LLP VS Limited Company

Differences, Advantages and Disadvantages of Limited Liability Partnership (LLP) and Limited Company for Startups

Limited Liability Partnership Limited Company Advantage
Liability Limited Limited Not Applicable
Act Limited Liability Partnership Act, 2008 Companies Act, 2013 Not Applicable
Administrating authority Registrar of Companies Registrar of Companies Not Applicable
Documents to be filed Incorporation Document Memorandum & Articles of Association Not Applicable
Filing of annual statements and returns Required Required Not Applicable
Audit of Accounts As per the provisions of LLP act, accounts are not required to be audited annually except for LLP’s having turnover of more than Rs. 40 lakhs or contribution is more than Rs. 25 lakhs in any financial year. As per the provisions of companies Act, 2013 accounts have to be audited annually. LLP
Remuneration to partner or director As per LLP agreement Restrictions are imposed on the remuneration paid to the director LLP
Minimum \ Maximum  No. of members Minimum 2, No limit on maximum number of partners Minimum 2, maximum 200 in the case of Private Limited and minimum 7, no maximum  limit   in case of Limited company. LLP
Public Issue Not possible unless converted in to a Public Limited company. A Public Limited company is allowed to make public issue and a private limited company will have to be converted in to a limited company. Limited Company
Voting Rights Each partner has only one vote irrespective of the % of ownership. Voting rights are in proportion to the shares held by members. Limited Company
Transfer of Ownership Ownership rights are not transferable easily without obtaining consents of all the partners of LLP. Ownership rights can be transferred easily  in the case of a private limited company with the consent of the board. Limited Company
Transferability of interest Rights/ interest of partners are transferable as per the provisions of LLP agreement. However, the transferee will not become a partner and he is eligible for only share of profit. Shares of private limited company can be transferred with the consent of the board at a price given by the directors or auditors. Limited Company
Transfer of Share / Partnership rights in case of death In case of death of a partner, the legal heir has the right to the refund of capital contribution + share in accumulated profits, if any. Legal Heirs will not become partners. In case of death of member, shares are transmitted to the legal heirs. Limited Company
Admission as partner/ member A person can be admitted as a partner with the consent of all the partners. A person can become a member by buying shares of a company. Limited Company
Cessation as a partner / member A partner can cease to be a member by transferring his share but the cessation of partner does not by itself cause the disassociation of the partner, and like the other continuing partners of the firm remain liable as a partner to the third parties for any act done by any of them which would have been an act of the firm if done before retirement until public notice is given of the retirement either by the retired partner or any other partners of the reconstituted firm. A member/shareholder can cease to be a member by selling his shares. Limited Company
Limitation of foreign ownership At least one designated partner shall be resident in India subject to Government route approval for foreign investment. All the shareholders can be non residents, subject to sectoral caps and one director should live in India for at least 182 days. Limited Company
Foreign Investment FDI in LLP is allowed only through Government route, not under automatic route.
Further, FDI in LLP through Government route is allowed to only those sectors where 100% FDI is allowed under automatic route under the FDI policy.
FDI is allowed under both Government route and automatic route depending on the sector and further, FDI is allowed to all the sectors. Limited Company
External Commercial Borrowing LLP is not allowed to raise External Commercial Borrowing (ECB). Allowed to raise External Commercial Borrowings. Limited Company
FII / Foreign Venture Capital Foreign Institutional Investors (FIIs) and Foreign Venture Capital Investors (FVCIs) will not be permitted to invest in LLPs. Such investment is allowed subject to Sectoral Cap if any, for the industry. Limited Company
Drawing from business during the year Drawings are allowed if permitted as per the LLP agreement. Drawings are not permitted by the shareholders. LLP
Taxation Rate Taxable @ 31.2 % of total income Taxable @ 30% of Total Income

A tax regime of 22% is available.

Surcharge on Income Tax If total income is < Rs. 1 crore then, Surcharge is Nil.

If Total Income is > Rs. 1 crore then, Surcharge is 12% of such income.

If Turnover < Rs. 1 Crore then, Surcharge is Nil.

If Turnover > Rs. 1 crore & < Rs. 10 crores then, Surcharge is 7% of Total Income.

If Turnover > Rs. 10 crores then, Surcharge is 12% of Total Income.

Alternate Minimum Tax / Minimum Alternate Tax 18.5% of the Adjusted Total Income 18.5% of the Book Profit LLP
Dividend Distribution Tax Not applicable 20.56% of the dividends paid to shareholders.

DDT  will be abolished from FY 2020-21.

Conversion A LLP can be converted in to a limited company under the Companies Act, 2013. A private limited company can be converted in to a LLP. Not Applicable
ESOP’s ESOP’s which are used to retain the talent by startups which is not possible in the case of LLP. ESOP’s can be given to employees. Limited Company
Dissolution can be wound up can be wound up Not Applicable
Expenses of formation Total Incorporation cost will be around Rs. 14,000 to Rs. 20,000/- (approx.) depending on the capital contribution Total Incorporation cost will be around Rs. 22,000 up to Rs. 10,00,000/- capital and beyond that it would be Rs. 2,150/- per lakh of capital LLP