Startups and small business owners at some stage feel the need to incorporate. Choosing the right legal entity for your business is a very critical decision to make. We have tried to draw a comparison between the two.

1. LLP OR COMPANY
CHOOSING THE RIGHT FORM OF INCORPORATION FOR YOUR BUSINESS
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2. WHY
DELIBERATE?
Making the right choice between an LLP and a company is very
important for efficiently operating your business as well as for
growing it
There is no set code by which your can choose the right form of
operation. It is entirely driven by the nature of your business, scale
of operation, and future objectives
We'll discuss in detail the factors which should be considered in
choosing between an LLP and a Company
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3. Cost
Pre Incorporation &
Reoccurring cost
Tax
Operation
Annual regulatory
compliance
•Flexibility in
management
Strategic
•Capital raising
•Organic/Inorganic growth
Broad Parameters for comparison
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4. COST
FORMATION, ANNUAL
COMPLIANCE, EVENT
COSTS AND TAX ISSUES
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5. Formation, Annual Compliance and Event based costs
1. Regulatory fee for incorporating an LLP is cheaper as compared to a company. However, since the
introduction of SPICe form which is an integrated application form both cost as well time for
incorporation has reduced significantly
2. Annual compliance cost of a company could be very high as compared to an LLP. Annual Audit
requirement is a major part of it
3. Event based costs such as appointment of Auditor, Director, increase in authorised share capital,
etc. involve both regulatory as well as professional fee
4. Record management is another area where a company might have to shell out additional cost
TAX
1. Basic income tax rate for a company is 25% and for an LLP is 30%, however a surcharge @ 7% and
12% is levied if the taxable income exceeds the threshold one 1 cr. respectively. But, in case of a
company there is an additional threshold of 10 cr. past which rate of surcharge will increase to
12%
2. A company pays back to its shareholders by giving dividend. A company shall pay dividend
distribution tax @ 20.36% at the time of distribution of dividend to the shareholders. There is no
similar provision in case of an LLP. Profit distribution by an LLP is tax free.
Tax
<1 cr. >1 cr. <1cr. >1 cr. >10 cr.
Basic tax rate 30 30 25 25 25
Health & Edu. cess 4 4 4 4 4
Surcharge 0 12 0 7 12
Effective tax rate 31.20% 34.94% 26.00% 27.82% 29.12%
LLP Company
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6. ANNUAL
REGULATORY
COMPLIANCE
ANNUAL REGULATORY FILINGS AND
RECORD MANAGEMENT
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7. LLP Company
Annual Regulatory Filings Record Management
ShareHolder’s Register Register Of Directors
Issue of Share Certificate
Director Interest
Declaration
Compliance Requirement
Regarding Registered
Office
Preparation and
Maintance of Books of
Account
Preparation and
Maintenance of
Books of
Account
Record Management
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8. MANAGEMENT FLEXIBILITY
LLP allows flexibility in organizing
internal management. There is no
need of appointing a director like
authority. Partnership deed can be
made to give effect to meet your
business requirement
A Private limited company can have
maximum 200 shareholders whereas
there is no such limit in an LLP
Owner-Management difference
doesn’t exit in an LLP
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9. STRATEGIC
PERSPECTIVE
CAPITAL RAISING AND ORGANIC-
INORGANIC GROWTH
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10. CAPITAL RAISING
Innovative
Instruments
A company can raise
capital in various forms.
Within Debt and equity
instruments like,
compulsorily
convertible preference
shares,
convertible/non-
convertible debentures
etc
Easy entry and exit
options for
investors
Not only a company
allows options in type
of instrument for raising
fund it allows easy
entry, exist options for
investors
ESOPs
Nowadays, startups are
using ESOPs tool to
attract and retain top
talents. This option is
available only in case of
a companies
Foreign Investment
FDI in an LLP is
restricted.
Institutional
Investors like FIIs,
FCVIs , foreign LLPs
and Trusts are not
allowed to invest in
an Indian LLP.
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11. ORGANIC & INORGANIC GROWTH
Form of incorporation can affect a
business’s ability to tap
opportunities at right moment
A business can grow by organic and
inorganic means
A company is better equipped than
an LLP to pursue a merger or
acquisition. Timing is very critical
for any m&a activity. A slight delay
might result into a lost opportunity
A company form gives international
credibility to business enabling
cross border collaoration
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12. THANK YOU!
FOR A BETTER UNDERSTANDING AND DETAILED DISCUSSION ON THIS PLEASE CONTACT:
SPRING RIVER CAPITAL LLP
G-36, G BLOCK
OUTER CIRCLE, CP
NEW DELHI, 110001
VIRENDRA PANDEY
+91 9711065347
SAMRENDRA PANDEY
+91 9999256146
SONIA GUPTA
+91 9810445390
TANMAY PANDA
+91 828000441
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