Difference between LLP and Pvt Ltd | Decision Guide

LLP and Pvt ltd are the two famous forms of business structure in India. Yet, they still differ in some ways. Let us discuss LLP vs Pvt Ltd in detail.

A Private Limited Company is a preferred form of modern age businesses. It is loved by the investors because of transparency. The member's liability in a Pvt Ltd Company is limited to the amount they invest.

 

A Limited Liability Partnership is a partnership with limited liability.The minimum members required for a LLP are two. Besides, the members of an LLP also have limited liability. It is governed by The LLP Act of 2008.

 

Both LLP and Pvt Ltd are governed by the Companies Act of 2013. 

 

Summary for someone who is in hurry :

 

When to prefer LLP 

 

If you don’t want a lot of compliances from the beginning itself. Go for LLP.

Reason: Pvt company has more compliances than LLP

 

If you want to withdraw money from your business instead of keeping it invested. LLP is a better choice.

Reason: Profits Taxed at 30% flat.

 

When to prefer Pvt Ltd

 

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 the long run. 

Reason: Profits Taxed at 25% flat if kept invested. If withdrawn, the tax rate goes above 30%.

 

Difference between LLP and Pvt ltd company

 

Here’s a comprehensive list of differences between LLP and Pvt Ltd Company.

 

Capital Required

Pvt Ltd Company and LLP do not require any minimum share capital. So, you are good to go with any amount of investment.

 

Members

• Pvt Ltd- Minimum 2 and maximum 200
• LLP- Minimum 2 with no maximum limit

 

Directors 

• Pvt Ltd- Minimum 2 and maximum 15 directors
• LLP- Minimum 2 and maximum n/a.

 

Meeting of Board Members

• Pvt Ltd- Should be held every 4 times in a year with a gap of 120 days between two.
• LLP- Not required

 

Legal Audit

• Pvt Ltd- Necessary
• LLP-  Not necessary unless the partner's addition passes 25 lacs or the annual turnover is more than 40 lacs.

 

Yearly Filing

• Pvt Ltd- Requires annual financial statement and annual return with ROC, submitted in the forms AOC 4 and MGT 7.
• LLP- Requires annual account and returns with the ROC, submitted with LLP forms 8 and 11.

 

Compliance

• Pvt Ltd- High
• LLP- Moderately High

 

Liability

Pvt Ltd Company and LLP both have limited liability.

 

Share Transferring

• Pvt Ltd Company- It is simple to transfer but binds by the Articles of Association.
• LLP- Transfers by signing an agreement in front of a notary public.

 

Foreign Direct Investment

• Pvt Ltd Company- Available via automated and government route
• LLP -Available via automated route

 

Points of Similarity

 

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.

 

Documents required for LLP Registration in India

 

• Partners Photographs
• PAN Card of all the members
• Identity Card of Partners (Driving License/Passport/Voter ID)
• Address Proof (Electricity bill or any other utility bill as proof of the Registered Office's address)

 

Documents required for Pvt Ltd Company Registration 

 

• DIN (Director Identification Number)
• PAN Card
• Address proof
• Memorandum of Association
• Article of Association

 

 

LLP Vs Pvt Ltd Company - Taxation

 

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 Crore - Rs. 10 Crore, 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%.

 

The Verdict: LLP vs Pvt Ltd company

 

Cost Concern

Annual mandatory Compliance cost:

LLP: 5,000

Pvt Company 12,000

 

Best for...

• Pvt Ltd Company- Businesses with high turnover, as well as entrepreneurs in need of outside funding.
• LLP -Small business owners

 

Goodwill

A Pvt company enjoys goodwill and credibility. So, your vendors might be inclined towards a Pvt ltd company over an LLP.

 

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