Since LLP has been introduced in India, apart from incorporating a traditional Limited Liability Company, it has become an option for entrepreneurs, business owners and investors starting new ventures to start their business as an LLP. In light of this, it is important to understand the advantage of each of these formations, the differences between them and consider carefully which ones suits the need of the business best.

Both LLP and LLC are incorporated under Registrar of Companies and both the entities protect the partners/ members from the legal risk stemming from the activities of LLP or LLC.

The biggest difference that a business must understand and take into account is the difference in taxation and compliance requirement.

Unlike countries such as UK, in India LLPs are not pass through structures, but are taxed as entities. A Limited Liability Partnership is subjected just to income tax and alternate minimum tax. LLC on the other hand is liable to pay various taxes that are income tax, dividend distribution tax and minimum alternate tax.

The yearly cost of compliance in case of LLC can be substantial. Under the Companies Act, 1956 and the Rules made thereunder, a limited liability company is required to consider balance sheet, profit and loss account, hold meetings, directors report and auditors report; make a declaration with regard to dividend and appoint auditors, while annual compliance in case of LLP consists of presentation of statement of account and solvency along with annual report under Section 34(2) and 35(1) respectively of LLP Act. Practically, the effort and cost of compliance in case of LLPs is a fraction of what is required in case of a private limited company.