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. However, mentioned below is the Difference between Private Limited Company and LLP.

Difference between Private Limited Company and LLP

Incorporation

The basic difference between a Private Limited company and LLP based on the Incorporation of the company is:

  • In LLP – For the formation of an LLP, a minimum of 2 Partners are required. Hence, There is no limit to the maximum number of Partners. A body corporate can be a member of an LLP as well.
  • In Private Company – The minimum number of the shareholder that is required for a company is 2 and there can be up to 200 shareholders, in the case of a private limited company.

  • The difference in taxation

    The basic difference between Private Limited Company and LLP based on Taxation on companies is:

  • In LLP – Compulsory registration is required along with the ROC.
  • In Company – Company registration is required along with the ROC. As well as the Certificate of Incorporation is conclusive evidence.

    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. Thus, All the foreign investment in LLP is on an approval basis.
  • Company – Foreign investment is allowed on an automatic or approval basis on the various sectors under the  FDI policy. However, there are percentage restrictions, as well as the performance-linked conditions, such as the minimum capitalization in various sectors.

    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.

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

      Capital contribution 

    • LLP – In LLP there is no as such capital
    •  Company –  In a Private Limited company, there should be a minimum paid-up capital of Rs.1 lakh.

             Foreign Investment

  • LLP – The Foreign investment in LLPs has been allowed from May 11, 2011, but it is restricted only to those sectors in which 100% foreign investment for the companies is permitted, and which do not have any performance-linked condition. All the foreign investment in LLP is on an approval basis.
  • Company – Foreign investment is allowed on an automatic or approval basis on the various sectors under the  FDI policy. Therefore, there are percentage restrictions, and also performance-linked conditions, such as the minimum capitalization in various sectors.

    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, However, irrespective of the share capital and the turnover.

    Foreign Nationals as shareholder / Partner

  • LLP – Foreign nationals can be partners.
  • Company – The  Foreign nationals can be shareholders.

Related Article–

What is the difference between Private Limited, Section 8 & Nidhi Company?

Advantages of Private Limited Company

Why LLP is better than Private Limited Company

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