DIFFERENCE BETWEEN LIMITED LIABILITY PARTNERSHIP (LLP) AND PRIVATE LIMITED COMPANY (Pvt. Ltd. Company)

BASIS LLP Pvt. Ltd. Co.
Meaning LLP is registered under LLP Act, 2008. Pvt. Ltd. Co. is registered under the Companies Act, 2013.
Features       Note: Both the companies are having similar features 1. Separate legal entity
2. Less flexible in transferring or sharing of ownership
3.Only liable to the extent of their contribution to the LLP  
1. Separate legal entity
2. More flexible in transferring or sharing of ownership
3.Only liable to the extent of their share capital  
Registration Process 1. Obtaining Digital Signature Certificate for the proposed partners
2. Obtaining DIN/ designate partner Identification Number
( DPIN)
3. Obtaining name Approval from MCAFiling for Incorporation
1. Obtaining digital signature certificate for proposed Directors
2. Obtaining DIN for proposed directors
3. Obtaining name Approval from MCAFiling for Incorporation
Cost of Registration Enjoys a lower rate of government fees and less number of documents have to be printed on Non- judicial Stamp paper and Notarized Registration cost is higher than LLP and requires more documentation
Ownership   Note: Pvt. Ltd. Co. is recommended for any business which is considering FDI or Employee Stock Options or Equity Funding Holds ownership and also the powers to manage the LLP, so it’s both an owner and manager More flexible and can have upto 200 shareholders and shareholders do not participate in the management of the company
Compliance 1. LLP does not have to its accounts audited if the annual turnover is less than Rs. 40 lakhs and capital contribution is less than Rs. 25 lakhs
2. Taxation structure is simpler hence fewer compliances
3. Have to pay higher fees for non-compliances
1. Pvt. Ltd. Co. have to file audited financial statements with MCA each year
2. Has to pay a Dividend Distribution Tax on the effective rates at the time of distribution of profits to its shareholders
3. Requires more compliances  
Foreign Ownership Foreigners are allowed to invest in LLP under automatic route now. Foreigners are allowed to invest under the Automatic Approval route in most sectors.
DIFFERENCE BETWEEN LIMITED LIABILITY PARTNERSHIP (LLP) AND PRIVATE LIMITED COMPANY

Note:

  1. Private Limited Company enjoys widespread recognition in India than LLP and is having well established process and procedure.
  2. LLP has recently introduced the concept, rules and regulations are still in process and do not enjoys better funding from banks and foreign direct investment.
  3. In LLP, public disclosure is necessary and Annual statements, Returns is inspected by general public including competitors by paying some fees to the Registrar of LLPs, so it acts as disadvantage for the LLP owners.

Documents required:

For LLP and Pvt. Ltd. Co. documents required are same.

  1. Two Colour Photographs of Each Partner
  2. PAN Card of Each Partner
  3. Identity Proof (Voter ID / Driving License/ Passport)
  4. Address Proof (Bank Statement / Electricity, Mobile, Telephone Bill)
  5. Proof of Registered Office
  6. Utility Bill as Proof of Registered Address
  7. NOC From the owner of the premises

Difference between LLP and Company on the basis of Tax Regime

Recently the Government of India in the financial budget details some of the major changes in the corporate income tax rate. Earlier there was a 25% corporate income tax rate on the domestic companies and 30 % for turnover less than and more than 400 crores respectively. After a new framework, the corporate income tax rate on the domestic companies has been reduced to 22% irrespective of turnover.

BasisLLPCompany
Prior to Union Budget 2020Company and LLP taxed at same rate of 30%.Whereas Private limited companies had to pay additional DDT of 15% making the effective rate @ 20.55%
Current Tax RateIncome of LLP is currently taxed at an effective rate of 31.2%. In case, if total income exceeds 1 crore surcharge of 12% is levied translating the effective rate at 34.32%.Private limited companies are taxed at 22% with a surcharge of 10% (irrespective of income) and health and education cess of 4% making the effective tax rate 25.17%.

For private limited companies which are dealing in manufacturing, the tax rate is 15% on which surcharge of 10% (irrespective of income) and health and education cess of 4% is payable. Effective tax rate comes for private companies to engage in manufacturing companies is 17.17%.

Also, to have the benefits of reduced tax rate under Section 115BAA (reduced tax rate of 22%) and Section 115AB (new manufacturing company), company has to forego certain benefits like no additional depreciation, no set-off of carried forward losses, no earlier MAT credit to be allowed, no special deduction for SEZ units.

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