The short version
- Choose a Private Limited company if you plan to raise equity, give employees ESOPs or eventually list.
- Choose an LLP if you run a services firm with partners and do not plan to raise equity.
- An LLP needs an audit only if turnover goes above ₹40 lakh or contribution above ₹25 lakh.
- Shares in a company transfer easily. A change of partners in an LLP means amending the LLP agreement.
What they have in common
A Private Limited company and an LLP are both separate legal entities. Your personal assets are kept apart from the business's debts.
A company is governed by the Companies Act, 2013. An LLP is governed by the Limited Liability Partnership Act, 2008, which sets out fewer formal procedures.
Raising money
Angel and venture capital investors almost always invest through shares, so they expect a Private Limited company. ESOPs also need shares.
An LLP has no share capital. Partners contribute capital and share profits under the LLP agreement. Bringing in a new partner, or changing shares of profit, means amending the agreement with every partner's consent.
Compliance each year
Every Private Limited company must appoint an auditor, hold board meetings and an AGM, and file AOC-4 and MGT-7 or MGT-7A, even with no revenue.
An LLP files Form 11 and Form 8 each year. Its accounts need an audit only if turnover goes above ₹40 lakh or partner contribution above ₹25 lakh.
Side by side
The main differences, briefly:
- Minimum people: two directors and two shareholders for a company; two designated partners for an LLP.
- Ownership and management: separate in a company (shareholders and directors); usually the same people in an LLP.
- Tax: an LLP pays a flat rate on its profits. A company can choose a lower rate if it gives up certain deductions. Ask us which works out cheaper for you.
- Changing later: an LLP can convert into a company, but it takes time and filings. Starting as a company avoids this if you expect to raise.
This guide is general information, not legal or tax advice. Rules and fees change often, so check with an advisor before you file anything.