Limited Liability
Content
Limited Liability
Type of investment in which a partner or investor cannot lose more than the amount invested. Thus, the investor or partner is not personally responsible for the debts and obligations of the company in the event that these are not fulfilled.
Limited liability company
A corporate structure whereby the members of the company cannot be held personally liable for the company's debts or liabilities. Limited liability companies (LLC) differ slightly from one country to the next. However, it is essentially a hybrid entity that combines the characteristics of a corporation and a partnership or sole proprietorship. While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of a LLC is a feature of partnerships.
Private limited company
Private limited company is defined as an independent or privately held organization by few people with a purpose to continue a certain type of business operations. Private company has a rich culture and tradition in India as this type of company is relatively easier and hassle free when it comes to establish and register. As per the Indian Companies Act 1956, a private limited company has minimum three members and maximum fifty in order to establish and register under the companies act. Registrar of Companies (RoC) is the governing body which is appointed under the Indian Companies Act in order to check and verify and finally giving company registration certificate. A private limited company is just like a sole trade business organization with limited legal procedures unlike public limited company. Indian Companies Act came into India in the year in 1956 in order to
regulate and control business organizations and companies across sectors. Private company is easy to maintain as it involves few legal hurdles.
Advantages
Limited Liability: It means that if the company experience financial distress because of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors.
Continuity of existence: business not affected by the status of the owner. Minimum number of shareholders need to start the business are only2. More capital can be raised as the maximum number of shareholders allowed is 50. Scope of expansion is higher because easy to raise capital from financial institutions and the advantage of limited liability.
Disadvantages
Growth may be limited because maximum shareholders allowed are only 50. The shares in a private limited company cannot be sold or transferred to anyone else without the agreement of other shareholders
Not allowed to invite public to subscribe to its shares
Public limited company
Public limited company is a public listed company which can issue its shares to general public in order to raise capital for business operations. There are different set of rules and regulations are applied for public limited company incorporation and registration. Public limited company is often called as a limited company or government undertaking unit as per the rules and regulations. A public limited company must have seven as minimum members and there are no limits for maximum shareholders as per the Company Registration Act in India. Indian Company Registration Act 1956 has defined company as an association or group of individuals operate a business enterprise in order to make profits. Public limited company has many advantages over private limited company because this type of company is large in size in terms of capital and people than any other form of companies. Public limited companies have been existing since a long time ago by some leading business entrepreneurs for the purpose to explore massive opportunities.
Advantages of A Public Limited Company
Perpetual Existence: A public limited company must continue its business operations irrespective of its many internal and external obstacles and that makes this business is hot favorite among all.
Large Amount Of Capital: The most important factor or advantage is the large amount of capital this company has as compared than private limited company. A
public limited company can boost its capital base by issuing shares to public whenever it requires.
Excellent Management: A public limited company has a well managed board of directors and management team those are almost experts in managing the whole business operations of a company. It has competent employees and active shareholders compared than private company.
Transferable of Rights: The voting right of a shareholder or a member can be transferable in a public limited company.
Disadvantages Of A Public Limited Company
Costly and complicated to set up as a plc – need to employee specialist bankers and lawyers to help organise the converting to the plc. Certain financial informaton must be made available for everyone, competitors and customers included (would you want them to know how much profit you are making?) Shareholders in public companies expect a steady stream of income from dividends, which might mean that the business has to concentrate on short term objectives of creating a profit, whereas it might be better to work on longer term objectives, such as growth and investment. Threat of takeover, because another company can buy up a large number of shares because they are traded publicly (can be sold to anyone). If they buy enough, they
can then persuade other shareholders to join with them to vote in a new management team.
Requirement for formation of Limited Liability Partnership Limited Liability Partnership (LLP)
In India Partner There should be atleast 2 persons (natural or artificial) are required to form a LLP. In case any Body Corporate is a partner, than he will be required to nominate any person (natural) as its nominee for the purpose of the LLP. Contribution In case of LLP, there is no concept of any share capital but every partner is required to contribute towards the LLP in some manner. The said contribution can be tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, and other agreements to contribute cash or property, and contracts for services performed or to be performed. In case the contribution is in intangible form, the value of the same hall be certified by a practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained by the Central Government. The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed. The LLP Agreement must specify the contribution intended to be paid all the members and the form in which it will be paid.
Advantages
Separate legal entity Easy to establish Flexibility without imposing detailed legal and procedural requirements Perpetual existence irrespective of changes in partners Internationally renowned form of business in comparison to Company No requirement of minimum capital contribution No restrictions as to maximum number of partners LLP & its partners are distinct from each other Partners are not liable for Act of other partners. Personal assets of the partners are not exposed except in case of fraud. Easy to dissolve or wind-up Professionals like CS / CA / CWA / Lawyers can form Multi-disciplinary Professional LLP
No requirement to maintain statutory records except Books of Accounts Less Cost of formation (Compared to a company)
Disadvantages
LLP cannot raise funds from Public Any act of the partner without the other may bind the LLP. Under some cases, liability may extend to personal assets of partners. No separation of Management from owners
Type of investment in which a partner or investor cannot lose more than the amount invested. Thus, the investor or partner is not personally responsible for the debts and obligations of the company in the event that these are not fulfilled.
