The most common question that confuses the start-ups is the type of company that they should start – a private limited company or an LLP as in Limited liability partnership. Having helped many entrepreneurs set up their business, I decided to help every aspiring entrepreneur understand the diversity of these two concepts.
Formation
A private limited company can have a minimum of 2 shareholders and the number can go up to 200 as well.
For the formation of LLP minimum requirement is of 2 partners and numerous partners can be added the company. In fact, a corporate body can also be a member of an LLP.
Taxation
Private Limited Company tax rate: 25% and they can also opt lower Tax Rates Scheme announced by Government.
However for LLP, it is 30%
Compliance
In case of a private limited company, the cost of compliance is considerable. They are to maintain balance sheet, P&l or profit and loss accounts, auditors reports, directors reports, take meetings regularly, appoint auditors etc.
The compliance in case of LLP consists of accounts statements and solvency and annual reports. The efforts put in compliance of an LLP are not even half of what goes into a private limited company.
Investors
Venture capitalists prefer a private limited over an LLP. They are risk averse and usually don’t take into account the significant advantages of an LLP.
Audits
Irrespective of the turnover a private limited company is required to do a thorough audit.
Audit in LLPs is required if the turnover is over 40 lakhs or if the contribution is over 25 lakhs.
Ownership
In a private limited company, there is a clear distinction between owners of the share and management.
In an LLP also, there is clear distinction between partners and designated partners.
FDI
FDI is less hassle when it comes to private limited company. Here go through automatic approvals.
In LLP FDI is stringent.
Conclusion:
If you are entering into manufacturing setup, always private limited company is preferred because of the reduced tax rate and other benefits. Even investors go for private limited company. LLP is also a legal entity. Mostly service industries go for LLP. The tax rate in LLP is 30%. Private Limited company takes around 7 days for formation. LLPs takes longer. It can go upto 20 days.
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