LLP and Pvt ltd have many related features for running a business. Yet, they still differ in some ways. So, we’ll discuss the difference between LLP and Pvt Ltd.
A Private Limited Company is a company held privately for small businesses. Therefore, a member's liability in a Pvt Ltd Company limits to the number of shares they own. Most importantly, trading of Shares of a Pvt Ltd Company publicly is restricted. It is governed by the Companies Act of 2013.
A Limited Liability Partnership is a business that needs at least two members. However, it has no set limit on the number of members. Besides, the members of an LLP also have limited liability. It is governed by The LLP Act of 2008.
Here’s a comprehensive list of differences between LLP and Pvt Ltd Company.
Pvt Ltd Company and LLP do not require any minimum share capital. So, you are good to go with any amount of investment.
Meeting of Board Members
Pvt Ltd Company and LLP both have limited liability.
Foreign Direct Investment
Legal entity - For the law, a Pvt Ltd Company or LLP is a separate individual.
Tax advantages - Tax benefits are available for both types of business structure and profits taxes at a rate of 30 per cent.
Registration- Both businesses require to register with the Ministry of Corporate Affairs.
Firstly, private limited companies pay tax on their income. Moreover, they pay a dividend distribution tax and an alternate minimum tax. On the other hand, Limited Liability Partnership (LLP) has a much simpler tax structure, imposing only two taxes. To clarify, the first is income tax, and the second is an alternate minimum tax. Here is a brief difference between LLP and Pvt Ltd taxation.
Limited Liability Partnership- The tax rate for LLP is a flat 30%.
For income tax purposes treat LLP as a partnership firm.
Surcharge: However, if the total income passes one crore rupees, the income tax increases by a surcharge of 12%.
Firstly, an LLP taxes as a separate legal entity. Moreover, any salary, bonus, commission, or remuneration due or received by a partner is permissible as a deduction in calculating a firm's taxable income, subject to certain restrictions. Above all, when a company pays interest to a partner, it can deduct the interest from its total income.
Private Limited Company- The tax rate for Pvt Ltd company is 25% + SC + EC MAT applicable
Surcharge: However, if the income is Rs.1 Cr. - Rs. 10 Cr. the income tax increases by a surcharge of 7%, and if the income exceeds 10 Cr., then the income tax increases by a surcharge of 12%.
Annual mandatory Compliance cost:
Pvt Company 12,000
A Pvt company enjoys goodwill and credibility. So, your vendors might be inclined towards a Pvt ltd company over an LLP.
If you don’t want a lot of compliances from the beginning itself.
Reason: Pvt company has more compliances than LLP
If you want to withdraw money from your LLP instead of keeping it invested
Reason: Profits Taxed at 30% flat.
If you want to bring in investors at a future date.
Reason: Investors prefer Pvt ltd companies a lot more than LLPs because of transparency.
If you wish to keep the money and profits invested in the company in long run.
Reason: Profits Taxed at 25% flat if kept invested. If withdrawn tax rate goes above 30%
Now it is easier for you to decide between LLP or Pvt Ltd which is better with all these details. In conclusion, there are some similarities and differences between the two types of business organizations. However, the choice solely depends on your requirements. For any further information contact our experts at www.starteazy.in