Private Limited Company VS LLP
Introduction
Generally there is a confusion among the startups in India about the nature of the entity to start their business with. In order to solve their confusion, they do lots of research online to select the best suitable nature of entity for their type of business and scale of business. Generally due to lack of knowledge, they opt for a less suitable type of entity and later it creates more problems for them. In order to sort out this issue, we have already done our extensive research on Private limited company VS LLP.
So, now you concentrate on your business operations and let us take care of your compliances and regulatory requirements.
Basics
In a nut shell, if you are into a small or mid-size business and you don’t seek any funding, you should preferably opt for an LLP.
Both LLPs and Private limited companies are to be registered with the ministry of corporate affairs. And both has almost similar process for registration.
Now let’s see a comparison between both of them:
Basis
LLP
Private Limited company
Number of members
Min - 2, Max - no cap
Min - 2, Max – 200
Taxes
Income tax @ 30%
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No requirement for
Dividend distribution tax
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Income tax @ 30 %
MAT @ 18.5 %
Dividend distribution
tax @ 20.4746%
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Capital Contribution
Not specified
Private company should have a minimum paid up capital of Rs. 1 lakh
Personal Liability
Limited to the extent of the contribution to the LLP
Limited to the extent of the unpaid capital
Foreign Nationals as shareholder / Partner
A foreign national can be a partner
A foreign national can be a shareholder
Meetings
No such requirement
4 Board of directors meetings a year and an annual general meeting is compulsory
Annual Returns
Annual statement of accounts and solvency & Annual Return has to be filed with ROC.
Annual Accounts and Annual Return to be filed with ROC.
Audit
Required only in case contribution is above 25L or if annual turnover is above 40L
Compulsory
Dissolution
Less procedural
Very procedural
Venture capitalists preference
Low
High
Credibility
Low
High due to strict compliance
Conversion
Cannot be converted to a private limited company
Can be converted to an LLP
Cost of registration
Low
High
Annual ROC cost
Low
High
Esops
Not possible
Possible
Conclusion
Private limited companies are well established in India, and has a wide spread recognition, whereas LLP being a relatively new concept in India, Investors prefer investing in Companies rather than LLPs.
Now in case you are looking to raise fund or offer ESOPs to your employees, private limited company is the way to go. In case you don’t have any such requirement you should probably go for an LLP. However, do take some time to think over it, as if you get an LLP registered you need to get all other registrations done on its name. And in future you think to switch from an LLP to a Company, considerable efforts would be required.