Private Company Vs Public Company: Key Differences Explained

What is a Society?

A society is a non-profit organisation formed by a group of individuals who come together for charitable, literary, scientific, cultural, or educational purposes. Societies in India are governed by the Societies Registration Act, 1860, although many states have their own versions of the Act (e.g., Maharashtra, Tamil Nadu, etc.).

A society must have:

• A minimum of seven members to register at the state level
• An elected governing body or managing committee
• A constitution or memorandum outlining its objectives and rules

Societies are known for their democratic structure, where members have voting rights and leadership is elected periodically.

When to Consider Forming a Society?

Forming a society may be your best option if:

• You prefer a democratically run organisation with an elected management committee
• Members may change frequently or seek easy exit options
• You want a relatively simple dissolution process
• You're operating within a state jurisdiction (or planning to expand nationally with additional registrations)
  
  

Societies are particularly suited for community-driven or volunteer-based initiatives, like resident welfare associations, cultural organisations, and grassroots education or health programs.

Meaning of Trusts

A trust is a legal arrangement under the Indian Trusts Act, 1882 (or relevant state-specific Public Trusts Acts) in which a settlor (or author) transfers property or assets to one or more trustees, who hold and manage them for the benefit of specific beneficiaries.

Key roles in a trust:

• Author of the trust: The person who creates the trust and donates property
• Trustee: The person(s) responsible for managing the trust and fulfilling its objectives
• Beneficiary: The individual(s) or group for whom the trust is created

The central concept is the "beneficial interest"- the trustee has legal control of the asset, but the benefit goes to the beneficiaries. Trusts are often used in both private and public charitable contexts.

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When and Why You Might Need a Trust?

You might choose a trust if:

• You want to retain long-term control without democratic elections or rotating leadership
• Your non-profit involves family members or a small, stable group of trustees
• You need privacy, minimal external regulation, or flexible distribution of benefits
• You plan to manage property, assets, or legacy donations

Trusts are ideal for schools, hospitals, orphanages, and religious institutions, especially when the focus is on asset management and continuity over generations.

Meaning of Section 8 Companies

A Section 8 Company is a special form of non-profit company registered under the Companies Act, 2013. It is incorporated to promote commerce, art, science, research, education, social welfare, religion, or charity.

Key features:

• It must apply for a license from the Central Government
• Its profits or income cannot be distributed as dividends
• All income must be used to promote the organisation’s objectives
• The name does not include “Limited” or “Private Limited”

Section 8 Companies are highly structured, professionally governed, and seen as credible entities both by donors and government bodies.

Reasons for Forming a Section 8 Company

You should consider registering for Section 8 Company if:

• You're looking for a formal and transparent governance model
• You want to build long-term partnerships with government bodies, corporates, or international NGOs
• You're applying for CSR funds, grants, or FCRA registration
• You want to project credibility and professionalism in your operations

Section 8 Companies are ideal for large-scale non-profits, social enterprises, or organisations planning to operate across India or internationally.

Difference Between Society, Trust, and Section 8 Company

All three structures, Trusts, Societies, and Section 8 Companies, are eligible for tax exemptions under Section 12A and 80G of the Income Tax Act. They also meet the definition of "charitable purpose" under Section 2(15).

But beyond this, they vary significantly in formation, governance, compliance, and scalability. Here’s a comparison at a glance:

Each structure, Trust, Society, or Section 8 Company, has its own strengths. The right choice depends on your mission, governance preferences, funding goals, and long-term vision.

Frequently Asked Questions

Closure of LLP - Overview

The Limited Liability Partnership (LLP) closure process is a significant decision that can arise from various circumstances. Whether driven by voluntary factors, such as a mutual decision by the partners to discontinue operations, or involuntary factors, like non-compliance with statutory requirements, understanding the reasons and methods of closure is crucial.

The decision to close an LLP often stems from the following reasons:

1. Voluntary Closure:
   Partners may mutually agree to cease operations due to business inactivity, an unprofitable venture, or a strategic shift in focus. This proactive decision is usually taken when all stakeholders conclude that continuing operations no longer align with their goals.
2. Involuntary Closure:
   Sometimes, an LLP faces closure due to external circumstances such as non-compliance with legal or regulatory obligations, accumulation of penalties, or other statutory violations. In such cases, authorities may initiate the process of striking off the LLP from the official records.

Method or Procedure of Closing an LLP

Closing a Limited Liability Partnership (LLP) in India can be carried out through two primary methods: Voluntary Winding Up and Striking Off. Each method has its unique set of requirements, advantages, and limitations. Choosing the right approach depends on the LLP’s operational and financial status. Let’s look into the details of these two LLP closing procedures:

1. Voluntary Winding Up

Voluntary winding up is a process initiated by the partners when they collectively decide to dissolve the LLP. This method is typically chosen when the partners agree to cease operations due to inactivity, unprofitability, or a strategic decision to exit.

