Topic 13 LLP vs Company CA2013

Module Overview

This topic provides a detailed comparative analysis between an LLP under the LLP Act, 2008 and a company (primarily a private limited company) under the Companies Act, 2013. While both are body corporates with limited liability, they differ fundamentally in governance, compliance, taxation, and regulatory oversight. This comparison is essential for advising clients on entity selection and is extensively tested in judiciary examinations.

Feature

LLP (LLP Act, 2008)

Private Company (Companies Act, 2013)

Governing Act

LLP Act, 2008

Companies Act, 2013

Type of Entity

Body corporate (Section 3)

Body corporate (Section 2(20) CA 2013)

Minimum Members

2 partners (Section 6)

2 shareholders (Section 2(68) CA 2013)

Maximum Members

No limit

200 shareholders (Section 2(68) CA 2013)

Management

Partners manage directly (no Board required)

Board of Directors manages (Section 179 CA 2013)

Responsible Persons

Designated partners (Section 7 LLP Act)

Directors (Section 2(34) CA 2013)

Internal Document

LLP Agreement (Section 2(1)(o)); Schedule 1 if absent

Articles of Association (mandatory — Section 5 CA 2013)

Minimum Capital

None

None (abolished for private companies)

Annual General Meeting

Not required

Required (Section 96 CA 2013)

Board Meetings

Not required

Minimum 4 per year (Section 173 CA 2013)

Audit

Threshold-based (Section 34)

Mandatory every year (Section 139 CA 2013)

Annual Return

Form 11 to Registrar (Section 35)

Form MGT-7 to ROC (Section 92 CA 2013)

Financial Statement

Statement of Account & Solvency (Form 8)

Balance Sheet, P&L, Directors' Report, Auditors' Report (Section 129 CA 2013)

Taxation — Entity

30% flat rate

30% (domestic company); 25% for eligible turnover-based reduction

Dividend Distribution Tax

Never applicable to LLP

Abolished from FY 2020-21 for companies too

SEBI Regulations

Not applicable

Applicable if public company/listed

FDI eligibility

Permitted in eligible sectors

Permitted broadly

Conversion to LLP

Possible (Schedule 3 and 4)

Possible (converting entity)

Conversion to Company

Not provided under LLP Act

N/A

Winding up

Voluntary (Section 63) or by Tribunal (Section 64)

Voluntary, by Tribunal, or IBC 2016

Stamp Duty on incorporation

Lower (LLP agreement)

Higher (Memorandum and Articles)

Corporate Governance

Minimal mandatory requirements

Extensive (Committees, policies, disclosures)

Feature

LLP

Public Company

SEBI jurisdiction

Not applicable

Applicable if listed

Shares/Securities

Cannot issue shares or debentures to public

Can issue shares, debentures, and other securities to public

Prospectus

Not applicable

Mandatory for public issue (Sections 23–37 CA 2013)

NCLT/NCLAT

Yes — for winding up, compromise

Yes — for same + corporate restructuring

CSR obligation

Not applicable

Applicable above turnover/profit thresholds (Section 135 CA 2013)

Maximum partners/shareholders

No limit

No limit

Business Scenario

Better Entity Choice

Reason

Professional services (CA, lawyers, architects)

LLP

No mandatory board structure; flexible governance; no DDT history; professional regulatory compliance

Start-up seeking venture capital (VC/PE funding)

Company (Private Limited)

VCs prefer equity shares with voting rights and liquidation preferences — not easily structured in LLP

Family-owned small manufacturing business

LLP

Flexible profit sharing; less compliance; limited liability without corporate governance burden

Business planning to list on stock exchange

Company

LLPs cannot issue publicly traded securities

IT services firm with foreign clients/investors

LLP or Company

Both possible; company preferred if FDI exceeds 49% or governance complexity needed

Business that wants ESOP for employees

Company

Employee Stock Options (ESOPs) under Section 62 CA 2013 — no equivalent in LLP

⚖ Vodafone International Holdings BV v. Union of India (2012) 6 SCC 613

Held: While primarily a company law case, the Supreme Court's analysis of what constitutes a separate legal entity, and the principle that form must be respected unless there is genuine sham, applies with equal force to LLPs. An LLP partner, like a company shareholder, has no direct right to company/LLP assets — only a right to participate in surplus on winding up.

Principle: "The concept of a legal entity separate from its shareholders [partners] is fundamental to modern commercial law — it cannot be ignored merely because the legal form produces a commercial benefit."

📌 EXAM TIP: The LLP vs Company comparison is a 10–15 mark essay question in HJS, MPJS, and DJS mains. Three critical differences to always include: (1) No board/AGM requirement for LLP vs mandatory governance structure for company; (2) LLP Agreement with Schedule 1 defaults vs mandatory AoA; (3) Designated partners (only individuals) vs directors (individuals, for most purposes). The "no SEBI regulation for LLP" point is often missed by candidates but is examiner-favourite.

✔ PRACTICAL NOTE: When a start-up founder asks "should I incorporate an LLP or a Pvt Ltd?", the first question is: "Will you seek institutional funding (VC/Angel)?" If yes → Company, because VCs need equity shares with preferences and anti-dilution rights that LLP structure cannot easily accommodate. If no (bootstrapped professional practice, family business, consulting firm) → LLP is simpler, cheaper, and provides the same core protection.

Comparison Point

LLP

Company

Board/Directors

Not required

Mandatory (Board, Min. 2 directors)

AGM/Board Meetings

Not required

Required (AGM annually; 4 BMs/year)

AoA/LLP Agreement

Agreement optional; Schedule 1 defaults

AoA mandatory

Maximum members

No limit

200 (Pvt Co)

SEBI regulations

Not applicable

Applicable (Public/Listed)

CSR obligation

Not applicable

Applicable (above thresholds)

ESOPs

Not provided

Yes (Section 62 CA 2013)

Choose Company when

Seeking VC, public listing, ESOPs

—

Choose LLP when

Professional services, family business, minimal compliance needed

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