Comparison between Private Limited Company and LLP | What to choose between Pvt Ltd and LLP?

comparison between private limited and limited liability partnership

 

 

Topics Of Comparison

 

Private Limited Company Limited Liability Partnership
Meaning

A Private limited company is a privately owned business entity.

In this type of business, there are a limited number of shareholders and the stocks of these companies are not for trade in public.

An LLP is a type of legal business structure with multiple partners who share limited liabilities.

It is the combination of a business structure where the partners enjoy the benefits of the limited liability of a company and the flexibility of a partnership.

Members

Owner (shareholder) can be different from the people managing (directors) the Company.

Minimum of 2 people are needed to start a Pvt Ltd.

The partners are both, the owners of the business and also the managers of the business.

Minimum of 2 people are needed to start an LLP.

Transfer of shares

Transfer of shares is easy and doesn’t require permission of existing shareholders. However, for transfer of shares of Private Company, you would need to get the valuation done by an expert.

The shareholding can be transferred only as per the conditions of LLP Agreement. Hence, you would need the permission of all the partners to transfer the shares.
Audit/Compliance Audit is mandatory even if there is no transaction in the Company. Audit is not mandatory unless the turnover doesn’t exceed INR 40 lakhs.
Taxation

Tax rate for Companies is reduced to 22%/ 15% from FY 2019-20 to boost startups in India.

LLPs are taxed at 30% similar to partnership firm. Share of profit is tax-free in partner’s hand and remuneration to partner is allowed as per income tax limit.
               Private Limited Company V/S LLP

EXPERT RECOMMENDATION:

As you have seen above, both have some benefits over the other.

LLPs are best suited for –

  1. If you want to keep low compliance, cost or turnover is expected not to cross INR 40 lakhs.
  2. LLPs are good for professionals or small businesses.

Companies are best suited for –

  1.  If you would like to go for funding either from Angel investors or VCs.
  2. You would want to build a big business in the long-term and take it public.

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