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Difference Between Proprietorship, Partnership, and LLP

explain the features of sole proprietorship
Admin 2023-01-30

Difference Between  Proprietorship, Partnership, and LLP

SOLE PROPRIETORSHIP  PARTNERSHIP FIRM  LIMITED LIABILITY PARTNERSHIP  
Definition:1. A Sole proprietorship can be explained as a kind of business or an organization that is owned, controlled, and operated by a single individual who is the sole beneficiary of all profits or losses, and responsible for all risks.  Definition: 1. A partnership could be a kind of business that permits 2 or more persons to co-own a company, and they comply with sharing the profits and losses of the corporate. Every member of such a business is termed as a Partner and put together they're called a partnership firm. Definition:1. A liability partnership (LLP) may be a partnership during which some or all partners (depending on the jurisdiction) have restricted liabilities. It thus will exhibit components of partnerships and companies. In an LLP, every partner isn't liable or accountable for another partner's misconduct or negligence
Liability :2. A sole proprietorship has one owner who has unlimited liability for the business. Liability: 2.  The liability in the partnership firm is shared by partners of the firm together and severally amongst one another. Liability : 2. Liability of the partner is limited to his agreed contribution. Further, no partner is liable on account of the independent or unauthorized acts of other partners.
Minimum and maximum members: 3.  Minimum members needed for sole ownership is just oneThe maximum member needed is additionally one as he's the only owner of the business Minimum and maximum members: 3. Minimum members are required for partnership is two.Maximum members required are 100 who are called partners who also come together for carrying out the business.One of the worst parts of a partnership is that you can be held liable for something someone else has done. Minimum and maximum no of members:3.  Minimum members required for limited liability partnership is two.There is no limit on maximum members for LLP.
Decision making :4.  .Decision-making rests with the man of affairs solely, thus full freedom to work. Decision making :4.  The decision has to be reciprocally acceptable to any or all partners. A distinction of opinion will arise and cause loss of business. Decision making :4. In such type of LLP, management is done by forming the board /committee of partners similar to a board of director in the company, decision-making power rest in the hand of board/committee of partners.
Risk :5. The risk of the sole proprietor is greater than that of a partnership from the business. Risk :5. The risk connected with the business is relatively less because it is shared with all the partners.  Risk :5. The business owners aren't in person accountable for business debts, liabilities and obligations. Therefore, if the business is sued, then solely the assets owned by the business area unit in danger.
Registration :6.  The registration for sole proprietorship is not compulsory or required under any law for the time being in force  Registration :6. The registration for partnership is voluntary as it is governed by partnership act 1932.Where registration of partnership is advised to be taken by the partners of the firm.  Registration :6. The registration of limited liability partnership is mandatory under limited liability partnership act 2008
Dissolution :7.  There is always an uncertainty regarding the term of the sole proprietorship as it can end up anytime if the owner dies or if he became incompetent to run a business. Dissolution :7.  Partnership will be dissolved at any time, if one amongst the 2 partners retires or dies or became insolvent, however if there are over 2 partners, it will continue at the discretion of the remaining partners. Dissolution :7. If the Tribunal is satisfied that procedures have been followed in winding up of the LLP, then the Tribunal would pass an order that the LLP shall stand dissolved.
Profit sharing:8. The profits and losses of sole businessman cannot be shared with the opposite person. The owner is that the one who receives or suffers from any profit or loss occurred. Profit sharing:8. The profits and losses of partnership firm can be shared between the partners in their profit sharing ratio. Profit sharing:8. All the partners of the Limited Liability Partnership would share business profit similar to the partners of the traditional firms. However, they are free to decide the profit ratios amongst themselves. 

 

PRIVATE COMPANY  GOVERNMENT COMPANY 
Definition :1. An organization whose shares might not be offered to the general public and that operates beneath legal needs less strict than those for a public company. Private corporations those corporations whose articles of association prohibit the interchangeability of shares and stop the general public at massive from subscribing to them. Definition :1. Government company means that any company within which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any state government or Governments, or part by the Central Government and part by one or other State Governments
Minimum and maximum members :2. Minimum number of members required to form a private company is 2.  Maximum number of members in a Private Company is limited to 200. Minimum and maximum members : 2. A government Company needs a minimum of seven members.There is no limitation of maximum number of members in a Public Company.
Transferability :3.There is complete restriction on the transferability of the shares of a Private Company through its Articles of Association Transferability :3. There is no restriction on the transferability of the shares of a government Company.
No of directors :4.  A Private Company may have 2 directors to manage the affairs of the company. Maximum no of directors shall not be more than 15. No of directors :4. A government Company must have at least 3 directors.Maximum no of directors shall not be more than 15.
Source of capital :5. Private enterprises get their capital from the resources in hand by the personal investors/owners. they need restricted capability to lift capital and will face shortage of funds Source of capital :5. The full or at least 51 per cent of the capital of a Public enterprise is provided by the Government from public funds. Such an enterprise can take advantages of unlimited financial resources.
Ownership :6..The ownership of private sector units is by individuals or entities with zero interference from the government Ownership :6. The possession of the general public sector units will be by central, state or government bodies, and this possession is either full or partial.
Commencement of business :7. It can start a business just after receiving a certificate of incorporation. Commencement of business :7. It requires a certificate of commencement of business after it is incorporated
Issue of prospectus :8. A private company cannot welcome the general public to its gatherings and, as a consequence, might not issue a prospectus. They’re unable to influence the overall public to get company stock. Issue of prospectus :8. A public limited corporation will sell its shares to the people. It should presumptively publish a prospectus or submit a declaration rather than a prospectus before really selling equity.