Advantages of Voluntary Winding Up:

• Controlled and Planned Process
• Avoids Penalties for Non-Compliance

Disadvantages of Voluntary Winding Up:

• Time-Consuming
• Settlement of Liabilities Required

2. Striking Off

Striking off is a simpler and faster method for closing an LLP. It is suitable for LLPs that have been inactive for a significant period and have no outstanding liabilities. This process involves applying to the RoC to remove the LLP’s name from the register.

Advantages of Striking Off:

• Simplified and Less Expensive
• Suitable for Dormant LLPs

Disadvantages of Striking Off:

• Not Applicable for LLPs with Liabilities
• Limited Scope for Active LLPs

Step-by-Step Procedure to Close an LLP

A brief overview of the process for closure of LLP in India:

1. Passing a Resolution for Winding Up

The first step is for the partners to pass a resolution for voluntary winding up. A majority of partners must agree, and the resolution must be filed with the ROC within 30 days.

2. Appointing a Liquidator

The partners must appoint a liquidator to oversee the winding-up process. The liquidator’s role includes realising the LLP’s assets and settling its liabilities.

3. Realising Assets and Paying Off Liabilities

The liquidator identifies and sells the LLP’s assets to clear all outstanding liabilities. Surplus funds, if any, are distributed among the partners.

4. Filing the Necessary Forms with the ROC

The LLP must file forms such as Form 24 and other requisite filings with the ROC to notify the authorities about the closure.

5. Obtaining the Final Order of Dissolution

After reviewing all filings and confirming the settlement of liabilities, the ROC issues a final order of dissolution, formally closing the LLP.

Filing LLP Form 24: Step-by-Step Process

Closing a Limited Liability Partnership (LLP) in India requires filing LLP Form 24 with the Ministry of Corporate Affairs (MCA). Below is a simplified step-by-step process to help you navigate this procedure:

1. Cease Business Operations

Before applying for closure, ensure that the LLP has either never commenced business or has stopped all commercial activities. If your LLP is still active, suspend all operations before proceeding.

2. Settle Liabilities and Close Bank Accounts

LLP Form 24 can only be filed if the LLP has no outstanding creditors and all bank accounts are closed. Obtain a closure letter from the bank as proof.

3. Draft Partner Affidavits

All designated partners must prepare an affidavit declaring:

• The LLP has ceased operations from a specific date or never started.
• The LLP has no liabilities, and partners agree to indemnify any future claims.

4. Prepare Supporting Documents

Attach the following documents to LLP Form 24:

• Copy of the latest Income Tax Return (if filed). If no returns were filed, this is not required for non-operational LLPs.
• A statement of accounts showing nil assets and liabilities, certified by a Chartered Accountant, dated no more than 30 days before filing.

5. Resolve Pending Filings

Ensure that:

• The LLP Agreement is filed, if not already done.
• Any overdue Form 8 and Form 11 are submitted up to the date of cessation of business.

6. File LLP Form 24 with MCA

Submit the completed LLP Form 24 with all attachments to the MCA. Once reviewed, a notice of striking off will be published on the MCA website if no objections are raised.

Documents Required to Close the LLP

Here is a list of LLP closure documents required during the process:

• Board Resolution for Winding Up: Document signed by all partners approving the winding-up process.
• Liquidator’s Consent: Written consent from the appointed liquidator.
• No-Objection Certificate from Creditors: If applicable, creditors must provide a no-objection certificate.
• Final Accounts and Balance Sheet: Statement of accounts showing all liabilities cleared.
• Tax Clearance Certificates: Certificate from the tax authorities confirming no pending dues.

 Conditions for LLP Closure

Certain conditions must be met before initiating the LLP closure process:

• Settlement of Debts and Liabilities: All outstanding debts and liabilities must be cleared.
• Statutory Filings: All statutory filings and compliance requirements must be up-to-date.
• Approvals: Necessary approvals from all partners and creditors (if applicable) must be obtained.

Advantages and Disadvantages of LLP

Like any business entity, an LLP has its own advantages and disadvantages that should be carefully considered before choosing this structure.

Advantages of an LLP

1. Limited Liability: The liability of partners is limited to their agreed contribution to the business, protecting personal assets in case of business debts or losses.
2. Separate Legal Entity: An LLP is a separate legal entity from its partners, meaning it can own assets, enter into contracts, and sue or be sued independently.
3. Flexibility in Management: There is no strict separation between ownership and management, allowing partners to manage the business as per their agreement.
4. No Minimum Capital Requirement: Unlike private limited companies, LLPs do not have a minimum capital requirement, making them more accessible to small businesses and startups.
5. Ease of Compliance: LLPs have fewer compliance requirements compared to companies, such as no mandatory board meetings or annual general meetings.
6. Unlimited Number of Partners: An LLP can have any number of partners, offering greater flexibility in expanding ownership.
7. Low Registration Cost: Setting up an LLP is more affordable than incorporating a private limited company.

Disadvantages of an LLP

1. Limited Recognition: LLPs are not as widely recognised as private limited companies, which may affect investor confidence or business collaborations.
2. Restrictions on Fundraising: LLPs cannot raise funds through equity, making them less suitable for businesses looking to attract venture capital or private equity investment.
3. Limited Scope for Public Trust: LLPs are not listed on stock exchanges, so they may lack the transparency that comes with publicly traded companies, leading to lower public trust.
4. Difficulty in Expansion: LLPs are not ideal for businesses aiming for rapid scalability, as the inability to issue shares limits their access to growth capital.

