Many budding entrepreneurs often have a doubt between Limited Liability Partnership and a Public Limited Company. To ease your doubts, read this article and find out how is Limited Liability Partnership different from Public Limited Company.
What is a Limited Liability Partnership (LLP)?
Putting it simply, when a partnership between two or more partners are registered with the Ministry of Corporate Affairs under the Limited Liability Partnership Act, 2008, it is known as a Limited Liability Partnership. Some people also refer to an LLP as a Limited Liability Company also though that is not quite correct as partnerships and company are two different entities entirely. The LLP is registered under a name provided by the partners and approved by the Registrar of Companies (RoC). One of the main advantages of registering a partnership as an LLP is that one partner is not liable or responsible for the negligence or misconduct on the part of the other partners.
Important features of an LLP:
- Name: The name must be unique and not contain offensive, trademarked or illegal terms. The name of an LLP entity ends with “Limited Liability Partnership” or LLP.
- Liability: The partners forming an LLP are not personally liable for the liabilities of the LLP. The extent of liability of each partner is based on the extent of their contribution to the LLP. A Limited Liability Partnership is a separate legal entity and has the right to acquire, own or sell property or assets in its name.
- Number of Partners: For LLP registration, a minimum of two partners are required. There is no limit to the maximum number of partners who can form an LLP. Unlike a company, there are no shareholders or directors in an LLP, only partners.
- Foreign Ownership: Foreigners cannot freely invest in an LLP. They need to get prior approval from the Reserve Bank of India (RBI) and the Foreign Investment Promotion Board (FIPB).
- Survivability: An LPP is a legal entity that continues to exist after the death or departure of the partners and needs to be dissolved voluntarily or on the order of the Company Law Board.
- Transferability: The ownership of the LLP can be easily transferred to another person. There is no limit to the number of times the partnership can be transferred to different partners.
What is a Public Limited Company (PLC)?
Difference between Limited Liability Partnership and public limited company are many. A public limited company grants limited liability to the owners and managers of a company. Setting up a limited company is slightly more difficult as you need at least three directors and seven shareholders or members to get a certificate of incorporation. A PLC can sell shares to investors to raise capital. A Public Limited Company needs to be registered under the Companies Act, 2013 with the Registrar of Companies (RoC). The regulatory requirements for a PLC are more stringent as compared to other kinds of partnerships or companies. A PLC can issue secured as well as unsecured debentures, and also raise capital by offering shares to the public.
Important features of a Public Limited Company:
- Name: As with an LLP, the name of a Public Limited Company must be unique and not contain offensive, trademarked or illegal terms. You need to register a limited company with the RoC.
- Liability: The extent of liability of each shareholder of a Public Limited Company is limited to the face value of the shares he/she owns. A PLC is a separate legal entity and has the right to acquire, own or sell property or assets in its name and the shareholders cannot claim their right upon any of the company’s assets as long as the company is running smoothly.
- Number of Members and Directors: A PLC needs to have at least 3 directors and 7 members at the time of company registration, unlike a Private Limited Company that needs only two directors and members/shareholders. There is no limit for the maximum number of members in a PLC. The shares of a company can be freely transferred without the need for any consent from other shareholders or the company itself. The shareholders usually do not hold the right to participate in the day-to-day management of the company.
- Survivability: A PLC is a legal entity that exists even after the death, retirement, or departure of the shareholders of the company.
- Transferability: After company formation, the ownership of a PLC can be easily transferred by simply giving a share transfer form and share certificate to the buyer.
- Statutory Compliance: A public company has to conform to the maximum number of rules and regulations for any type of business organisation. The Companies Act, 2013 and its predecessor Companies Act, 1956 had prescribed various guidelines and rules for these companies to follow. Some of these include the number of meetings needed for the board and the shareholders, how long the directors can remain in office, how the accounts have to be prepared, the number of registers and documents that have to be kept by the company, and so on.
Hope this article helped you understand the difference between a Limited liability partnership and public limited company, a Limited Liability Partnership is ideal for start-ups and small businesses whereas a Public Limited Company is the best option for a medium to large sized business.