Choose Between LLP And Private Limited Company

Choose the best one for you

Whether you want to start as an LLP or private limited company depends upon the objective, scope and capital and sale of the business entity. LLP is recommended when the capital amount is less than 25 lacs and sales turnover is more than 40 lacs. In such cases, LLP is not required to audit their statements and other compliance obligation and thus reduce cost.

If LLP crosses the sales turnover of Rs.40 lakhs or capital contribution of Rs. 25 lacs, then it is advisable to opt for Private Limited Company as the compliance requirement of LLP will be same as that of a company. In addition, LLP won’t be able to raise equity capital as currently there is no procedure for converting LLP into Private Company. Hence, if the entrepreneur wants to expand business and infuse equity capital from private equity investors, venture capitalist or angel investors then a Pvt limited company is the best choice.

Reasons for LLP Registration

The LLP registration in India has seen increasing trend due to following reason:

Increase in awareness among small business regarding the concept of LLP.
It is easy to start and manage.
It provides the benefit of limited liability as well as flexibility to organize their firm internally.
The audit is not required except if annual sale more than Rs.40 lakhs and or capital contribution is less than Rs.25 lakhs. Auditing is mandatory in Private Limited Company irrespective of sales turnover and capital contribution.
LLP does not have to pay dividend distribution tax (DDT) which is 15%( surcharge & educational cess) for Private Limited Company.
LLP does not have to organize Board meeting or annual meeting, unlike private Limited company.
The government fee for registration of LLP is significantly lower than the incorporation of the private limited company. LegalRaasta offers Private Limited Company at Rs. 13999/- all inclusive. Whereas, LLP Registration fee is Rs. 7999/- all inclusive.
Fewer documents and less burdensome is the process for registration of LLP as compared to Private Limited Company.Read what documents are required for Registering LLP.
The above reasons have led to a strong growth in the number of LLPs registered in India.

For detailed discussion read Advantages of LLP and If LLP is the right choice for you.

Reason for Private Limited Company Registration

In spite of all the benefits that LLP avail, there are some bottlenecks that business entities preferred Private Limited Company (Read Advantages of Private Limited Company in detail). The reasons are as follow:

There is no concept of shareholders in case of LLP. All the owners of an LLP are a Partner in the LLP making it unsuitable for investors such as Venture Capitalists and Private Equity Investors who do not intend to actively participate in the management of the Company. Hence, for investors, Private Limited Company is the viable choice. Therefore, if the business entity has the scope for expansion of business, then it must be registered as a private limited company.
With growing interest among investor in increasing their foothold in the second largest market, Foreign Direct Investment (FDI) are gaining popularity. However, Foreign Direct Investment (FDI) in a private limited company is under the automatic route whereas government approval is necessary for FDI in LLP making it undesirable for investors. Therefore, businesses that have NRI or foreign promoters must prefer incorporation of a private limited company.

This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST Software, GST Return Filing, GST Registration, Section 8 Company Registration, Nidhi Company Registration, IEC Registration, Fssai License, File ITR Online.