Difference Between LLP and Private Limited Company: Which is Better?
Introduction When starting a business in India, one of the key decisions is choosing the right business structure. Two of the most popular options are Limited Liability Partnership (LLP) and Private Limited Company (Pvt Ltd). While both provide limited liability to their owners, they differ in terms of ownership, compliance, taxation, and governance. This article compares LLP and Private Limited Company to help you decide which structure is best for your business.
What is an LLP (Limited Liability Partnership)?
A Limited Liability Partnership (LLP) is a corporate business structure that combines the flexibility of a partnership with the limited liability benefits of a company. LLPs are governed by the Limited Liability Partnership Act, 2008.
Key Features of LLP:
- Separate legal entity distinct from its partners
- Limited liability protection to partners
- Less regulatory burden compared to a Pvt Ltd Company
- Ideal for professional services firms, small businesses, and consultants
What is a Private Limited Company (Pvt Ltd)?
A Private Limited Company (Pvt Ltd) is a company registered under the Companies Act, 2013. It offers limited liability to shareholders and has a more structured governance framework.
Key Features of Pvt Ltd Company:
- Separate legal entity distinct from its shareholders
- Limited liability protection for shareholders
- Preferred by investors and VCs for funding
- Ideal for growth-oriented businesses and startups
Key Differences Between LLP and Private Limited Company
| Feature | LLP (Limited Liability Partnership) | Private Limited Company |
|---|---|---|
| Governing Law | LLP Act, 2008 | Companies Act, 2013 |
| Legal Identity | Separate legal entity | Separate legal entity |
| Liability | Limited liability for partners | Limited liability for shareholders |
| Number of Owners | Minimum 2 partners, no maximum limit | Minimum 2, maximum 200 shareholders |
| Ownership Transferability | Less flexible, requires agreement between partners | Shares can be easily transferred |
| Compliance Requirements | Low compliance, requires only annual filings | High compliance, requires audits, board meetings, and annual filings |
| Taxation | LLPs are taxed at a flat rate of 30% | Companies are taxed at 22% (normal rate) or 15% (if under new regime) |
| Funding & Investment | Not preferred by investors as shares cannot be issued | Easier to raise funding from investors, VCs, and angel investors |
| Audit Requirement | Mandatory only if turnover exceeds βΉ40 lakhs or capital exceeds βΉ25 lakhs | Mandatory audit irrespective of turnover |
| Decision Making | More flexible, decisions made by partners | Structured governance with board meetings and shareholder decisions |
| Best Suited For | Small businesses, professional firms, consultants | Startups, growth-oriented businesses, investor-backed companies |
Advantages & Disadvantages of LLP and Pvt Ltd
Advantages of LLP
β Low compliance cost and effort β No mandatory audits (unless turnover exceeds limits) β Flexible structure for small businesses and professionals β Limited liability protection for partners
Disadvantages of LLP
β Not preferred for VC funding and external investments β Less flexibility in ownership transfer β Higher tax rate compared to a Pvt Ltd company under the new tax regime
Advantages of Private Limited Company
β Highly preferred by investors and venture capitalists β Easy ownership transfer via shares β Lower tax rate (15% under new tax regime for eligible companies) β Separate identity with structured governance
Disadvantages of Private Limited Company
β Higher compliance requirements β Annual audits are mandatory β More regulatory formalities and governance structure
Which is Better: LLP or Private Limited Company?
The choice between an LLP and a Private Limited Company depends on your business goals:
- If you are running a small business, professional service firm, or do not require external funding, an LLP is a better choice due to lower compliance costs.
- If you plan to raise investments, scale your business, or need a structured governance system, a Private Limited Company is the better option.
Conclusion
Both LLP and Private Limited Company offer limited liability and a separate legal identity, but they cater to different business needs. For startups, tech businesses, and companies looking for funding, a Pvt Ltd Company is recommended. For small businesses, freelancers, and consultants, LLP is the ideal choice. Carefully analyze your business model and long-term vision before making a decision!
Need help with LLP or Pvt Ltd registration? Fiscalrize can assist you in hassle-free business registration and compliance!