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Private Limited Company or Partnership? Which One Should You Choose and Go For?

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Private Limited company or Partnership Which one should you choose and go for 3f261163

Before beginning a new company, it is best to determine the ideal business structure. This decision is based on many factors, such as the number of people who can start it. If there are two or more companies, the incorporation of a private limited company or a joint company is a safer choice. Consider the things that can affect your company and the issues that you want to prevent before selecting any of the choices.

For a new organization, the arrangement of collaboration is the simplest and most important. It is advisable to have a partnership registration done though it is not mandatory. It will have a cooperation agreement with the aims, obligations and duties of the partners drawn up therein. It will also include a partnership exit plan that clarifies the share distribution for each partner.

Private business, though, is a little complicated but has its own range of advantages. First, a separate legal identity is established which limits the liability of the members involved. But then registering a company to start a business is necessary.

Advantages A Partnership Has Over A Company

1. A basic agreement between two or more individuals is the only precondition for forming a relationship. The business must comply with a variety of administrative formalities.

2. The managers and employees of a corporation have acts regulated by organizations such as RBI, MCA, SEBI, etc. Although the partners just control the relationship agreement. This is why there is greater independence and freedom to decide.

3. The end of a relationship company is better than the start. This is because the arrangement that only applies to the closure between the partners is appropriate. The closing of the business needs everyone to follow a correct closing process.

4. Compared to other corporate models, the corporation has greater reputation due to its high enforcement criteria. It is also regulated by regulatory bodies such as MCA and SEBI, which audit the company from time to time. It is easier to collect funds internally and also from outside sources.

Difference between PLC and Partnership: 

1. The Act and its Purview

A. Private Limited Company registration is governed by the Companies Act, 2013    

B. Partnership registration falls under the purview of Indian Partnership Act, 1932

2. Registration Requirement

A. Compulsory to create an enterprise in compliance with the Act as a private limited company.

B. The legal status of partnership business remains the same for registered as well as unregistered partnerships. But, it is recommended to opt for partnership registration in India. 

3. Continuous Existence    

A. The ownership can, if the shareholders agree, be transferred via shares.

B. Ownership is not readily transferable, the partnership certificate provision should be listened to.

4. Mandatory Compliances    

A. There are stricter compliance with annual filings involved in the private limited company. Also, there are many other continuous compliance limited in a private company for its smooth functioning.

5. Distinctive Legal Identity

A. Private Limited Company is looked as a separate business entity that can take assets in its own name and thereby limiting the liability. 

B. A partnership business owns no individual identity from its partners which exceeds the liability to personal life. 

6. Mandatory Audit

A. The private company must have the appointment of auditor within the 30 days of its incorporation. 

B. The partnership business does not require any statutory audit but there is a turnover-based audit tax applicable.

7. Transfer of Ownership

A. The ownership can, if the shareholders agree, be transferred via shares.

B. Ownership is not readily transferable, the partnership certificate provision should be listened to.

8. Members Limitation

A. Pvt Ltd Co. registration will need at least two members for registration. The maximum limit is 200 shareholders.

B. Partnership business requires at least two partners, but it should not exceed 50 partners.

9. Protection through Liability

A. As mentioned above, the members of a private limited company has a liability limited to the extent of the unpaid value of shares subscribed.    

B. The partners in a partnership business are severally and jointly liable to pay any partnership firm debts. 

10. Foreign Participation    

A. Private limited company can accept the investment form foreign nationals under an automatic route.

B. It is not possible for the foreign nationals to be a partner under the partnership firm.

Conclusion

The above information can be useful to help you decide which is the best structure suitable for your business. It is therefore recommended to consult a business professional before starting up. The key is to ensure keeping the law in your sight so that your business does not have to suffer. There are a plethora of pre-registration and post-registration compliance which are equally important for business. Choosing the right business structure out of private limited company and a partnership firm will need you to understand your business better.

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