Comparison between LLP and Private Limited Company
17 Oct 2016
Limited Liability Partnership (LLP) is a hybrid version of a Partnership firm and a Private Limited Company i.e. it provides limited liability to its partners and also provides flexibility to govern their business as a partnership based on a mutually arrived agreement. Limited Liability Partnership is governed by Limited Partnership Act, 2008 whereas Private Limited Companies are governed by Companies Act, 2013.
LLP requires minimum of 2 designated partners and no maximum limit is specified whereas for starting a Company minimum of 2 Directors and 2 Shareholders are needed where Shareholder and Director can be same and maximum number can be 200 for shareholder and 15 for Director.
A Company requires Rs. 1 Lakh as Minimum Capital for its incorporation but no such requirement is needed in case of LLP.
It is compulsory for a Company to hold an audit every year, irrespective of their share capital. Whereas, the same rule doesn’t apply for LLP unless the contribution of the LLP exceed Rs. 25 Lakh, or if the annual turnover exceed Rs. 40 Lakh.
Running an LLP is less costly as compared to a Limited Company because there is less compliance to be made such as filing of Balance Sheet, P/L Account, Statement of changes in equity, etc.; whereas LLP is required to file only Statement of Account, Annual Return and Solvency. LLP requires no Board Meetings or Annual General Meetings whereas a Company is required to have AGM every year and Board Meeting in every quarter.
Moreover, Tax benefits are also more for LLP as is only required for Income tax @ 30% whereas Private Limited Company is charged with Income Tax @30% and Dividend Distribution Tax (DDT) @ 15%.
LLP is generally advisable for start-ups because it’s economical but this economical approach brings along certain disadvantage with it. Though initially LLP would be a better option but with time if you’re business needs funding then you have to arrange the same from your own pockets because an LLP cannot raise funds from public. This is the main reason why LLP has given certain privileges because it has nothing to do with the public money and therefore no strict rules are required as it is generally governed as Partnership. Moreover, Venture Capitalists are least interested in LLP and usually prefer to invest in Private Limited Company. Also a Private Limited Company can be converted into a LLP but LLP cannot be converted into Private Limited Company as of now.
Therefore, if you are a start-up and are short of funds then Private Limited Company is a better option because I believe that “to earn money you need money”.