India has emerged as a preferred destination for global businesses looking to expand in Asia. One of the first steps for a foreign company entering the Indian market is to set up a subsidiary. But a common question arises: Should you register your subsidiary as a Limited Liability Partnership (LLP) or a Private Limited Company?
In this blog, we break down the pros and cons of both structures from a legal, financial, and compliance perspective — so you can make an informed decision.
Understanding the Basics
What is an LLP?
An LLP (Limited Liability Partnership) combines the flexibility of a partnership with the advantages of limited liability. It is governed by the LLP Act, 2008. This model is ideal for small businesses and professional service providers who want flexibility in management and minimal compliance.
What is a Private Limited Company?
A Private Limited Company (Pvt Ltd) is a separate legal entity governed by the Companies Act, 2013. It is a more structured and scalable form of business that enjoys investor confidence and better access to capital.
Tabular Comparison: LLP vs Private Limited Company for Subsidiary
| Parameter | LLP | Private Limited Company |
|---|---|---|
| Governing Law | LLP Act, 2008 | Companies Act, 2013 |
| Legal Identity | Separate legal entity | Separate legal entity |
| Minimum Owners | 2 Designated Partners | 2 Shareholders |
| Ideal for | Professional service firms | Startups, scalable businesses, foreign subsidiaries |
| FDI (Foreign Direct Investment) | Allowed via automatic route (non-restricted sectors only) | Allowed via automatic route in most sectors |
| Subsidiary Feasibility | Legally possible, but not preferred by foreign investors | Most preferred legal structure for foreign subsidiaries |
| Compliance | Moderate (Annual Statement of Accounts, ITR) | High (ROC filings, board meetings, audits, etc.) |
| Taxation | 30% + surcharge + cess | 22% + surcharge + cess (if opting for new regime – Sec 115BAA) |
| Audit Requirement | Mandatory only if turnover > ₹40 lakhs or capital > ₹25 lakhs | Mandatory for all companies regardless of turnover |
| Ownership Transfer | Restricted | Easier via share transfer |
| Perception in Market | Less formal, less attractive to investors | