5 Reasons to choose Limited Liability Partnership over Private Limited Company

By Pavan Kumar S

Articled Assistant


Prepared On:
06/07/22


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Usually, the common ground of confusion lies upon whether to form LLP or go ahead with a Private Limited Company. If you also have the same dilemma, then this newsletter will resolve your situation by enlisting the benefits of LLP over Private Limited Company.

LLP gives many advantages to the entrepreneurs over the Private limited company in the following ways:

1. No Limit on the business owners- To start a Limited Liability Partnership Company(LLP), requires at least 2 members whereas there is no restriction on the maximum number of members, unlike a Private Company that cannot have more than 200 members.

Also, the number of directors is limited to 15 in the private limited Companies where as LLP has no restrictions on the number of Designated Partners.

2. Lower Incorporation cost- The registration cost of LLP is much less compared to a Private Limited Company Registration. The minimum statutory fee for a Private Limited Company is INR 6,000 which may later extend depending on no. of directors, no. of members, authorised share capital etc whereas it is INR 1500 is the minimum fee for LLP that may extends depending on the paid up capital and other incorporation procedures.

Similarly winding up cost is lesser in case of LLP when compared to private limited companies.

3. Lower Compliance burden- A Limited Liability Partnership must file only an Annual Return and a Statement of Accounts & Solvency. Whereas Private Limited Company is required to comply with about 8 to10 compliances per annum.

Major annual compliances for Private Limited may be as follows:

* Statutory Audit Compliance- Regardless of the Share Capital, every Public or Private Limited Company has to get his account audited. Nevertheless, LLP is required to get the audit done under two conditions:

4. Lower Taxation- In terms of taxation, LLP is as privileged as a Partnership firm. It is only liable for Income Tax payment without any implications of Tax on Dividend in the hands of Partner.

At present an LLP will be subject to normal tax rate of 30% on normal income and surcharge rate of 12% if total income exceeds Rs. 1 crore.

Whereas domestic private limited would be chargeable to tax at the rate of 25%/30% and surcharge at the rate of 7%/10%/12% as per the applicable provisions of the act.
In case of share of profit/Dividend: In case of LLP income received from the share of profit is exempt in the hands of partners as per section 10(12A) of income tax act 1961. Whereas dividend paid by the domestic company to shareholders will be taxed in the hands of shareholders under the head income from other sources.

Let us understand the above taxation in simple through an below illustration;
Assume the Income left after allowable expenses will be Rs.5,00,000

5. Compliance for lending and obtaining Loans- Obtaining loans will be easier for the LLP when compared to Private Limited enterprises.

Conclusion-
One can yield countless benefits by incorporating LLP or by converting a Company into a Limited Liability Partnership. It is an appropriate fit for all types of the organization from small scale firms to the Multi-national Companies. If you want to avail the advantages of Limited Liability and minimal compliances, look no further than the corporate structure of LLP.

To know more about the difference between LLP and Private limited companies, please look into our other newsletter article:

Click here to read our newsletter on “Should I register my Start-up as LLP or Private Limited company?”

Disclaimer:

“The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received, or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of situation.”