Discover the pros and cons of Limited Liability Partnerships (LLP) compared to Private Limited Companies. Learn about tax advantages, compliance differences, and the unique features of each business structure.

LLP is an alternative corporate business entity that gives the benefits of both limited liability of a company and the flexibility of a partnership.  The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name. The LLP is a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP which is an advantage to its partners.

The profit of the firm is taxed in the hands of the firm. Therefore, the partner’s share in the total profit of the firm is exempt from tax in the hands of the partners as per section 10(2A) of the Act.

Restriction on Remuneration to be paid to partner under section 40(b ) for LLP as below

1. Restricted to Rs. 1,50,000 if there is loss

2. In case of profit then

a. On first 3 lakhs of profit Rs, 1,50,000 or 90% of book profit whichever is higher

b. On balance book profit – 60% of book profit is allowed

The Act restricts the amount of interest paid to partners to 12% per annum simple interest. Any amount over 12% shall be disallowed as an expense.

Presumptive taxation under 44AD is not applicable for LLP

Below table provides a high-level advantage or disadvantage of LLP to Private Limited company.

Advantage or disadvantage of LLP in comparison to Private Limited company

Sl. No.

Limited Liability Partnership Private Limited Company
1 Minimum 2 partners Minimum 2 Directors
2 Governing document – LLP Agreement Governing document – MOA and AOA
3 No requirement of AGM or Board Meeting Requirement of AGM and Board Meeting
4 LLP should get its accounts audited if crosses 40 lakh turnover Audit compulsory for every Company
5 An LLP must file the statement of account and solvency and annual returns with the ROC in Form 8 LLP and Form 11 LLP A Pvt Ltd company must file its annual financial statements and annual return with the ROC in Form AOC 4 and Form MGT 7
6 LLPs cannot be listed on a stock exchange Companies can be listed on stock exchange
7 FIIs and FVCIs ( Foreign venture capital institutions) Higher restriction and compliance to invest in an Indian LLP. It is allowed in Companies
8 An LLP should pay a 30% fixed rate tax on its total income. When its total income exceeds Rs.1 crore, the income tax amount is increased by a surcharge of 12% + Health and Education Cess @4% The tax rate for Pvt Ltd company is 25% + SC + EC (beyond 400 crore turnover, tax rate is 30%)

Surcharge charged as below

  • 7% – Taxable income above ₹ 1 crore– Up to ₹ 10 crore
  • 12% – Taxable income above ₹ 10 crore
  • 10% – If Company opting for taxability u/s 115BAA or Section 115BAB

Health and Education cess @ 4% shall also be paid on the amount of income tax plus surcharge (if any)

9 No application of Deposit rules. Fund transfer to and from LLP to partner and back to LLP is easy with minimal restriction Restrictions on acceptance of deposits and loans from Public and Shareholders and high compliance requirement for accepting loans from Directors
10 Partners are free to enter into any contract. Restrictions on Board regarding some specified contracts, in which directors are interested.
11 The necessary rules in regard to the application of accounting standards are not framed as of now Companies have to mandatorily comply with accounting standards
12 Will enjoy Comparatively higher creditworthiness from Partnership due to Stringent regulatory framework but lesser than a company. Due to Stringent Compliances & disclosures under various laws, Companies enjoys high degree of creditworthiness.
13 FDI Eligible via automatic route FDI Eligible via automatic and government route
14 Minimal compliances for LLP compared to Private Limited Company and ROC filing High compliances as the turnover increases.  More complex with respect to ROC filing. Number of filings and certifications increases as turnover increase
15 Not much reporting and disclosure requirements for LLP Many disclosure requirements with regard to financials and audit report

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February 2024