Limited liability company
A corporate structure whereby the members of the company cannot be held personally liable for the company's debts or liabilities. Limited liability companies (LLC) differ slightly from one country to the next. However, it is essentially a hybrid entity that combines the characteristics of a corporation and a partnership or sole proprietorship. While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of a LLC is a feature of partnerships.
Private limited company
Private limited company is defined as an independent or privately held organization by few people with a purpose to continue a certain type of business operations. Private company has a rich culture and tradition in India as this type of company is relatively easier and hassle free when it comes to establish and register. As per the Indian Companies Act 1956, a private limited company has minimum three members and maximum fifty in order to establish and register under the companies act. Registrar of Companies (RoC) is the governing body which is appointed under the Indian Companies Act in order to check and verify and finally giving company registration certificate. A private limited company is just like a sole trade business organization with limited legal procedures unlike public limited company. Indian Companies Act came into India in the year in 1956 in order to
regulate and control business organizations and companies across sectors. Private company is easy to maintain as it involves few legal hurdles.
Advantages
Limited Liability: It means that if the company experience financial distress because of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors.
Continuity of existence: business not affected by the status of the owner. Minimum number of shareholders need to start the business are only2. More capital can be raised as the maximum number of shareholders allowed is 50. Scope of expansion is higher because easy to raise capital from financial institutions and the advantage of limited liability.
Disadvantages
Growth may be limited because maximum shareholders allowed are only 50. The shares in a private limited company cannot be sold or transferred to anyone else without the agreement of other shareholders
Not allowed to invite public to subscribe to its shares
Public limited company
Public limited company is a public listed company which can issue its shares to general public in order to raise capital for business operations. There are different set of rules and regulations are applied for public limited company incorporation and registration. Public limited company is often called as a limited company or government undertaking unit as per the rules and regulations. A public limited company must have seven as minimum members and there are no limits for maximum shareholders as per the Company Registration Act in India. Indian Company Registration Act 1956 has defined company as an association or group of individuals operate a business enterprise in order to make profits. Public limited company has many advantages over private limited company because this type of company is large in size in terms of capital and people than any other form of companies. Public limited companies have been existing since a long time ago by some leading business entrepreneurs for the purpose to explore massive opportunities.
Advantages of A Public Limited Company
Perpetual Existence: A public limited company must continue its business operations irrespective of its many internal and external obstacles and that makes this business is hot favorite among all.
Large Amount Of Capital: The most important factor or advantage is the large amount of capital this company has as compared than private limited company. A
public limited company can boost its capital base by issuing shares to public whenever it requires.
Excellent Management: A public limited company has a well managed board of directors and management team those are almost experts in managing the whole business operations of a company. It has competent employees and active shareholders compared than private company.
Transferable of Rights: The voting right of a shareholder or a member can be transferable in a public limited company.
Disadvantages Of A Public Limited Company
Costly and complicated to set up as a plc – need to employee specialist bankers and lawyers to help organise the converting to the plc. Certain financial informaton must be made available for everyone, competitors and customers included (would you want them to know how much profit you are making?) Shareholders in public companies expect a steady stream of income from dividends, which might mean that the business has to concentrate on short term objectives of creating a profit, whereas it might be better to work on longer term objectives, such as growth and investment. Threat of takeover, because another company can buy up a large number of shares because they are traded publicly (can be sold to anyone). If they buy enough, they
can then persuade other shareholders to join with them to vote in a new management team.
Requirement for formation of Limited Liability Partnership Limited Liability Partnership (LLP)
In India Partner There should be atleast 2 persons (natural or artificial) are required to form a LLP. In case any Body Corporate is a partner, than he will be required to nominate any person (natural) as its nominee for the purpose of the LLP. Contribution In case of LLP, there is no concept of any share capital but every partner is required to contribute towards the LLP in some manner. The said contribution can be tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, and other agreements to contribute cash or property, and contracts for services performed or to be performed. In case the contribution is in intangible form, the value of the same hall be certified by a practicing Chartered Accountant or by a practicing Cost Accountant or by approved valuer from the panel maintained by the Central Government. The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed. The LLP Agreement must specify the contribution intended to be paid all the members and the form in which it will be paid.
Advantages
Separate legal entity Easy to establish Flexibility without imposing detailed legal and procedural requirements Perpetual existence irrespective of changes in partners Internationally renowned form of business in comparison to Company No requirement of minimum capital contribution No restrictions as to maximum number of partners LLP & its partners are distinct from each other Partners are not liable for Act of other partners. Personal assets of the partners are not exposed except in case of fraud. Easy to dissolve or wind-up Professionals like CS / CA / CWA / Lawyers can form Multi-disciplinary Professional LLP
No requirement to maintain statutory records except Books of Accounts Less Cost of formation (Compared to a company)
Disadvantages
LLP cannot raise funds from Public Any act of the partner without the other may bind the LLP. Under some cases, liability may extend to personal assets of partners. No separation of Management from owners
