Private Limited Company Vs LLP- How to Choose the Right Business Structure

Private Limited Company Vs LLP

It is important for businesses to kickstart their businesses with the right business structure. Out of many businesses structures available for registration in India, Private Limited company and Limited Liability partnership are most preferred and popular form of business registrations by startup founders and business owners. 

However, more than 75% of the startup founders would be in a dilemma either to register their businesses as a Pvt Ltd company or an LLP. It is important for the startups founders and businesses man to understand the key differences between private limited company and limited liability partnership and choose the right business structure. Refer below for the similarities and key difference between Pvt Ltd company and LLP which would help you to decide on the right business structure for your business.

Similarities Between Private Limited Company and Limited Liability Partnership

  1. Registration Process

Both registration of Pvt Ltd company and registration of LLP are to be made with registries of Companies (ROC) on the MCA portal.

For registration of an LLP, FILLIP form needs to be filed, while SPICe+ form needs to be filed for registration of Pvt Ltd company.

  • Limited Liability 

In case of both private limited liability and limited liability partnership, the liabilities of the owners are limited to the amount invested in the business. I.e., In case of loss and insolvency of the business, the personal assets of the shareholders in case of Pvt Ltd company or the partners in case of LLP would not be used to repay the outstanding debts of the business. It is stated that the individual and the business are treated as 2 separate persons.

Key Differences Between Private Limited Company and Limited Liability Partnership

Private Limited CompanyLimited Liability Partnership
OwnershipShareholders and the board of directors (people who manage the business) of a Pvt Ltd company are different. However, shareholders can become board of directors.Partner in an LLP is an owner and the manager.
ComplianceHigher compliances and penalties for non-compliances are hefty in case of private limited company.Lower compliances compared to private limited company. However, the penalties for non-compliances are similar to the at of Pvt Ltd company.
FundingPvt Ltd Companies can easily raise funds from external investors, angel investors and Venture Capitalists.LLPs cannot raise funds from external investors, angel investors or venture capitalists as they don’t have the concept of shareholders.
TaxationWhen a Pvt Ltd company earns less than Rs.400 crores, it should pay a tax of 25%. When the company’s annual revenue exceeds Rs.400 crores, it must pay a 30% tax. Pvt Ltd companies can also choose between the new rates of 22% (for existing companies) and 15% (for new companies).An LLP needs to pay a fixed tax of 30% on the total income. When the total income exceeds by Rs. 1 Crores, an additional surcharge of 12% is charged on the tax. 

A Pvt Ltd company and an LLP have a few similarities, yet they are different in various aspects as stated above. When a startup fonder or a business man needs external funding and aims for a higher turnover, a Pvt Ltd company is the right business structure to go ahead with. When two or more persons wish to start and run a business in partnership by contributing the capital amount, the LLP structure is the best as against a partnership firm since LLP provides several benefits to the partners, such as limited liability, perpetual succession and separate legal entity. However, assessment needs to be done on case-to-case basis considering other factors such as impact of income tax, foreign direct investments, nature of business and many other factors. Contact us for a free consultation to guide you with the right form of business structure.

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