ADVANTAGES OF SOLE PROPRIETORSHIP:

There are some advantages given below

• You’re the boss

• You keep all the profits

• Start-up prices are low

• You have most privacy

• Establishing and operative your business is easy

• It’s simple modification to vary your legal structure later if circumstances change you'll simply finish up your business.

DISADVANTAGES OF SOLE PROPRIETORSHIP:

• You have unlimited liability for debts as there’s no legal distinction between personal and business assets

• Your capability to raise capital is limited

• All the responsibility for creating daily business decisions is yours

• retaining high-caliber workers may be troublesome

• It may be hard to take holidays

• You’re taxed as one person and the life of the business is limited.

ADVANTAGES OF PARTNERSHIP FIRM:

• Two heads (or more) are better than one

• Your business is easy to establish and start-up costs are low

• More capital is available for the business

• You’ll have bigger borrowing capability

• High-caliber workers is created partners

• There is chance for financial gain splitting, an advantage of particular importance because of resultant tax savings

• Partners’ business affairs are non-public

• There is limited external regulation

• It’s simple |to vary your legal structure later if circumstances change.

DISADVANTAGES OF PARTNERSHIP FIRM:

  • The liability of the partners for the debts of the business is unlimited
  • Each partner is ‘jointly and severally’ answerable for the partnership’s debts; that's, every partner is answerable for their share of the partnership debts still as being answerable for all the debts
  • There could be a risk of disagreements and friction among partners and management
  • Each partner is associate agent of the partnership and is answerable for actions by different partners
  • If partners join or leave, you will probably have to value all the partnership assets and this will be expensive.

ADVANTAGES OF LIMITED LIABILITY PARTNERSHIP:

• There is not any minimum capital demand in LLP.  LLP can be formed with the smallest amount attainable capital. Moreover, the contribution of a partner will consist of tangible, movable or immovable or intangible property or other benefits to the LLP.

• An LLP needs a minimum of two partners whereas there's no limit on the most variety of partners. 

• LLP ought to face less compliance burden as they need to submit only two statements i.e. the Annual Return in LLP-11 form & Statement of Accounts and Solvency in LLP-11.

• is not liable to pay the tax on the financial gain and share of its partner. Thus, no dividend distribution tax is payable as under section 40(b).

DISADVANTAGES OF LIMITED LIABILITY PARTNERSHIP:

• As an LLP is mandated to submit all of its financial records to the Companies House, the income details of every Partner are available in Public. 

• An LLP is simple to start out and manage, however the penalties concerned in not following the compliances actively is significant. The penalty is also as high as 4-5lakhs in some cases.

• As there's no concept of Equity investment, all the investment has got to return from the Partners. therefore it's unattainable to scale-up the Business.

• Transferring the possession right to some other person may be a difficult task. The Partners desire to transfer/her rights can want written consent from all the partners.

ADVANTAGES OF PRIVATE COMPANY:

• A private limited company is taken into account to be a separate legal entity. It represents by its own identity and recognized as a separate entity under the law.

• Private limited company has this feature of limited financial liability of all the shareholders. The liabilities are going to be limited to their contribution only.

• Private limited companies are not affected by the status of their own once it involves their existence.

• Only 2 members and 2 shareholders needed to incorporate a private limited company. This gives a facility to Entrepreneurs to line up their own company.

• Shareholders allowed up to Two hundred members 

• A person will act as a stockholder, a director and employee at same time once the private limited company is taken consideration.

DISADVANTAGES OF PRIVATE COMPANY:

• A private company cannot have more than Two Hundred members..

• There are restrictions on the transfer of shares in a private company. As a result a stakeholders and members cannot leave a private company easily.

• A private company enjoys many exemptions from numerous provisions of the companies Act. Minority members might suffer at the hands of the majority members.

• Shares of a private company aren't listed on stock exchange. There aren't any regular dealings in these shares.

• Public has very little confidence in a private company as a result of its affairs is unknown and it's not subject to strict control under the law.

ADVANTAGES OF GOVERNMENT COMPANY:

• A government company is formed easily as no statute is required to be enacted.

• It has a separate legal entity and so can manage its affairs on its own.

• These companies are run on sound business lines. They can earn income and profit to finance their own expansion plans.

• This form of management has greater flexibility than the department management. The ‘Memorandum of Association’ and ‘Articles of Association’ of the Government Company can be altered as per companies act and other applicable law 

• It is that the solely variety of management by which that the govt. will build use of managerial skill and technical know-how of the private sector.

DISADVANTAGES OF GOVERNMENT COMPANY:

• The government companies need to follow the policies & rules framed by the Legislative or Parliament & most of the principles are rigid.

• Government companies are suffering with interference by political parties & political leaders. With the amendment in government, constitution of Board changes & this have an effect on the operating adversely.

• Government companies although autonomous bodies, however cannot take any call without taking permission from government.

• The government companies need to rely upon the govt. for deciding policy matters, leading to delaying the selections

• There is a good amount of wastage of resources. There is poor material management. Raw materials remain unutilized.