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Comparison Between LLP and Private Limited Company

November 14, 2018     by Kirti Arora

The most important decision which a start-up needs to take is the choice of business organization, whether to go for a LLP or a Private Company.

Both LLP and Private Limited Company structure offer same benefits such as Limited Liability, Separate Legal Entity, Perpetual Succession, no requirement of minimum contribution etc. Their registration process is also similar. Foreign Direct Investment in case of LLP and Private Limited Company is permitted upto 100% under automatic route in most of the sectors other than those sectors which are restricted. But some of the major differences which must be taken into consideration while choosing the form of business organization are as follows:

 

S. No. Basis of Difference Limited Liability Partnership Private Limited Company
1. Compliance Requirement
  • LLP is required to file only the Annual Return and a Statement of Accounts & Solvency.

 

 

  • LLPs are not required to conduct Board Meeting and Annual General Meeting.
  • Private Limited Company has to comply with number of compliances which includes but not limited to periodic filing of forms and returns, maintaining of statutory registers and records, holding of meetings etc.

 

  • Companies are required to conduct at least 4 Board Meetings in a year and a Annual General Meeting.

 

  • Small Companies (whose paid-up share capital does not exceed Rs. 50 Lakhs) are required to hold at least one Board Meeting in each half of a calendar year
2. Audit
  • LLP is required to get their accounts audited only if their annual turnover exceeds Rs. 40 Lakhs or contribution amount exceeds Rs. 25 Lakhs.
  • All Companies are required to get their accounts audited annually.
3. Taxation
  • LLP is liable to pay income tax at flat 30%.

 

 

 

 

 

 

 

  • Dividend Distribution Tax is not applicable.
  • Company is liable to pay income tax based on their turnover:-

 

Turnover Tax Rate (%)
Upto 250 Crore 25%
More than 250 Crore 30%

 

  • Additional tax liability in the form of Dividend Distribution Tax at the rate of 15% is applicable on company.
4. Winding Up
  • For winding up of Defunct LLP the procedure is less complicated.
  • Winding up of a company is governed by Insolvency and Bankruptcy Code and it is quite elaborated as compared to LLP.
5. Striking-Off

(Companies or LLPs which are inoperative and have no assets & liabilities can go for Strike off)

  • If LLP is not carrying on any business or operation for a period of one year or more, it can make an application to the Registrar of Companies for striking off the name of LLP from the register of LLPs.
  • If company has failed to commence its business within one year of incorporation or is not carrying out any business for preceding 2 financial years and has not sought the status of Dormant Company it can make an application to the Registrar of Companies for striking off a company.

 

The selection of form of business organization depends upon the business rationale, funding requirement, ownership and management control and such other factors.

You can also refer to our other blogs related to LLP and Private Limited Company:

Foreign Direct Investment In LLPs
Limited Liability Partnership (LLP)
Shareholders’ Meeting of a Private Limited Company in India: How Convenient

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