LLP vs private limited company (2026): which should you choose?

In short

Both are separate legal entities and the owners' liability is limited to what they put in. Neither needs a minimum capital.
A private limited company suits a business that wants investors, ESOPs or a share sale later. An LLP suits professionals and owner-run businesses that will not raise equity.
A company's accounts are audited every year, whatever its size. An LLP needs an audit only when its turnover is above ₹40 lakh and its contribution is above ₹25 lakh.
For FY 2025-26 a company can pay tax at 22% (25.168% with surcharge and cess) under section 115BAA; an LLP pays 30% plus surcharge and cess. But an LLP's profit share is tax-free in the partners' hands, while dividends are taxed again in the shareholders' hands.
You can switch later: a private company can convert into an LLP, and an LLP into a company, on conditions.

LLP and private limited company side by side

	Private limited company	LLP
Law	Companies Act, 2013	Limited Liability Partnership Act, 2008
Owners	2 to 200 shareholders	2 or more partners, no upper limit
Run by	At least 2 directors; one must stay in India 182 days or more in the financial year	At least 2 designated partners (individuals); one must stay in India 120 days or more in the financial year
Minimum capital	None	None
Registration	SPICe+ on the MCA portal	RUN-LLP (name), then FiLLiP on the MCA portal
Government fee	Nil MCA fee up to ₹15 lakh authorised capital, plus state stamp duty	FiLLiP fee by contribution: ₹500 up to ₹1 lakh, rising to ₹25,000 above ₹1 crore
Audit of accounts	Every year	Only when turnover is above ₹40 lakh and contribution above ₹25 lakh
Yearly filings with MCA	AOC-4, MGT-7 or MGT-7A, ADT-1 (auditor), board meetings and AGM	Form 11 by 30 May and Form 8 by 30 October
Income tax (FY 2025-26)	22% under section 115BAA, or 25% / 30%	30%, plus 12% surcharge above ₹1 crore
Money to the owners	Salary; dividends, taxed again in the shareholders' hands	Remuneration and interest within section 40(b) limits; the profit share is tax-free for the partners
Investors and ESOPs	Shares, ESOPs, angel and venture funding	No shares or ESOPs; foreign investment only in limited cases
Late filing	₹100 a day for each form	A multiple of the normal fee, rising with the delay

Setting up each one

Private limited company. One online application, SPICe+, on the MCA portal gives the Certificate of Incorporation with the CIN, PAN and TAN. The MCA fee is nil when the authorised capital is up to ₹15 lakh; the state stamp duty on the MoA and AoA is paid with it. Our guide to registering a private limited company in Karnataka walks through each step.

LLP. The name is reserved through RUN-LLP, and the LLP is incorporated through FiLLiP, both on the MCA portal. The filing fee depends on the partners' total contribution: ₹500 when it is up to ₹1 lakh, rising in steps to ₹25,000 above ₹1 crore.

The LLP agreement is filed in Form 3 within 30 days of incorporation, and again within 30 days of any change. If there is no agreement, the default rules in the First Schedule of the LLP Act apply.
Stamp duty on the LLP agreement is set by the state's stamp law.
Every designated partner, like every company director, needs a DIN, and both must file DIR-3 KYC once every three financial years, by 30 June.

The yearly work

Duty	Private limited company	LLP
Audit	Every year, by a statutory auditor (ADT-1 within 15 days of the AGM that appoints one)	Only when turnover is above ₹40 lakh and contribution above ₹25 lakh; partners may choose one anyway
Meetings	First board meeting within 30 days of incorporation, then 4 a year with no more than 120 days between them (2 a year for small companies and OPCs); an AGM by 30 September	No AGM
Accounts	AOC-4 within 30 days of the AGM	Form 8 (statement of account and solvency) by 30 October
Annual return	MGT-7 (MGT-7A for small companies) within 60 days of the AGM	Form 11 by 30 May
Income tax return due	31 October (companies are audited)	31 August with no audit; 31 October when the accounts are audited under any law
Late filing with MCA	₹100 a day for each form	A multiple of the normal filing fee, rising with the delay

Small companies have fewer duties: two board meetings a year and the shorter annual return MGT-7A. Since 1 December 2025 a private company is "small" when its paid-up capital is up to ₹10 crore and its turnover up to ₹100 crore.

For FY 2025-26 the government extended the income tax return due date for companies and other audited businesses from 31 October to 21 November 2026 (CBDT Circular 7/2026).