An LLP is an excellent choice for small businesses, professionals, and startups looking for a flexible, cost-effective business structure with limited liability. However, it may not be suitable for companies that require significant funding or aspire to scale rapidly. 

Frequently Asked Questions

Understanding the Importance of a Co-Founder Agreement

A co-founders agreement is a governance framework. It provides clarity on expectations, defines legal boundaries, and establishes protocols for decision-making and dispute resolution.

Without it, startups risk misalignment, equity disputes, or founder exits that can derail momentum. Having this agreement from day one ensures:

• Legal protection for all founders
• Clear accountability
• Faster resolution in case of conflicts
• Long-term business stability

How to Determine Roles?

Before you split the equity or assign job titles, align on why you’re building this company. Once your mission is clear, it becomes easier to define what roles each founder should play.

Not all founders are the same, and not all will lead the same functions. Role clarity prevents overlap, power struggles, and decision-making delays.

Here’s a quick overview of typical leadership roles:

• CEO (Chief Executive Officer): Sets vision, makes high-level decisions, and manages investors.
• COO (Chief Operating Officer): Manages day-to-day operations, hiring, and internal workflows.
• CFO (Chief Financial Officer): Oversees finances, fundraising, and budgeting.
• President: Often works alongside the CEO, focusing on strategy execution or external relations.
• CMO (Chief Marketing Officer): Leads branding, marketing, and growth strategy.
• CTO (Chief Technology Officer): Drives product development and tech architecture.

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How to Split Equity?

One of the trickiest parts of a co-founder agreement is deciding who gets what percentage of the company.

Spoiler alert: Equal splits are often unfair. While it might feel diplomatic to go 50/50 (or 33/33/33), it rarely reflects the actual contributions of each founder. Equity should reward value creation, not just presence.

Consider these factors:

• Who initiated the idea?
• Level of early involvement and contribution
• Full-time vs part-time commitment
• CEO or leadership responsibilities
• Prior experience, networks, and domain expertise

It’s advisable to use structured frameworks or equity calculators and ensure all discussions are documented. Vesting schedules (typically four years with a one-year cliff) should also be agreed upon and reflected in the agreement.

Compensation and Salary Expectations

Most early-stage startups operate with limited capital. Founders often defer salaries or draw nominal compensation. However, clarity on current and future remuneration is essential.

The agreement should include:

• Initial salary (if any) or deferred compensation model
• Milestones or triggers for compensation reviews (e.g., seed funding, profitability)
• Equity-to-cash trade-offs, especially for operational founders
• Provisions for salary revisions approved by a board or mutual consent

Decision-Making and Dispute Resolution

Defining decision rights helps prevent operational gridlock and ensures strategic alignment. The co-founders agreement should outline the following:

• Voting rights: Specify which decisions require a majority, supermajority, or unanimous consent (e.g., capital raise, hiring key executives, M&A decisions).
  
• Dispute resolution mechanisms: Include mediation and arbitration clauses to resolve disagreements outside of court.
  
• Deadlock provisions: Outline how to handle situations where founders are split, potentially via third-party adjudicators or rotating authority.
  
• Exit protocols: Determine how decisions are made in case a founder decides to leave or is asked to step down.

Exit Strategies and Buyout Clauses

Exit events, whether planned or unforeseen, can significantly impact the startup’s equity structure. A co-founders agreement should detail:

• Voluntary exit protocols: Including share sale rights, notice periods, and replacement planning.
• Involuntary exit terms: For cause (e.g., misconduct) or no-fault exits (e.g., health issues).
• Buyout clauses: How shares are valued (e.g., pre-agreed formula, external valuation), who has the first right to buy, and what triggers a forced sale.
• Non-compete clauses: Restrictions on joining or starting competing ventures post-exit.

Without a clear exit plan, founder departures can become messy, expensive, and emotionally draining.

Non-Disclosure Agreements (NDAs)

Startups thrive on ideas, data, and speed. A loose-lipped founder or ex-founder can derail all of that. To protect your IP, customers, and strategy, include a strong non-disclosure clause in the co-founder agreement. It should cover:

• What qualifies as “confidential information”?
• How long the NDA lasts (often 1–3 years post-exit)
• Consequences of breaching the NDA

Founders should also agree on how sensitive materials like business plans, prototypes, and user data are handled upon exit.

Death, Disability, and Divorce Clauses

Contingency planning for life events is often overlooked but is essential to safeguard the business. Your agreement should include:

• Death clause: Specifies who inherits equity, buyback options for the company, and whether heirs receive any operational role.
  
• Disability clause: Details how long a founder can be inactive before reevaluation and whether shares can be repurchased or roles reassigned.
  
• Divorce clause: Ensures founder shares don’t get transferred to a spouse, with provisions for company buyback to retain control.

These clauses protect both the business and surviving founders from unforeseen legal and financial disruptions.

Frequently Asked Questions