Choosing the right business structure is one of the most critical decisions for entrepreneurs. It lays the foundation for how the business will operate, manage liabilities and raise funds, as well as how stakeholders will perceive it.
Among the many options available, Private Limited Companies (Pvt Ltd) and Limited Liability Partnerships (LLP) are two of India's most popular and widely adopted structures.
Both these structures offer the advantage of limited liability while being distinct in their governance, ownership, compliance requirements and suitability for different business types.
This blog provides an in-depth comparison of Pvt Ltd companies and LLPs, delving into their features, compliance requirements, taxation and funding options. By the end, you will have a clear understanding of which structure aligns best with your business goals and aspirations.
The fundamental difference between a Pvt Ltd and an LLP lies in ownership and management. While a Pvt Ltd company is governed by shareholders (owners) and directors (managers), an LLP is managed by partners who own and operate the business. Additionally, compliance requirements, taxation and funding options differ significantly between the two.
Here is a table outlining the difference between LLP and a private limited Company:
While the differences between LLPs and Private Limited Companies are numerous, they share similarities in key aspects:
Let’s understand the key features and registration process in detail for both Private limited companies and LLPs.
A Private Limited Company (Pvt Ltd) is a privately held business entity that operates under the legal framework of the Companies Act of 2013 in India (or similar laws in other countries). It combines the benefits of limited liability protection for its shareholders with certain restrictions to maintain its private nature.
This structure is popular among startups and small to medium-sized enterprises due to its ability to attract investments while offering limited liability protection and operational flexibility.
Listing down some key advantages of a Private Limited Company below:
The liability of Shareholders is limited. Personal assets are generally protected from business debts.
A Private Limited Company is considered a distinct legal entity from its owners (shareholders). It can enter into contracts, own property, and sue or be sued in its own name.
Owned by shareholders who hold shares in the company. Transfer of ownership is facilitated through the buying and selling of shares.
Managed by directors who are appointed by the shareholders. The day-to-day operations are overseen by the management team, while major decisions are often subject to shareholder approval.
Requires a minimum of two shareholders and can have a maximum of 200 shareholders.
Governed by the Companies Act and regulated by the Ministry of Corporate Affairs in India. Compliance includes filing annual financial statements, conducting annual general meetings and maintaining statutory records.
Easier to attract investment and funding compared to other business structures due to the well-defined ownership structure and limited liability.
The company continues to exist even if its shareholders or directors in private limited company change, retire, or pass away. Ownership can be transferred seamlessly through the sale of shares.
The Ministry of Corporate Affairs (MCA) has introduced a streamlined process for incorporating companies called the Simplified Proforma for Incorporating Company Electronically Plus (SPICe+). It consists of two parts: Part A and Part B.
• A Digital Signature Certificate (DSC) is a digital method of verifying or attesting documents.
• It is typically issued with one or two-year validity and is mandatory for all witnesses in the Memorandum of Association (MOA) and Articles of Association (AOA).
• Class 2 or 3 DSCs can be obtained through listed Government Certifying Agencies (CAs).
• Part A facilitates 'Name Reservation' with two proposed names and one re-submission (RSUB).
• In case of name rejection due to various reasons, a re-filing with the specified fee is required.
Note: Simultaneous application for name approval (Part A) and Incorporation (Part B) through SPICe+ is possible, but only one name can be reserved.
After name approval, Part B completes the registration process, including:
The entered information in SPICe+ Parts A and B is automatically transferred to associated forms like AGILE-PRO, eAoA, eMoA, URC1, and INC-9, as applicable.
Open a current account for your company to facilitate seamless financial transactions and business operations, handling various aspects such as receiving payments, making supplier payments and managing payroll.
The Commencement of Business Certificate, filed through Form INC-20A within 180 days of incorporation, is a declaration by the Director of the Company submitted to the Registrar of Companies.
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After the SPICe+ Form receives approval, the Registrar of Companies (ROC) issues the Certificate of Incorporation, confirming the successful registration of your company.
This certificate includes vital information such as the Company's name, registration number (CIN), date of incorporation, registered office address, and so on.
Example of CIN: U72200KA2013PTC097389
Read more about what each letter in a CIN signifies here.
A Limited Liability Partnership (LLP) is a business structure combining features of a traditional partnership and a limited company.
Limited Liability Partnerships are often chosen by professional services firms, small businesses and ventures where the partners want the flexibility of a partnership along with the protection of limited liability.
A Limited Liability Partnership (LLP) is a business structure that combines features of both a traditional partnership and a limited company. Limited Liability Partnerships are often chosen by professional services firms, small businesses, and ventures where the partners want the flexibility of a partnership along with the protection of limited liability.
Some key characteristics of a Limited Liability Partnership are:
Similar to a private limited company, partners in an LLP have limited liability.
An LLP is a distinct legal entity from its partners. It can own property, enter into contracts, and sue or be sued in its own name.
Owned by partners, and the ownership structure is defined by the LLP agreement. Transfer of ownership usually requires the consent of other partners.
Managed by partners or a designated management team, as specified in the LLP agreement. Each partner typically has an equal say in the management decisions, making it a more collaborative structure.
Requires a minimum of two partners, and there is no maximum limit on the number of partners in an LLP.
Governed by the Limited Liability Partnership Act in India, with less stringent regulatory requirements compared to a private limited company. Compliance involves filing annual returns and maintaining statutory records.
Offers greater flexibility in terms of internal management and decision-making processes compared to a private limited company.
Here's a simplified guide on the steps for Limited Liability Partnership (LLP) registration:
After the FiLLiP Form receives approval, the Registrar of Companies (ROC) issues the Certificate of Incorporation, a crucial legal document confirming the successful registration of your company.
This certificate includes vital information such as the LLP's name, registration number (LLPIN), date of incorporation, registered office address, and more.
Example of LLPIN: AAA-1234
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Explore the diverse range of services tailored to suit the needs of both startups and established businesses.
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Our package includes:
*Prices and documents can differ based on the company type.
Before proceeding with the registration of either an LLP or a company, it is crucial to evaluate the following factors carefully.
Ultimately, the choice between a company structure and an LLP structure hinges on the unique characteristics of your business, including its nature, size, and capital requirements.
If you still need more help deciding which company type to register with, don't worry! We’ve got you covered with our latest tool - "Know Your Company Type."
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For the first time in India, simply answer a quick set of questions about your startup, and this tool will leverage your responses to identify the ideal company registration type. Find your perfect fit with just one click!
Explore side-by-side comparisons of popular company types for added clarity and make informed choices effortlessly!
Private Limited Company
(Pvt. Ltd.)
Limited Liability Partnership
(LLP)
One Person Company
(OPC)
Private Limited Company
(Pvt. Ltd.)
One Person Company
(OPC)
Private Limited Company
(Pvt. Ltd.)
Limited Liability Partnership
(LLP)
The choice between an LLP and a Pvt Ltd company depends on the nature and goals of the business:
Refer to the detailed difference between LLP and Pvt ltd company for more context.
Yes, all LLPs must file an Income Tax Return annually, irrespective of whether they have generated income or incurred losses. Key requirements include:
Yes, an LLP can hire employees just like any other business entity.
Many small businesses and professional firms prefer LLPs due to their unique advantages:
LLPs are especially favoured by professionals (like consultants, lawyers, or accountants) and small businesses that prioritise simplicity and operational control.
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