Introduction
Choosing the right legal structure is one of the most important early decisions for any entrepreneur.
In India, two of the most popular options for startups and small businesses are the Limited Liability Partnership (LLP) and the Private Limited Company (PLC).
While both offer limited liability protection and legal recognition, they differ in ownership, compliance, and operational flexibility.
In this article, Bisways Consulting Group compares LLPs and Private Limited Companies in detail so you can make an informed decision before registration.
Understanding the Two Structures
Limited Liability Partnership (LLP)
An LLP is a hybrid structure combining features of a partnership and a company. It is governed by the Limited Liability Partnership Act 2008, providing partners with limited liability while allowing internal flexibility similar to a partnership firm.
Private Limited Company (PLC)
A PLC is a separate legal entity incorporated under the Companies Act 2013. It offers higher credibility, investor preference, and scalability but comes with stricter regulatory compliance.
Ownership and Legal Status
| Aspect | LLP | Private Limited Company |
|---|---|---|
| Legal Entity | Separate legal entity distinct from partners | Separate legal entity distinct from shareholders |
| Liability | Limited to capital contribution | Limited to unpaid share capital |
| Ownership Units | Partners’ contribution defined in LLP Agreement | Shares held by shareholders |
| Minimum Members | 2 designated partners | 2 directors & 2 shareholders |
| Maximum Members | No upper limit | 200 shareholders |
Formation and Compliance
| Criteria | LLP | Private Limited Company |
|---|---|---|
| Governing Law | LLP Act 2008 | Companies Act 2013 |
| Incorporation Form | FiLLiP (Form for Incorporation of LLP) | SPICe+ (Form for Company Incorporation) |
| Statutory Audit | Mandatory only if turnover > ₹40 lakh or capital > ₹25 lakh | Mandatory every year irrespective of turnover |
| Annual Filings | Form 11 & Form 8 to ROC | AOC-4 & MGT-7/MGT-7A to ROC |
| Tax Return | ITR-5 | ITR-6 |
| Tax Return | Required for designated partners | Required for directors and authorised signatories |
Taxation and Profit Distribution
| Particulars | LLP | Private Limited Company |
|---|---|---|
| Income Tax Rate | 30 % on profits + surcharge & cess | 22 % (under Sec 115BAA) + cess |
| Dividend Distribution Tax | Not applicable | Dividend taxable in shareholders’ hands |
| Remuneration to Partners/Directors | Allowed as deduction (per Sec 40(b)) | Treated as salary; subject to TDS |
| MAT/AMT Provisions | AMT @ 18.5 % applies to certain LLPs | MAT @ 15 % applies to companies (if not under 115BAA) |
Taxation and Profit Distribution
TDS is applicable to:
LLP: Generally self-funded; cannot issue shares or attract equity investors. Suitable for professional firms and small service businesses.
PLC: Can raise equity or venture capital, issue ESOPs, and convert into a public company when scaling. Favoured by investors and lenders.
Taxation and Profit Distribution
| Parameter | LLP | Private Limited Company |
|---|---|---|
| Decision Making | Flexible; based on LLP Agreement | Formal board meetings & resolutions |
| Record Keeping | Less stringent | Detailed statutory registers & minutes |
| Conversion Option | Can convert to Company | Can convert to LLP (if eligible) |
| Closing Procedure | Simplified strike-off via Form 24 | Lengthier under Section 248 of Companies Act |
When to Choose Which
Choose LLP if:
You want flexibility and minimal compliance.
You run a small or medium professional service firm.
External funding is not a priority.
Choose Private Limited Company if:
You plan to raise investment or expand operations.
You want higher market credibility and structured governance.
You expect rapid growth requiring multiple shareholders.
Conclusion
Both LLPs and Private Limited Companies offer the benefit of limited liability, but they cater to different business goals.
An LLP suits small partnerships focused on operational simplicity, while a Private Limited Company is ideal for ambitious ventures seeking scalability, investment, and formal governance.
Choosing the right structure at the start saves time, cost, and complexity in future restructuring.
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