Both Limited Liability Partnerships (LLP) and Private Limited Companies (Pvt Ltd) are popular business structures in India. Below is a detailed comparison highlighting their key features, advantages, disadvantages, and differences:
1. Features
Private Limited Company (Pvt Ltd)
- Minimum 2 members, maximum 200.
- Minimum 2 directors (maximum 15).
- Members’ liability limited to shares held.
- Suitable for high-turnover businesses requiring external funding.
- Has perpetual succession and separate legal entity.
Limited Liability Partnership (LLP)
- Minimum 2 partners (no upper limit).
- Partners’ liability limited to contributions made.
- Suitable for startups, traders, or small-medium businesses.
- Partners manage the business.
- Has perpetual succession and separate legal entity.
2. Advantages and Disadvantages
Advantages of Pvt Ltd Company
- Easy access to external funding (e.g., VC, angel investors).
- Perpetual succession ensures continuity.
- Clear distinction between ownership (shareholders) and management (directors).
- FDI allowed under automatic and approval routes.
Disadvantages of Pvt Ltd Company
- Higher registration and compliance costs.
- Statutory audits mandatory irrespective of turnover.
- Share transfer restricted; public fundraising not allowed.
- Limited to 200 members.
Advantages of LLP
- Lower registration and compliance costs.
- Partners manage the business directly.
- No statutory audits required for turnover under ₹40 lakhs or contributions under ₹25 lakhs.
- Flexibility in management and operation.
Disadvantages of LLP
- Limited funding opportunities; no VC or equity funding.
- Heavy penalties for non-compliance.
- FDI allowed only with prior approval.
- Dissolution if the number of partners drops below two.
3. Key Differences
| Aspect | Pvt Ltd Company | LLP |
|---|---|---|
| Ownership | Shareholders own, directors manage | Partners own and manage |
| Formation Document | MOA & AOA (public documents) | LLP Agreement (not public) |
| Registration Process | Form SPICe+ | Form FiLLiP |
| Compliance | AGM and board meetings mandatory | No AGM or board meetings required |
| Audit Requirements | Statutory audit mandatory | Statutory audit required only if turnover > ₹40 lakhs |
| Funding | Can raise funds through shares or loans | Limited to loans and partner contributions |
| FDI Policy | FDI allowed under automatic and approval routes | FDI allowed with prior approval |
| Taxation | 22%-30% (depending on turnover) | Flat 30%, surcharge above ₹1 crore income |
4. Choosing the Right Structure
- Choose Pvt Ltd if:
- You need external funding (VC, angel investors).
- You aim to scale and require formal governance.
- You want to attract foreign investors easily.
- Choose LLP if:
- You prioritize lower compliance and operational flexibility.
- You want to run a small or medium-sized business.
- You do not need equity-based funding.
Conclusion
Both LLPs and Pvt Ltd companies have their pros and cons. The decision to choose between the two depends on the nature, scale, and funding needs of the business. Consulting a professional or legal advisor is recommended to understand specific requirements and implications.
