Direct answer
Pick a private limited company if you plan to raise outside money, hire a team, or sell the business one day. Pick an LLP if you are running a profitable services practice and want the lowest running cost and the simplest tax treatment. Liability protection is the same in both, so the difference is not safety. It is paperwork, tax, and whether the structure still works when a third party wants to own a piece of it.
What actually differs
| Private limited company | LLP | |
|---|---|---|
| Governing law | Companies Act, 2013 | LLP Act, 2008 |
| Minimum people | 2 members and 2 directors | 2 partners, of which 2 must be designated partners |
| Maximum owners | 200 members, excluding employees and their relatives | The LLP Act sets no ceiling on the number of partners; a firm below a prescribed contribution ceiling is treated as a small LLP with lighter reporting |
| Minimum capital | None | None |
| How ownership is held | Shares | Capital accounts |
| Tax on the business | Company rates, with Minimum Alternate Tax in most cases | Partnership rates, no Minimum Alternate Tax |
| Taking money out | Dividend taxed again in the shareholder’s hands | Profit withdrawn and shared with no second layer of tax |
| Governance | Board, AGM, board resolutions, annual return, financial statements | No board, no AGM; statement of accounts and solvency plus an annual return |
| Issuing equity | Yes | No |
| Owner exposure | Directors’ duties, including the compensation proceedings under section 138 of the Companies Act | Partners’ exposure under the partnership deed; section 138 does not apply |
| Audit | Required once aggregate turnover crosses the threshold in the Income-tax Act | The same tax threshold, plus the LLP Act’s own trigger based on the firm’s total contribution |
The tax difference decides it for most small firms
A company is a separate taxpayer. It pays tax at company rates on its profits, and where the tax computed at your personal slab rates would be lower, Minimum Alternate Tax under section 115BA means you pay the higher of the two anyway. That floor is the part founders are usually surprised by.
An LLP is taxed the way a partnership is taxed. The income of the business is taxed at the partners’ own slab rates. Profit can be withdrawn into the capital accounts and shared out without being taxed a second time.
Two practical consequences follow. First, if your personal slab rate is low — early career, modest profits, a consultancy — the LLP usually wins. If profits are large enough to push you into the top slab band, the comparison can invert, because the company rate may sit below your marginal slab rate. Do not assume the answer; model both on your actual numbers for year one and year two.
Second, the exit maths differ. A company that pays a dividend is taxed on that dividend and the shareholder is taxed on it again. An LLP’s profit is already allocated to the partners, so withdrawing it costs nothing extra.
Where the hours actually go
| Annual obligation | Private limited company | LLP |
|---|---|---|
| Meetings | Board meetings with minutes, plus an AGM each year unless an exemption applies | None |
| Annual filings with the Registrar | Annual return, financial statements with the auditor’s report, registers of members and charges, beneficial ownership return | Statement of accounts and solvency, annual return, plus any deed amendments |
| Tax audit | Once aggregate turnover crosses the threshold in the Income-tax Act | The same threshold, and the LLP Act adds its own contribution-based trigger |
| Ongoing records | Director KYC, statutory registers, a secretarial calendar | Capital accounts and the partnership deed |
This is where the running cost of a company actually sits. It is not the incorporation fee. It is the audit, the annual filings, the secretarial work and the meeting discipline that a two-person services firm carries every single year without needing any of it.
Funding changes the answer more often than tax does
A company issues shares. That is what a venture fund buys, and the round becomes a cap table entry with a preference, a liquidation preference and a board seat.
An LLP has no shares. A fund that wants exposure has to come in through a convertible instrument, and the schedule to the LLP Act also restricts which bodies corporate can hold an interest as a partner. Some funds simply will not do it. You can take investment in an LLP, but you will spend the round negotiating the instrument instead of running the business.
If you might raise, incorporate a company. Converting later does not repair a cap table that was never built to hold equity, and the entity you sell to investors in the first place is the one your data room, your bank mandates and your customer contracts are all written against.
The same logic shows up outside fundraising. Large buyers, banks and procurement teams routinely ask for a private limited company with a board, directors on record and a standard share register. An LLP is a legitimate business structure, but it is not the one enterprise procurement checklists are written around.
Selling the business
This is the cleanest argument for a company and the weakest point for an LLP.
When a company is sold, the buyer buys the entity. The GST registration, the bank accounts, the contracts, the licences and the employee records stay where they are. This is routine.
An LLP interest is personal to the partner. It moves only as the partnership deed allows, and only to a person or firm who is eligible to be a partner in the first place. There is no standard valuation, no market and no clean way for a buyer to step in and take the business. Founders who think they will eventually sell usually discover this at the worst possible moment.
Converting later is possible, not painless
The law does allow a private company to be converted into an LLP and an LLP to be converted into a private company. Treat it as a fresh filing rather than a switch. In practice, converting an LLP into a company means re-papering the bank mandates, the GST registration, the material contracts, the licences and anything in flight, and checking how the transfer is treated for tax. It is a project, not a form.
The first ninety days, in practice
For a private limited company, the first quarter is spent getting the statutory machinery running — a board meeting and resolutions, the auditor engaged early enough to plan the year, the registers opened, the AGM calendared and the filings diarised. Getting the first year wrong is common and expensive to unwind, because every missed board resolution or late annual return becomes a compliance problem two years later when you are raising.
For an LLP, the same quarter is shorter. You execute the deed, settle the contribution, file the incorporation documents, open the bank account and set the tax filings running. The partnership deed deserves more attention here than founders usually give it, because it is the document that will decide how the firm is governed and how a partner can leave. It is also the document an acquirer will read first.
The decision, in order
- Are you likely to raise money from investors in the next couple of years? If yes, company.
- Are you likely to sell the business? If yes, company.
- Are you hiring, or are you bidding for enterprise work that expects a board and directors? If yes, company.
- Otherwise, model your own slab rate against the company rate on realistic profits. If your slab rate is clearly lower, LLP.
- Check the turnover crossing points for the tax audit and for e-invoicing against the current rules for goods and services. Both thresholds are revised periodically, and they are not the same number.
- Then talk to a chartered accountant about the year-one and year-two numbers. The incorporation paperwork is the smallest part of the bill.
Choosing between the two is not a legal puzzle. It is a question about what you are building and who is going to end up owning it. Answer that first and the structure follows.