Mumbai is the land of dreams! It’s also the financial capital of India, which, without saying, is home to many businesses. And if you’re here, you might be giving your startup idea a shot. But what about the business structure? What are you planning to go for? Pvt Ltd (Private Limited Company) or LLP (Limited Liability Partnership)?
We know you might be overwhelmed by all the things that need to be done when starting a business.
So we’re here to help you decide what’s best for your business—Pvt Ltd vs LLP—and help you make the right choice for your startup.
Pvt Ltd Vs LLP Registration - How To Choose Them Right in Mumbai?
Table of Contents
Overview On Both Pvt Ltd & LLP
Pvt Ltd (Private Limited Company)
Pvt Ltd company is more of a legal entity that has been established under the Companies Act 2013. Here’s why many choose it:
- Limited Liability: Shareholders do not have any liability beyond the unpaid value of the shares. Your assets? Safe and sound!
- Separate Legal Entity: A Pvt Ltd company is a separate legal entity that owns no one and it is owned by no one. It can hold property, enter into contractual relations, and can even sue and be sued on its own.
- Compliance: Pvt Ltd companies exist with certain guidelines set in place like annual returns and having their accounts audited.
LLP (Limited Liability Partnership)
An LLP is a hybrid form of both partners and companies based on the Limited Liability Partnership Act 2008. Here’s what makes it appealing:
- Limited Liability: Similar to Pvt Ltd, the liability is restricted to the amount of money you put down for the business.
- Flexible Management: Compared to the Pvt Ltd companies, LLPs are comparatively easy to manage because they do not have a proper corporate structure.
- Separate Legal Identity: Like companies, LLPs also hold a separate legal entity from their partners.
General Comparison of Pvt Ltd & LLP for Mumbai Location
Choosing between Pvt Ltd vs LLP requires understanding their differences. Here we have listed most important features any business owners need to think about for Mumbai location.
A Quick Snapshot of the Comparison Details –
Feature | Pvt Ltd | LLP |
Liability | Limited to share capital | Limited to partner’s capital |
Compliance | High (audits, AGMs) | Low (fewer filings) |
Management | Board of Directors | Designated Partners |
Taxation | 25%-30% corporate tax | 30% on total income |
Funding | Easier to attract investors | Limited funding options |
What is the Cost To Setup Pvt Ltd & LLP in Mumbai?
You know starting up in Mumbai is never cheap, so costs always factor into what you are doing. Let’s break it down:
Registration Costs: Pvt Ltd Vs LLP
Pvt Ltd: ₹ 10,000 – ₹ 30,000 (The amount differs with capital and professional fees).
LLP: Frankly, it is less expensive, costing anything between ₹5,000 and ₹15,000 while a conventional lawyer could make approximately ₹30,000. This might help you learn more – LLP Registration Cost in India
Compliance Costs: Pvt Ltd vs LLP
Pvt Ltd: On-going costs are higher due to audits, board meetings, and filings.
LLP: Fewer amounts to comply with and limited paperwork to complete. Perfect for small businesses!
Pvt Ltd vs LLP - Tax Compliance
Taxes matter—a lot! So here’s how Pvt Ltd vs LLP compares in the tax department:
For Pvt Ltd Companies, the corporate tax rate is at 25% for companies with annual revenue of less than ₹400 Crore. If exceeded by ₹400 Crore, the tax payable stands at 30%.
While for any LLP company, it should pay flat 30% of the total income generated in a financial year. If the income exceeds ₹1 Cr, then an additional surcharge tax of 12% is added to it.
It is very crucial to make a wise decision for any founder to choose between Pvt ltd or LLP in Mumbai or anywhere in India. If you are looking to scale your business to multiple locations, to bring external funding, or to add more directors to your business, you can choose Pvt Ltd to avoid tax burden. We’ve seen founders making the wrong decision of choosing LLP at the place of Pvt Ltd just to increase the burden of tax & suffering.
We’ve also seen, many LLPs converting to Pvt Ltd & vice versa, after making the wrong decision.
What Entrepreneurs in Mumbai Choose? Pvt Ltd or LLP
A recent Razorpay survey revealed some interesting trends:
- About 65% of the small business owners in Mumbai prefer LLPs because these entities are easy to form and less costly.
- 70% of startups select Pvt Ltd structures since funding is easy and it adds credibility.
It seems to be very clear that, to choose the right business structure, it takes the clear vision of the founder of his business.
How To Choose Between Pvt Ltd & LLP for Mumbai Region?
