLP attached in the last word of the company’s name.
- It shall have a minimum of two designated partners and all the partners shall be the representative of Limited Liability Partnership but not of other partners.
Need for LLP
LLP is an alternative business that requires fewer compliances and limits the liability of the partners who are solely governed by the terms of their Partnership deed, which is filed with RoC and allows its owners the facility of organizing their internal management on the basis of a mutual agreement.
This format would be quite useful for small and medium companies in general and for the companies in services sector in particular. LLPs are similar in some ways to the standard Partnerships, aside from the fact that the members have lesser liabilities to any debts which may emerge from running the business. There are more administrative duties in an LLP then Partnership business model.
Private Limited Company for a Startup
A private limited company is a popular form of business in India.A Private Limited Company has separate legal entity status and recognition as a juristic person with legal capacity to open bank accounts, hire employees, raise equity funds, obtain licenses and more,can issue equity shares, preference shares, debentures and accept deposits with RBI permission and can acquire, own, enjoy and alienate, property in its name whether as machinery, buildings, intangible assets, land, residential property, factory, etc.These companies are privately held by the people and are the most preferred as a common business organization in India.
Features of Pvt Ltd Company
- Minimum 2 and Maximum 200 members are required
- There is No requirement for minimum capital
- Private Limited Company Should have a minimum of 2 directors
- The word Private Limited or PVT LTD need to be added after the name of the company.
Need for Pvt Ltd Company
The Establishment of a private limited company promotes formation of a friendly working environment in the enterprise. All the directors of the company can be life time directors and the requirement of retirement does not apply. The special 14 days’ prior notices for the appointment of a new director in place of a retiring one does not apply in case of this format of company.
A private limited company is independent to allocate the new shares even to outsiders unlike the public companies which bounds to its existing members.
The private limited companies can be sold to an individual or an entity, that can be partially or fully done, without any interruption to the current business operations.
Basically on the above guide we can say that if you are looking for the funding for your startups from the venture capitalist or angel investors or want to join any incubator then must go with the Private Limited Company only else you can choose the LLP just only to enjoy the limited liablity in your business with the partners.
About the author – Dev Patel is legal expert at myonlineca which is one of the leading portal for company and tax registration across India.