Many budding entrepreneurs doubt a Limited Liability Partnership and a Public Limited Company. To ease out all those doubts and concerns, we list below how LLP differs from a Public limited company.
Any partnership between two or more partners is registered with the Ministry of Corporate Affairs under the Limited Liability Partnership Act, 2008; we get a Limited Liability Company by this registration. This is also partially wrong because partnerships and companies are two different entities. The partners give the name for an LLP; the company gets registered under this name.
The name before the registration is approved by the Registrar of the Companies (RoC). One of the primary advantages of an LLP is that no partner’s negligence or misconduct can be blamed on another. Everyone is responsible for their success and also their losses. Hence, partners are more accountable for their conduct in an LLP.
How an LLP is different from a Public limited company can be explained in various points and reasons. Let us discuss those in detail and understand the structure of both these companies. Let’s start with a Limited Liability Partnership.
Features of an Limited Liability Partnership
- Name: Any name picked for an LLP should end with ‘Limited Liability Partnership or LLP. The title should be unique and should not contain any offensive, trademarked or illegal terms.
- Liability: The liabilities of the partners forming the LLP and the liabilities of the LLP are two separate entities. The partner is not personally liable for the liabilities of the LLP. The extent of each partner’s liability depends on that partner’s contribution to the LLP. An LLP is a separate legal entity and gives the right to acquire, own or sell property in its respective name.
- Number of Partners: A minimum of two partners are required to register an LLP. The maximum bar has no limits; an LLP can have any number of partners. Unlike a Public Limited Company, there are no shareholders or directors in an LLP. LLP has partners. That is how LLP is different from a Public limited company.
- Foreign Ownership: Any foreigner cannot invest freely in an LLP. To do so, they must get prior approval; from the Reserve Bank of India (RBI) and the Foreign Investment Promotion Board (FIPB).
- Survivability: A LLP is an entirely legal entirety that continues to exist even after the death or departure of its partners. To dissolve an LLP, either that has to be voluntarily or on the orders of the Company Law Board.
- Transferability: There is no fixed limit as to how many times the partnership of an LLP can be transferred to different partners. The ownership can be easily transferred to another person as per the need and choice.
Public Limited Company (PLC)
There are many differences between a Limited Liability Partnership and a Public Limited Company. The owners and managers of a Public Limited Company have limited liabilities. Also, setting up a Public Limited Company is slightly more complex than a Limited Liability Partnership. In a Public Limited Company, a minimum of three directors and seven shareholders or members are needed to get a certificate of incorporation.
A public limited company can sell its shares to investors to raise capital. A compulsory registration under the Companies Act, 2013 with the Registrar of the companies (RoC) is a mandate for a public limited company. Very stringent regulations and norms govern a public limited company compared to any other kind of company or partnership. A PLC can issue secured and unsecured debentures and raise capital by offering its shares to the public.
By understanding the practical features of PLC and LLP, you can probably understand how LLP differs from a Public limited company.
Features of a Public Limited Company
- Name: Just like an LLP, the name of a Public Limited Company should also be unique and not consist of any absurd or offensive illegal terms. The name of the PLC should be registered with the RoC.
- Liability: Each shareholder in a Public Limited Company only holds the liability attached to the face value of the shares they own. A public limited company is a separate legal body with every right to acquire or sell any property or asset in its respective name. Any shareholder cannot claim their own upon any of the company’s assets as long as it runs fine.
- The number of Members & Directors: A public limited company must have a minimum of three directors and seven members to get legally registered. On the other hand, a private company needs two directors and members/shareholders. The maximum number of members in a PLC can be anything with no limitation imposed. The shares of the PLC can be freely transferred without any restrictions from other shareholders or without even the consent of the company itself. The shareholders of a Public Limited Company do not have the right to participate in the day-to-day working of the company.
- Survivability: A Public Limited Company is an absolute legal entity and will exist even after the death, retirement or departure of the shareholders of the company.
- Transferability: Once the company is formed, the ownership of a Public Limited Company can be easily transferred by just giving a share transfer form and sharing the certificate with the buyer.
- Statutory Compliance: A public company has the most rigid statutory compliance with rules and regulations compared to any other organization. The Companies Act, 2013 and its predecessor Companies Act, 1956 have various rules and guidelines for the company to follow.
Various points make LLP different from a Public limited company. From the structure of the company to the procedure of the work and constituents, a lot varies between these two other company structures. Both have their advantages and disadvantages, and both can be put to various uses. Be it a public limited company or a limited liability partnership, and both have pros and cons. You should understand the nature of the respective constitution of the company for further proceedings.
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