It really takes much effort, knowledge & right consultation to choose the company type for your business. I have a simple framework to make it easy for you.
Let’s match business types to structures:
- Startups Seeking Investment: Choose Pvt Ltd. It’s an investor’s darling and pulls funding like a magnet. Learn more on How To Get Business Loan in India?
- Service-Based Businesses: LLP is your go-to! Because of the low cost of compliance, it is particularly ideal for consultants and professionals. Understand the List of Mandatory Annual Compliances For LLP
- Long-Term Growth: Pvt Ltd is the winner if your concerns are about scaling and expanding. Equity financing is much easier here since the funds needed are not usually very large and it is easy to attract the interest of investors.
Get Expert Consultation To Choose Right Business Structure
State-Specific Benefits in Maharashtra for Pvt Ltd & LLP Companies
Are You Planning to Start Your Business in Maharashtra? You’re in for a treat!
This state is not only all about its big cities and diverse history, it’s also chock full of potential for the budding business person. It doesn’t matter if you’re considering a Pvt Ltd or LLP registration in Maharashtra, there are some bonuses in store for you.
PMEGP: Turning Dreams Into Reality
- You can get up to ₹25 lakhs for any type of manufacturing project.
- Up to ₹10 lakhs for businesses providing services.
Who benefits more?
Pvt Ltd structures may have a slight advantage here because they are considered more believable especially when you are in the process of negotiating for those large subsidies.
Interest Subsidies: Less Stress, More Growth
Borrowing money to set up the business of your dreams? Maharashtra has your back!
Pvt Ltd vs LLP: Borrowers of smaller loans stand to benefit more due to increased accessibility as evidenced by LLPs. Pvt Ltd companies, with ambitions big, can cash in on this for even bigger operations.
Tax Rebates: Savings Galore
If you have planned to invest in less developed regions of Maharashtra, you would be able to avail some incredible tax benefits.
Who’s it best for?
Pvt Ltd companies which have ambitions of becoming large and expansive. The policies are suitable for LLPs wishing to reduce their operating costs in the initial stages.
Women Entrepreneurs: Leading the Way
Ladies, this one’s for you! Maharashtra has lots to say about women’s entrepreneurship development.
Benefits:
- Special grants.
- Simplified loans.
- Making new contacts every few minutes.
What is the Ideal Choice:
For service sector businesses or niche businesses; LLPs are suitable. Pvt Ltd for big projects or with a vision to have steady growth for the long term.
Case Study of Mumbai Businesses - Pvt Ltd vs LLP
Case 1: A Startup Going Pvt Ltd
“Innovatech”, a tech startup firm based in Mumbai chose the Pvt Ltd structure. Why?
The companies required funding to reach another level, for which venture capital was necessary. The introductory structure of the company made investors happy resulting in the mobilization of ₹5 crore in the first six months.
If you are a startup & looking forward to raising funds. Here’s a quick guide for you on Investor-Ready Accounting for Startups
Case 2: A Consulting Firm Choosing LLP
“ConsultPro”, begun by three partners, chose LLP. Their goal?
Concentrate on achieving high sales revenues and market share by supplying services without worrying about complicated operations. The operational cost savings helped them to reinvest in human capital for the growth of the organization.
Advantages & Disadvantages of Pvt Ltd & LLP
Private Limited (Pvt Ltd) Business Structure –
Advantages
- Easier access to funding.
- Credibility with investors.
- Perpetual succession (company continues even if shareholders change).
Disadvantages
- Higher compliance costs.
- More complex management.
Limited Liable Partnership Firms (LLP) Business Structure –
Advantages –
- Lower compliance burden.
- Flexible management.
- Tax efficiency for smaller businesses.
Disadvantages –
- Limited funding opportunities.
- Less investor confidence compared to Pvt Ltd.
What's Best For You? Pvt Ltd or LLP in Mumbai
The Pvt Ltd vs LLP decision boils down to your specific needs:
- Are you urgently seeking capital or aiming to grow? Pvt Ltd is the way to go.
- Looking for simplicity, lower costs, and flexibility? LLP has your back.
While Mumbai provides numerous opportunities in various fields, it can only prove beneficial if the business model is aptly positioned to complement these objectives. Thus, no matter the choice made between Pvt Ltd or LLP, one is sowing the seeds of success.
Still unsure? Reach out to Actax India experts. We assist you in making the right decision on business structure & help you get your business registered quickly & hassle-free in Mumbai.
