Private limited Company vs. LLP - Which one is Better for You?
Two most popular form of business organization are Private limited Company and LLP. Most of the people believe that they are the same thing but each form of business has unique characteristics.
Private limited company and LLP are both separate legal entities that allow startups to engage in business activity through corporate structure. The Process of Private Limited Company Registration is quite different from LLP Registration Process. LLPs are still the best option for most small startups because they are designed to offer flexible tax structure, easier to set up and fewer restrictions. A PVT is tend to be better for forming big startups. Differences between the two separate legal entities include compliance, ownership, auditing and taxation.
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- Post incorporation compliances requirement for a private limited company is more difficult when compared to LLP. Only few compliances and procedural matters are required to be made by a LLP to be followed every year which is quite low to ensure the smooth functioning of the LLP.
- To start a limited liability partnership, there is no limit for the maximum numbers of partners, this is in contrast in the case of private limited company wherein there is a restriction of not having more than 200 members.
- Irrespective of their share capital, it is mandatory on the part of the private limited company to get their accounts audited. In case of LLP whose annual turnover exceeds Rs. 40 Lakh or whose contribution exceed Rs. 25 Lakh in any financial year are required to have its accounts audited. So, all other LLPs, there is no such mandatory requirement.
- Taxation structure for LLP is simpler as compared to Private limited company. No Dividend Distribution tax is applicable on LLP at the time of distribution of profits to its partners. Such dividend income is payable in the hands of the company.