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Understanding The Variations of Limited Company Formation in India

MPVD Associates
Understanding The Variations of Limited Company Formation in India

The Limited Company is owned jointly by all of its shareholders. The liabilities of the company are only restricted to the shares. This means that the shareholders are only responsible for repaying any obligations on the shares they actually own, even if the company encounters any opponents or just fails—which is always a possibility for enterprises, as every entrepreneur would agree.

The agreement distinguishes the Company as a legal person from its owners, thus only the Company will experience the trying times of bankruptcy or face legal action for debts. The different types of limited companies entail different levels of liability, for the company founders, shareholders and other members. Having stated that, the several forms of a limited company are listed below, each of which is categorized according to its specific use.

Private Limited Company / Limited Liability Company / Private Limited Partnership  (Pvt. LTD or LLC) 

An Ltd. or Pvt. Company formation is the most popular and traditional path used by business owners. Especially small companies with less than 150 members can benefit from an Ltd. or Pvt company. 

The shareholders of the LTD firm are only limited by shares, their obligations towards the company are all about repaying any debt assessed against the number of shares they actually own; they are not even responsible for the debts of other shareholders. It is acceptable for a single director to own or run the LTD. They have specified objectives and are free to engage in any activity.

Limited Liability Partnership (LLP) 

Now it is crucial to stay informed about the distinctions and similarities between a Limited Liability Company (LLC) and a Limited Liability Partnership, even if the CRO does not specifically address the variances between these two. 

Since there’s already a lot of information available regarding the similarities, let's streamline the limitations to get a more prompt idea about the dissimilarities of a company's liability to its stocks, ownership, modes of operation, and taxation. Below are the key points: 

  • Company Registration Systems  - The LLP is just a collection of partnerships, whereas an LLC is more of a properly constituted firm that creates a business entity. An LLP must have at least two partners in order to avoid being identified as a sole proprietorship corporation, but an LLC may be owned and run by a single director, like a sole proprietorship. The LLP is the best option for two or more professionals working together to offer a specific service, such as practicing law, medicine, or architecture, whereas LLCs are appropriate for forming small to medium-scale businesses, family-owned businesses, online services and so on. Both the LLP and the LLC have the potential to be larger organizations than the other.  

  • Company Taxation Liabilities - When it comes to taxes, LLCs have additional options because they can elect to be treated as sole proprietorships if there is just one director running the business. LLPs may be able to allocate the taxes to the partners as a one-time tax, combining the income tax and corporation tax together based on both their personal and the firm's income and avoid paying double tax.

  • Management - While LLPs have an equal right to enter into contracts and make decisions. Equal shares of the company's revenues and losses are shared by the partners. On the other side, LLCs might impose restrictions on the management team or board of directors' ability to make decisions and engage in other activities. LLCs may contain agreements defining the responsibilities of the members, the management structure, and how profits and losses are allocated. Ultimately, this coordinated approach permits greater operational flexibility.

Public Limited Company 

Better growth potential is provided by public limited companies when selling their shares to the general public. As a result, every aspect of the company is open to scrutiny, and the original owners are protected against lawsuits. 

A public limited company must exceed a certain share capital in order to be incorporated. Additionally, a minimum of 25% of the capital must be paid up before beginning any company processes or choosing to take out any loans. 

Despite the fact that PLCs frequently face the risk of ceding ownership or control to their founders or owners, the taxes and annual returns are higher, and there is a greater need for resources to document the annual reports, it is all quite manageable under the more democratic environment since PLCs attract more investors and offer greater growth opportunities than any other variations of a limited company.

Company Limited by Guarantee (CLG) 

The corporation limited by guarantee serves as an alternative to one without any share capital. What kind of business needs them? Typically, they are non-profit or charitable organizations that depend on donations. However, because money is involved, the corporation must adhere to specific rules.

Liabilities are restricted to the sums they may have underwritten or borrowed with the intention of boosting the company's assets in the event of a wind-up. Additionally, the sum cannot be greater than the amount specified in the Memorandum of Association.

This kind of limited corporation is not allowed to purchase shares or engage in a stock-related activity. This is the best organizational setup to help nonprofits raise money from sources other than themselves and their supporters.

Author Bio


Since the author had to learn the hard way, she is able to speak calmly when advising others on how to create an e-commerce corporation in India. Anyone intending to set up a business in India might benefit from more insightful information on startup creation and corporate law issues.

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