The choice between a limited liability partnership (“LLP”) and a company is one of the foundational decisions in structuring a business. Both are body corporates with limited liability and perpetual succession, but they differ in their governing statutes, their governance architecture, their tax treatment, and their compliance burden.
The Governing Statutes
An LLP is governed by the Limited Liability Partnership Act, 2008. A company is governed by the Companies Act, 2013. The LLP Act is a shorter, less prescriptive statute, and it leaves much of the internal governance to the LLP agreement. The Companies Act is a comprehensive code that prescribes the board structure, the shareholder meetings, the disclosures, and the filings.
The Governance Architecture
An LLP has partners and designated partners. The designated partners are responsible for the compliance with the LLP Act, and the mutual rights and duties of the partners are governed by the LLP agreement. A company has shareholders and directors. The board manages the company, and the shareholders exercise their rights at the general meetings. The company’s governance is regulated by the Act and the articles, and it is subject to the secretarial standards.
The Tax Treatment
An LLP is taxed as a partnership. The LLP itself is not liable to tax; the partners are taxed on their share of the profits. The LLP is subject to a flat rate of 30 per cent, plus surcharge and cess, on its total income. A company is taxed as a separate entity. The company pays corporate tax on its profits, and the shareholders pay tax on the dividends. A company may be eligible for the concessional tax regimes under Sections 115BAA and 115BAB, which offer rates of 22 per cent and 15 per cent respectively.
The Compliance Burden
A company has a heavier compliance burden: board meetings, general meetings, the statutory registers, the annual filings (AOC-4 and MGT-7), the audit, and the secretarial standards. An LLP has fewer compliance obligations: the annual return, the statement of accounts, and the audit where the turnover or the capital contribution exceeds the prescribed threshold.
The Funding and Exit
A company is the preferred vehicle for equity funding. It can issue shares, preference shares, and convertible instruments, and it can list on a stock exchange. An LLP cannot issue shares, and its funding options are limited. A company’s shares are freely transferable, subject to the articles; an LLP’s partnership interest is transferable only with the consent of the other partners.
The choice between the two depends on the business’s stage, its funding requirements, its tax position, and the founders’ priorities. A bootstrapped professional services firm may prefer the LLP; a venture-backed technology startup should choose the company.
Call to Action
Anuj Desai & Associates advises founders and businesses on the choice between an LLP and a company—from the governance and tax analysis to the incorporation and the conversion. If you are deciding on the right structure, we can help you make an informed choice.
📧 office@anujdesaiassociates.com
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