Company law and LLP · Starting a company or LLP
Should I form a private limited company or an LLP?
Short answer
A private limited company suits a business that wants outside equity, ESOPs, or a structure investors and banks know well; it can pay tax at about 25% under the concessional regime, but profits are taxed again as dividends. An LLP has fewer compliance requirements, no tax on profits distributed to partners, and an audit only above ₹40 lakh turnover or ₹25 lakh contribution, but pays tax at 30% and suits closely held businesses.
Side by side
| Private limited company | LLP | |
|---|---|---|
| Income tax | 22% under the concessional regime (25.17% with surcharge and cess), or 25% or 30% otherwise | 30% (plus surcharge above ₹1 crore and cess) |
| Profit to owners | Dividends taxed again in shareholders' hands | Share of profit exempt for partners; remuneration and interest deductible within limits |
| Raising money | Equity shares, preference shares, ESOPs; preferred by investors | Only partners' contribution; no shares |
| Foreign investment | Allowed in most sectors under the automatic route | Allowed only in sectors with 100% automatic route and no performance conditions |
| Statutory audit | Always | Only if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh |
| Meetings | Board meetings and an annual general meeting | No mandatory meetings |
| Annual filings | AOC-4, MGT-7/7A, ADT-1 and others | Form 8 and Form 11 |
| Ownership change | Share transfer (demat for non-small companies) | Change in partners, by agreement and filing |
| Start-up benefits | Full benefits, including section 80-IAC (now section 140) | Recognised, and section 80-IAC (now section 140) available |
Rules of thumb
- Plan to bring in investors or give ESOPs? A private limited company.
- Professional firm, family business or joint venture of a few partners? An LLP is usually simpler and cheaper to run.
- Profits to be retained and reinvested? The company's lower rate helps. Profits to be taken out each year? The LLP's single level of tax often works out better.
Work out the total tax, for the business and the owners together, with your actual figures before deciding. Conversion from one form to the other is possible later, with conditions: see converting a firm or company.
Legal basis
- Companies Act, 2013; Limited Liability Partnership Act, 2008
- Income-tax Act, 2025 (company and firm tax rates)
Official sources
Related questions
- How do I register a private limited company, a one person company or an LLP?A private limited company needs at least two directors and two shareholders; a one person company needs one member and a nominee; an LLP needs two...
- When does an LLP need to get its accounts audited?An LLP must get its accounts audited if its turnover exceeds ₹40 lakh, or its partners' contribution exceeds ₹25 lakh, in any financial year. Below...
- How is a partnership firm taxed, and how much remuneration and interest can partners be paid?A partnership firm or LLP pays tax at 30%, plus surcharge above ₹1 crore and cess. It can deduct interest to partners up to 12% a year and...