Many startups got confused between Private Limited Company and Limited Liability Partnership. 

The private limited company is the most preferred and popular choice of business entity in India. The members liability is limited upto extent of shares they have contributed. On the other side, limited liability Partnership is legal entity who can continue its existence irrespective of the changes in the partners.It is a hybrid form of partnership and a company. There are various common features as well, Both has limited liability and market recognition in India. Both are governed by Ministry of Corporate Affairs. 

Lets look at the key difference between Private Limited Company and Limited Liability Partnership.

If we talk about Brand Value, Private limited Company has larger acceptance in corporate world because lots of large enterprise do business with Private Limited Company. On the other side, LLP (Limited Liability Partnership)  is new concept started in 2008 and more associated with small medium enterprises.

Lets move forward towards the Cost Factor. The overall cost of incorporation and Roc compliance of LLP is less than a Private Limited Company. For example, The cost of incorporating a Private Limited Company varies from Rs.5,000 to Rs.10,000 and in LLP, It is Rs.3,000 to Rs.7,000. Similar in Roc compliance there is a price of Rs.5,000 to Rs.10,000 in Private Limited Company and Rs.3,000 to Rs.5,000 in LLP averagely. So the Private Limited Company has higher cost involved.

And on the Tax part LLP has a higher tax ratio that is 30%. On the other hand, Private Limited Company has a 22% of tax rate but as per the new amendment came from 1st October 2019, it is 15% for newly manufacturing companies.

The most important factor that is Compliance, the LLP has a lesser compliance than a Private Limited Company because in Private Limited Company, we have to appoint the auditor within 45 business days, We have to conduct 4 board of meetings in a year. Also there is filling of commencement certificate within 180 days. So there is lots of more compliances in Private Limited Company as compared to LLP.

The favourite part of most of the startups is Funding because it is much easier to raise funds in Private Limited Company than a LLP. Also it provides stock options to the employees. Bankers and lenders also much rather lend to Private Limited Company as compared to LLP because there are various challenges in infusing funds in LLP.

LLP shows advantage here in terms of audit of accounts because it needs to be audited only if the turnover exceeds 40lakhs and the capital contribution is more than 25 lakhs. On the other side, Private Limited Company would have to file the audited financial statements with MCA every year even if there is no transaction.

So we conclude that both has their own merits and demerits and their flexibility. Figure out the best entity for you. Get a free consultancy to choose the best entity for your Startup at +91 844 7037 100