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.
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.
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 If withdrawn, the tax rate goes above 30%.
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 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%.
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.
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