Private Limited Company and LLP – Differences

In India, choosing the appropriate business structure is vital for the success of any startup and there are many business structures in India from which an entrepreneur can choose to set up a Company or a business. Private Limited Company and LLP are 2 such business structures. Both companies are similar in some parts while they differ in many areas & aspects. These 2 types of companies are the common pillars that an entrepreneur might decide to choose to set up its business. Investors & Entrepreneurs may make well-informed choices that fit their requirements & goals for their businesses by being aware of the vital characteristics of each company structure. In this article, we will discuss the difference between Private Limited Company and LLP.

Meaning of a Private Limited Company and LLP

Before we jump into the difference between Private Limited Company and LLP, let’s discuss the meaning of a Private Limited Company and LLP first.

• Private Limited Company:  This is a privately held business entity held by Private Stakeholders and in this case, the liability arrangement is that of a limited partnership wherein the shareholder’s liability extends only up to the number of shareholders held by them. 
• LLP (Limited Liability Partnership): It’s an alternative business form that gives the benefits of a company’s limited liability & the flexibility of a Partnership. A Limited Liability Partnership is a separate legal entity that is liable to the full extent of its assets but Partners’ liability is limited to their agreed contribution in the LLP.

Pros and Cons of a Private Company and LLP in India

Following are some Pros and Cons of a Private Limited Company and LLP in India:

Private Limited Company	LLP
Pros	Cons	Pros	Cons
No minimum paid-up capital requirement	Members are limited to 200	It requires fewer formalities	Heavy penalty for non-compliance
Members have limited liability	Restricts the transfer of shares of its members	It has a separate legal existence from its partners	Difficult to raise funds or capital from Venture Capitalists, equity funds, etc. since they can’t be the LLP Shareholders
Perpetual Succession	It can’t issue a prospectus inviting the public to subscribe to the shares of the company	Partners have limited liability	If the number of partners goes below 2, then it will be dissolved
Raise funds easily		It has perpetual succession
Separate legal entity from its members		It has lesser cost of registration as compared to Company Registration

Difference between Private Limited Company and LLP

Following is the detailed comparison table between Private Limited Company and LLP in India:

Important Points	Private Limited Company	LLP
Company Formation
Incorporation	Incorporation under Provisions of Companies Act, 2013	Incorporation under provisions of LLP Act, 2008
Minimum Number of Partners or Directors	2 Directors are required	2 Partners are required
Maximum number of Shareholders or members	200 members or shareholders are required	No such limit
Capital Requirement	No minimum Authorised & Paid-up Capital required	No minimum capital requirement
Registration Cost	Cost depends on Authorised Capital and stamp duty of each state	Registration cost is less as compared to Private Limited Company
Company Management
Management	Management of a Company is vested with Board of Directors (BoD) elected by Company’s Shareholders	LLP is managed by Partners as per LLP agreement
Ownership meetings for specific decisions	GM of shareholders to be conducted once in a year compulsorily	No requirement of meetings
Meeting for Management Decisions	There should be at least one meeting of BODs in every half of a calendar year & the gap between the 2 meetings is not less than 90 days	No such requirements
Designated Directors or Partners	A Company’s Director cannot be a Shareholder	Designated Partner should be a Partner of an LLP
Criteria for Startup Business in India
Startup India Registration	Any Private Limited Company in India can be registered under Startup India Program	LLP in India can be registered under Startup India Program
External Investment	It is the best business form for attracting External Investments from Venture Capitalists or Angels or PE	External Investments and FDI is possible but it is very difficult to attract investors to LLP
ESOPs for attracting employees	Only a Private Limited Company can issue ESOPs to attract employees	Not possible
Taxation
PAN	Company is required a separate PAN other than Director or Shareholder	LLP is required a separate PAN other than Partner
Tax Return Filings	It is necessary for a Company to file tax returns every year, in case of no business, a NIL is required to file. Delay in filing tax returns will attract penalties	It is necessary for an LLP to file tax returns every year, in case of no business, a NIL is required to file. Delay in filing tax returns will attract penalties
Taxability of Dividends in hands of Partners or Shareholders	Dividends from a domestic company up to Rs. 10 lakhs is exempted in the Shareholders’ hands. Dividend more than Rs. 10 lakhs shall be taxable at 10% in the case of HUF or Individual or Firm	Profit distributed by a Limited Liability Partnership in India is totally exempted in the Partner’s hands
DDT or Dividend Distribution Tax	If the Company profit is distributed as dividend, it will attract DDT at 20.36% on dividend	LLP profits after tax will be credited to Partners’ account & it will not be taxable in the Partner’s hands

Compliance Difference between Private Company and LLP in India

Following is the compliance difference between Private Limited Company and LLP in India:

1. In India, an LLP doesn’t have to conduct Board Meetings or AGM since the owners manage the business. Whereas, Directors manage a Private Limited Company in India, they must conduct at least 4 Board Meetings every year and it must also conduct an Annual General Meeting within 6 months of the end of Financial Year (F.Y.).
2. A Limited Liability Partnership in India must file the Statement of Account & Solvency and Annual Returns with the Registrar of Companies in Form-8 and Form-11 respectively. Whereas, a Private Limited Company must file its Annual Financial Statements and Annual Return with the Registrar of Companies in Form AOC-4 and Form MGT-7 respectively.
3. For an LLP in India, the Statutory Audit is not compulsory, an LLP should get its accounts audited when its annual turnover is more than Rs. 40 lakhs & the capital contribution is more than Rs. 25 lakhs. Whereas, the Statutory Audit is compulsory for a Private Limited Company, irrespective of its turnover.

Conclusion

A Private Limited Company and an LLP have a lot of similarities but they are different in various aspects. When a Startup or an Entrepreneur needs external funding & aims for a good turnover, then a Private Limited Company is best. When 2 or more individuals wants to start & operate a business in Partnership by contributing the capital amount, then the LLP Structure is the best. So, choose your business structure carefully as per your business needs in India.