In the Indian scenario, what is better way to incorporate for a startup: a "Pvt Ltd" or a "LLP" company?
Hi, --PROS-- No paid up capital : No minimum paid up capital is required for the formation of an LLP where-as in the case of a company the promoters would have to invest a minimum of Rs 1,00,000 in the form of paid up capital. This amount increases to Rs 5,00,000 in the case of a public limited company No limit on Partners : There is no limit to the number of partners that an LLP can introduce. For a Private limited company, the number of shareholders is capped at 50. There is no such limit for public limited companies. Lower compliance fee : Since an LLP is not required to file annual returns with the ROC this saves the partners a good chunk of compliance costs. Further there is no requirement to get the accounts of an LLP audited if the turnover is below Rs 80 lakhs. ( Earlier 40 lakhs ) Preferential Rights : LLP's allow different partners to have different rights, in the case of companies ( both public and private) the one share one vote policy rules. --CONS-- Flexibility : Companies are more flexible than LLPs. Any change in the structure of an LLP will require consent from all partners. In a company you can sell your share to another shareholder or a third party without ( in normal circumstances) requiring any permission from others. Merger and Acquisition pains : You will need to obtain the consent of ALL partners to go ahead with any M&A moves Investors/ Venture Capitalists : Investors, VCs and PE funds would rarely if ever invest in LLPs Creditworthiness : The creditworthiness of LLPs in the eyes of bankers is lower than that of a company --THE VERDICT-- So which form of organization is better? Its horses for courses, essentially. LLPs are preffered in businesses where : The promotors would have earlier gone the Partnership route but embrace LLPs because of the limited liability provisions that it offers, this category would include lawyers, CAs, Chit funds etc. Businesses which do not envision raising capital (both privately and publicly) soon Organizations which do not forsee any broad changes in the leadership team.