Difference between private limited and LLP

Since the concept of LLP has been introduced in India, apart from incorporating a traditional Private Limited Company, it has become an option for the entrepreneurs, business owners and the investors who are starting their new ventures to start their business as an LLP. In the light of this, it is important to understand the advantage of each of these, for example, the formations, the differences between them and to consider it carefully which ones suit the need of the business best.

Thus the article below will tell us the difference between LLP and Private Limited.

1. Incorporation:

Of LLP – For the formation of an LLP, minimum of 2 Partners are required. And, there is no limit to the maximum number of Partners. A body corporate can be a member of an LLP as well.

Of Company - The minimum number of the shareholder that are required for a company is 2 and there can be up to 200 shareholders, in a case of a private limited company.

1. The difference in taxation:

A Limited Liability Partnership is only subjected to income tax and alternative minimum tax. Whereas, a Private Limited Company, on the other hand, is liable to pay various taxes that are on the income tax, dividend distribution tax and the minimum alternate tax.

1. Registration:

LLP – Compulsory registration is required along with the ROC

Company – Compulsory registration is required along with the ROC. The Certificate of Incorporation is a conclusive evidence.

1. Name:

LLP – The name of such kind of business is to end with “LLP” Limited Liability Partnership”

Company – The Name of a public company is to end with the word “limited” and a private company with the words “private limited”

1. Capital contribution:

LLP – It is not specified

Company – In a Private Limited company, there should be a minimum paid up capital of Rs.1 lakh.

1. Liability of shareholders/ LLP partners:

LLP – The liability of the shareholders is limited to the extent of the contribution to the LLP.

Company – The liability of the shareholders is Limited to the extent of the unpaid capital.

1. Foreign Investment:

LLP – The Foreign investment in LLPs has been allowed from May 11, 2011, but it is restricted only to those sectors where 100% foreign investment for the companies is permitted, and which do not have any performance linked conditions. All the foreign investment in LLP is on approval basis.

Company – The Foreign investment is allowed on an automatic or approval basis on the various sectors in accordance with the FDI policy. There are percentage restrictions, and also performance linked conditions, such as the minimum capitalization in various sectors.

1. Audit:

LLP – Auditing is required, if the contribution is above Rs.25 lakhs or if the LLP’s annual turnover is above Rs.40 lakhs.

Company – Audit is Compulsory, irrespective of the share capital and the turnover.

1. Foreign Nationals as shareholder / Partner:

LLP – The Foreign nationals can be partners.

Company – The Foreign nationals can be shareholders.