Firm, LLP and Private Company Compared
Chapter Nineteen
Syllabus topic 1, 2, 3, "Registration procedure of Partnership firms under The Partnership Act, 1932."; "Registration procedure of Limited Liability Partnership under The Limited Liability Partnership Act, 2008."; "Registration procedure of Companies under The Companies Act, 2013. (Private Limited Companies only)"
Pages 45 to 46 of 62
Why this chapter exists
MU sets three registrations across the two modules: a partnership firm, a limited liability partnership and a private limited company. A question that asks a candidate to advise a client on which to choose is asking for this table, and it is the most likely 15-mark question on the whole paper.
The comparison
| Partnership firm | LLP | Private limited company | |
|---|---|---|---|
| Statute | Indian Partnership Act, 1932 | LLP Act, 2008 | Companies Act, 2013 |
| Legal personality | None. The firm is its partners | A body corporate, s.3(1) | A body corporate |
| Perpetual succession | No | Yes, s.3(2) | Yes |
| Liability of a member | Unlimited, personal, joint and several | Limited to the agreed contribution | Limited to the amount unpaid on the shares |
| Minimum members | Two | Two, s.6(1) | Two, s.3(1)(b); one for a One Person Company |
| Maximum members | Subject to the ceiling on associations | None | Two hundred, s.2(68)(ii), excluding employees and former employees |
| Registration | Optional in law, s.58; unavoidable in practice, s.69 | Compulsory; the LLP exists only from the certificate | Compulsory; the company exists only from the certificate |
| Registered with | Registrar of Firms of the State | Registrar of Companies | Registrar of Companies |
| Constitution | Partnership deed, not required to be written | LLP agreement, filed in Form 3 within 30 days | Memorandum and articles, filed at incorporation |
| Identifier | Registration number in the Register of Firms | LLPIN | CIN, 21 characters |
| Officers' identifier | None | DPIN for designated partners | DIN for directors |
| Who manages | All partners, by mutual agency | The partners, and two designated partners answerable for compliance, s.7 | The board of directors, at least two for a private company |
| Annual filings | None under the Act | Form 8 and Form 11 | Annual return, financial statements, and more |
| Audit | Only if the tax law requires | Above the prescribed turnover or contribution | Always, whatever the turnover |
| Public record | The Register of Firms | MCA portal, filings are public | MCA portal, filings are public |
| Transfer of interest | By agreement of all partners; the firm is reconstituted | By the LLP agreement | By transfer of shares, restricted by the articles, s.2(68)(i) |
| Raising outside investment | Very difficult | Difficult; investors dislike the structure | The form investors expect |
| Cost to form and to run | Lowest | Middle | Highest |
| DPIIT start-up recognition | Available, if registered under s.59 of the 1932 Act | Available | Available |
| Section 80-IAC certificate | Not available | Available | Available |
The rows that decide a real choice
Liability. A firm's partners can lose their house. That single row moves most clients away from a firm the moment they understand it.
Registration. A firm exists from the agreement and may never register; an LLP and a company do not exist until the Registrar says so. So an LLP or a company can be dated exactly, which matters for the ten-year window in G.S.R. 127(E).
The rest of this chapter
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The rest of this subject
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