Tax on the profits (FY 2025-26)

	Private limited company	LLP
Tax rate	22% under section 115BAA, giving up certain deductions; otherwise 25% (turnover up to ₹400 crore in FY 2023-24) or 30%	30%
Surcharge	10% under section 115BAA; otherwise 7% above ₹1 crore of income and 12% above ₹10 crore	12% above ₹1 crore of income
Cess	4%	4%
Minimum tax	MAT at 15% of book profit (not under section 115BAA)	AMT at 18.5% of adjusted total income, only when certain deductions are claimed

From tax year 2026-27 the Income-tax Act, 2025 applies. The Finance Act, 2026 makes MAT 14% and a final tax for companies from that year.

Taking money out

Company: directors can be paid a salary, which the company deducts and the director pays tax on. Profits paid out as dividends come from income the company has already taxed, and are taxed again at the shareholder's slab rate; the company deducts 10% TDS when a shareholder's dividends cross ₹10,000 in a year.
LLP: working partners can be paid remuneration, and partners interest on capital up to 12% a year, if the LLP agreement provides for it. The LLP deducts these within the section 40(b) limits: on the first ₹6 lakh of book profit (or a loss), ₹3 lakh or 90% of book profit, whichever is higher, and 60% of the rest. The partners pay tax on them.
LLP profit share: what is left after the LLP's own tax is shared among the partners tax-free in their hands (section 10(2A) of the 1961 Act, carried into the Income-tax Act, 2025).

Which costs less depends on how much profit is paid out, how it is paid, and the owners' own tax slabs. We work it out on your figures before you choose.

Investors, ESOPs and foreign money

A company can issue new shares to angel or venture investors, give ESOPs to employees, and let founders sell shares. Investors expect a private limited company.
An LLP has no share capital, so it cannot issue shares or ESOPs. An investor has to come in as a partner.
Foreign investment in an LLP is allowed only under the automatic route and only in sectors where 100% foreign investment is allowed under that route with no conditions linked to it; foreign portfolio and venture capital investors cannot invest in an LLP.
Both can be recognised under Startup India (up to 10 years from incorporation and turnover under ₹200 crore since February 2026), and both can claim the three-year tax holiday if incorporated before 1 April 2030 with the Inter-Ministerial Board certificate.

Which one fits you

Choose a private limited company if	Choose an LLP if
You plan to raise money from angels or venture funds	The owners will run the business and take the profits out
You want to give ESOPs to key people	You are professionals or consultants working together
Customers, banks or tenders expect a company	You want fewer yearly filings and no compulsory audit while you are small
You will keep most profits in the business	You do not expect to bring in outside shareholders

A single founder can also consider a One Person Company, which is a private company with one member.

Changing later

Private company to LLP (section 56 and the Third Schedule of the LLP Act): there must be no security interest (such as a charge for a loan) in force, and all the shareholders, and no one else, become the partners.
For income tax the conversion is tax-neutral only when, among other conditions, the company's turnover was up to ₹60 lakh and its assets up to ₹5 crore in each of the three previous years, the former shareholders keep at least half the profit share for five years, and accumulated profits are not paid out for three years.
LLP to company under section 366 of the Companies Act.

A Corporate Laws (Amendment) Bill, 2026, which proposes more relief for small companies and LLPs, was before Parliament on 4 November 2026. It is not law; we will update this guide if it is passed.

Questions people ask

Which is better for a startup, an LLP or a private limited company?

A private limited company, if you plan to raise money from investors or give ESOPs: an LLP cannot issue shares. An LLP suits an owner-run business or a group of professionals that will take the profits out and wants fewer yearly filings.

Is an audit compulsory for an LLP?

Only when its turnover is above ₹40 lakh and its partners' contribution is above ₹25 lakh. Below either limit the audit is optional. A company's accounts are audited every year, whatever its size.

Does an LLP pay less tax than a company?

Not on the rate: for FY 2025-26 an LLP pays 30% plus surcharge and cess, while a company can pay 22% (25.168% in all) under section 115BAA. But the LLP's profit share is tax-free in the partners' hands, while a company's dividends are taxed again in the shareholders' hands. The answer depends on how much profit is paid out.

How many people do I need?

Two for either. A company needs at least 2 directors and 2 shareholders (the same people can be both), with one director in India for 182 days or more in the financial year. An LLP needs at least 2 partners, with 2 designated partners, one of whom stays in India for 120 days or more in the financial year.

Can an LLP give ESOPs or take investors?

An LLP has no shares, so it cannot give ESOPs. Investors can join only as partners, and foreign investment is allowed only in sectors open to 100% foreign investment under the automatic route without conditions.

Can I convert an LLP into a company later?

Yes, under section 366 of the Companies Act. A private company can also convert into an LLP under section 56 of the LLP Act if no charge is outstanding and all shareholders become the partners.

Sources

Written from these official pages and notifications, checked on 4 Nov 2026. Rules change by notification: before you act, check the latest position or ask us.

General information, not legal or tax advice for your case. Parishrama Consulting Services is a private firm, not a government office.

LLP or private limited company: which should you register?