Difference Between Private Limited Company and Limited Liability Partnership

When it comes to setting up a business, two popular options for entrepreneurs are Private Limited Company versus Limited Liability Partnership. Both offer advantages and disadvantages and understanding these can help entrepreneurs choose the best structure for their business.

What is a Private Limited Company?

A Private Limited Company is a type of business structure where the company is privately owned by shareholders. Shareholders' liability is capped to the sum of money they have put in the business.

This means that if the company faces financial problems, the shareholders are not personally liable for the company’s debts. It means that it can own assets, enter into contracts, and sue or be sued in its name.

What is Limited Liability Partnership?

A Limited Liability Partnership is a type of business structure where all partners have limited liability. This means that the personal assets of partners are not at risk if the business faces financial difficulties.

Partners are also not personally responsible for the actions of other partners. The LLP is a separate legal entity that can own assets. It can enter into contracts, and sue or be sued in its name.

Private Limited Company V/S Limited Liability Partnership

• One key difference between a PLC and an LLP is the ownership structure. In a PLC, some shareholders own the company and appoint directors to run the business. In an LLP, some partners jointly own and manage the business.

• This means that in an LLP, partners have more control over the day-to-day operations of the business. In a PLC, shareholders have a say in major business decisions but do not typically get involved in day-to-day operations.

Private Limited Company and Limited Liability Partnership: Which Is Better?

• When it comes to raising capital, PLCs have an advantage as they can raise money by selling shares to investors. This can be particularly useful for businesses that require significant investment to grow. LLPs, on the other hand, cannot issue shares and may find it more difficult to raise capital.

• One disadvantage of a PLC is that it is subject to greater regulation and legal requirements than an LLP. PLCs must file annual accounts, annual returns, and other company records with Companies House. LLPs, on the other hand, have fewer legal requirements and are generally easier and cheaper to set up and run.

• Another factor to consider is the level of risk associated with the business. If the business is high-risk, such as a construction company or a medical, an LLP may be a better option.

• However, if the business is low-risk, such as a software development company, a PLC may be a better option. It offers more flexibility in terms of raising capital and is more established as a business structure.

In summary, both PLCs and LLPs have advantages and disadvantages. The best structure for a business will depend on its circumstances. Entrepreneurs need to seek professional advice before deciding on a business structure.

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