Difference between a proprietorship partnership LLP and private limited model

When starting a new business, the owner is entitled to register the firm. Selecting the type of company is the first legal decision taken by any businessman. The pros, cons, do’s, and don’ts of each entity can confuse the start-up founders. However, the businessmen need to understand the concept and details of each business entity and choose the right one. The different types of businesses include proprietorship, partnership, LLP, private limited company, one-person company, and limited company.

What is a Proprietorship business?

Proprietorship is popularly known as sole ownership. The business is entirely owned and run by one person. It is recommendable for people who like to manage all the tasks at an individual level. However, it is only suitable for small businesses with less capital requirements.

What is a Partnership business?

As the name itself suggests, a group of people or partners own the business together. Every individual holds shares in the company. Partnership business is advisable for people who want different sectors of the business to be taken care of by specialists. It is suitable for small scale industries.

 

 

What is a Limited Liability Partnership business?

In an LLP business, each partner has limited liabilities. The partners are not responsible for each other’s decisions or misconduct. It is most prevalent in a newly-formed business where different professionals pool their sources. It is suitable for organizations providing professional services. 

What is a Private Limited business?

A Pvt Ltd business type consists of a small group of people who own the company and are called shareholders. The business partners prefer to keep control of the business within a limited circle and maintain the privacy of the company.  It is recommendable for companies wanting to have a recognizable brand and standard work procedures. It is suitable for mid-sized companies or start-ups which desire to expand rapidly.

Difference between a proprietorship, partnership, LLP, and private limited

• Legal Registrations

• No formal registration is required for proprietorship.
• Registration is optional in the partnership business, thus entirely depends on the owner’s wish.
• Both LLP and Pvt Ltd business should be registered with the Ministry of Corporate Affairs under their respective Acts.

 

 

• Naming guidelines

• Proprietorship and Partnership businesses can be named according to the owner’s wish, and do not require any approval from any government body.
•  An LLP business name is based on the choice provided by the Promoter and is approved by the Registrar of the company. The name of the company should end with “LLP”.
• A Private Limited company can only use names that are not offensive or illegal. Thus, the name choice is provided by the Promoter and approved by the Registrar. The entity name should end with “Pvt Ltd”.

• Minimum and Maximum number of members

• Proprietorship can only have one member as the head. (May have staff)
• A minimum of 2 people are required to start a partnership business and there can be a maximum of 20 partners.
• An LLP business should have a minimum of 2 members and there is no fixed limit for the number of further members.
• A minimum of  2 members should be present in a Private Limited company and it can be extended to up to 200 shareholders.

• Transferability

• Proprietorship and Partnership businesses cannot be transferred from one person to another.
• Whereas, LLP and Pvt Ltd businesses can be easily transferred.

There are many more major differences between these business entities. One can easily differentiate between them. Each one has a different set of rules and norms.