Planning to Start a Business in India? LLP vs Private Limited Company – Which One Is Best for You?

Introduction:

Starting a business in India is an exciting journey—but before you begin, choosing the right business structure is crucial. The two most preferred legal entities among startups and small businesses are:

• Private Limited Company (Pvt Ltd)

• Limited Liability Partnership (LLP)

Both offer limited liability and separate legal existence, but differ in governance, compliance, and suitability depending on your goals. In this blog, we’ll break down the key differences to help you choose the best fit.

Features you should know before starting up:

1)     Legal Structure:

a.      Private Limited Company

A Private Limited Company is a separate legal entity governed under the Indian Companies Act, 2013. It requires a minimum of 2 shareholders and 2 directors. This structure is ideal for startups that plan to raise investments or scale product-based businesses, as it offers credibility, growth potential, and ease of ownership transfer.

b.     Limited Liability Partnership

An LLP is governed by the Limited Liability Partnership Act, 2008, and can be started with a minimum of 2 designated partners. The ownership and roles are defined through a partnership agreement, making it less flexible in terms of transferability. LLPs are suitable for service-based businesses, consulting firms, or professional partnerships that do not require equity investments.

2)     Investment and Fund raising:

a.      Private Limited Company

Private Limited Companies have multiple options for raising funds, such as issuing equity shares, compulsorily convertible preference shares (CCPS), or debentures. This makes it a favourable choice for angel investors, venture capitalists, and private equity. Moreover, shares can be easily transferred, enhancing exit options for investors.

If you want to read more about ways in which a startup can raise funds, [Click Here].

b.     Limited Liability Partnership

LLPs are more suitable for self-funded businesses. They cannot issue equity shares, making it harder to attract investors. Any change in ownership or profit-sharing ratio requires amendment to the LLP agreement, making it more complex and less investor-friendly.

3)     Taxation:

a.      Private Limited Company

Old Regime:

• Taxed at 25% (if turnover is up to ₹400 crores), Plus 4% health and education cess.

• Taxed at 30% (if turnover is above ₹400 crores), Plus 4% health and education cess.

  • Surcharge:

    • Nil if total income < ₹1 crore

    • 7% if income > ₹1 crore and ≤ ₹10 crores

    • 12% if income > ₹10 crores 

New Regime:  

Sec 115BA:

Domestic manufacturing companies incorporated on or after 01.03.2016 are only eligible to take benefit under this section with tax rates of 25% + surcharge + 4% cess, opting for this section disqualifies you from claiming specified exemptions/deductions.

Sec 115BAA:

All domestic companies regardless of turnover or date of incorporation can opt this sec for tax rates with Tax rate is 22%, plus 10% surcharge and 4% cess, with no exemptions or deductions allowed (except for a few like additional depreciation not being allowed).

Sec 115 BAB:

New domestic manufacturing companies incorporated on or after 01.10.2019, and commencing manufacturing on or before 31.03.2024 (Now extended to 2025) with Machinery that’s not used before can opt for this section with tax rate of 15%, Plus 10% surcharge and 4% cess, with no exemptions or deductions allowed.

b.     Limited Liability Partnership

Income of LLP is taxed at 30% flat rate with 12% surcharge if the total income of the LLP is over 1 crore with an additional 4% on income tax as Health and Education Cess.

4)     Compliance and Regulatory requirements:

a.      Private Limited Company

• Annual Return (Form MGT-7): Within 60 days of AGM (due by 29th November).

• Financial Statements (Form AOC-4): Within 30 days of AGM.

• Income Tax Return: Due by 31st October (or 30th November if Transfer Pricing Audit is applicable).

• Audit: Mandatory irrespective of turnover.

b.     Limited Liability Partnership

• Annual Return (Form 11): Due by 30th May.

• Statement of Accounts (Form 8): Due by 30th October.

  • Income Tax Return:

    • 31st July (if audit is not applicable)

    • 31st October (if audit is applicable)

• Audit: Required only if turnover exceeds ₹40 lakhs or contribution exceeds ₹25 lakhs.

Quick Summary: LLP vs. Private Limited in India.

Feature	Private Limited Company (Pvt Ltd)	Limited Liability Partnership (LLP)
Governing Law	Companies Act, 2013	LLP Act, 2008
Minimum Members	2 Shareholders & 2 Directors	2 Designated Partners
Legal Status	Separate Legal Entity	Separate Legal Entity
Ideal For	Startups, product-based businesses, companies seeking funding	Service-based firms, consultants, small professional firms
Fundraising Options	Can issue shares, CCPS, and debentures; investor-friendly	Cannot issue shares; less attractive to investors
Taxation (Default)	25% or 30% based on turnover; new options: 115BA, 115BAA, 115BAB	Flat 30% + 12% surcharge (if income > ₹1 crore) + 4% cess
Compliance	High – Annual filing, ITR, mandatory audit	Moderate – Filing deadlines, audit only if turnover > ₹40 lakhs
Audit Requirement	Mandatory for all companies	Only if turnover > ₹40 lakhs
Ownership Transferability	Easy (via share transfer)	Restricted; governed by LLP agreement
Investor Preference	High	Low

Conclusion:

To start a business in India, choosing the right business structure is one of the most important early decisions you'll make. It determines how your business is governed, taxed, funded, and scaled.

• A Private Limited Company is ideal for startups planning to grow rapidly, raise external funding, or attract investors. It provides better credibility, scalability, and flexibility in ownership transfer—but it comes with higher compliance requirements.

• A Limited Liability Partnership (LLP) is better suited for small businesses, consultants, or professional firms that prefer minimal compliance, operational flexibility, and are not looking to raise venture capital.

Each structure has its own pros and cons. Your choice should depend on your business goals, expected turnover, investor requirements, and long-term vision.

• If you're still unsure, consult us before incorporation.

• Need help registering your LLP or Private Limited Company? Prolead offers end-to-end support—from name reservation and registration to ongoing compliance, virtual office, nominee directors, and tax filings.

Ready to launch your business the right way? Let’s get started today.