Table of Contents
Table of Contents
How To Choose Between Llp And Private Limited Company For Your Startup?
LLP vs Private Limited Company is a critical decision for every startup in India.
Pankaj Verma
How to Choose Between LLP and Private Limited Company for Your Startup?
LLP vs Private Limited Company is a critical decision for every startup in India. The choice between the two types is not just about registration but also decides your legal structure for startups in India future tax outcomes, funding options & liability protection.
Today, In this article we will look at the difference between LLP and Private Limited Company on Filesure.
Understanding LLP vs Private Limited Company
When deciding which is better for startup LLP or Pvt Ltd we first need clarity on what each type means.
A Limited Liability Partnership (LLP) allows partners to manage business directly & enjoy limited liability with a simple structure.
A Private Limited Company is a separate legal body with shareholders & directors & has stricter rules which suit growth & funding.
How to register LLP and Private Limited Company
Here is a simple look at the registration steps.
Entity Type | Registration Process | Key Highlights |
LLP | The form FiLLiP is used online to apply & partners need DPIN. | Name must end with LLP & has fewer steps. |
Private Limited Company | The SPICe+ form is used online & directors need DIN. | Name ends with Pvt Ltd & MOA AOA documents needed. |
The two need registration with the Ministry of Corporate Affairs (MCA) & compliance with the Acts. LLP under the Limited Liability Partnership Act 2008 & Private Ltd under the Companies Act 2013.
Tax benefits of LLP vs Private Limited Company
When we compare tax benefits of LLP vs Private Limited Company we find clear points.
The LLP is taxed at a flat rate near 30% plus extra charge on higher income.
The Private Limited Company can enjoy tax near 25% & new units may get near 15% rate.
The LLP has no Dividend Distribution Tax when giving profit to partners.
The Private Ltd may have its dividends taxed in shareholders hands.
Advantages and disadvantages: LLP vs Private Limited Company
Advantages of LLP
The LLP has fewer compliance needs with simple structure.
We find flexible management as partners manage work directly.
They suit service startups with fewer funds.
Disadvantages of LLP
The LLP has limited options to raise funds as shares cannot be issued easily.
They are less liked by investors & venture capital firms.
Advantages of Private Limited Company
The Private Ltd can raise funds easily & can issue shares & give ESOPs.
They have more trust with investors banks & clients.
The type suits scale up growth & large business plans.
Disadvantages of Private Limited Company
The Private Ltd has higher compliance with audits board meetings & AGM.
They have higher cost of upkeep & more rules to follow.
Compliance requirements for LLP and Pvt Ltd
Let us see the compliance requirements for LLP and Pvt Ltd side by side.
The LLP files yearly Statement of Accounts & Solvency & Annual Return in Form 8 & Form 11. We need audit only if turnover is more than ₹40 lakhs or capital is more than ₹25 lakhs.
The Private Limited Company must have audit every year. It files yearly financial report in Form AOC-4 & return in Form MGT-7. It must hold board meetings & AGM each year.
The startup may see more cost & effort with a Private Ltd company.
Cost of setting up LLP vs Private Limited Company
When we see the cost of setting up LLP vs Private Limited Company we can note key points.
The cost for forming an LLP is less than forming a Private Ltd.
The LLP has lower yearly cost as it needs fewer meetings & rules.
The Private Ltd has extra cost as it needs more compliance & upkeep.
The Private Ltd may also have hidden cost for funding & investor needs.
The LLP fits new startups with small budget in early stage.
Which is better for startup LLP or Pvt Ltd?
The small service startup with few partners & less funding should choose LLP. The type gives freedom with low compliance & fits professional firms. The business that plans to grow fast raise venture capital give shares bring investors or plan for exit should go with Private Limited Company. The setup supports growth funding & trust.
The founders with plan to raise funds expand or offer ESOPs should pick Private Ltd.
The Private Ltd makes transfer of ownership easy through shares while LLP needs partner consent for change.
Conversion of LLP to Private Limited Company
The conversion of LLP to Private Limited Company is possible under MCA rules if partners & shareholders agree. The process needs proper filing & approval.
The plan gives flexibility to start small & then move to a larger company setup later.
LLP vs Private Limited Company
Feature | LLP | Private Limited Company |
Legal entity | Separate body managed by partners | Separate body managed by directors & owned by shareholders |
Ownership transfer | Needs partner consent no shares | Shares can be transferred per AOA easy investor entry |
Funding access | Limited cannot issue shares easily | Strong access to equity VCs ESOPs |
Compliance burden | Low to medium | High compliance with audits board meetings AGMs |
Taxation | Near 30% plus extra charge no DDT on profit | Corporate tax near 25% for small firms dividends taxed |
Cost of setup & upkeep | Lower | Higher |
Best for | Professional services small teams low funding | Growth startups outside funding scalability |
Conclusion
At Last, We Can Conclude that LLP vs Private Limited Company is not a single right choice for all. The best type depends on your vision funding needs & work style. The LLP fits a small team or service business with low funding & less formal work. The Private Limited Company fits those with plan to grow raise funds & build a big brand. The right choice today builds a strong base for your startup future. We choose wisely & build with clear focus.
Also Read: Why Every Director In India Must Complete Director Kyc On Time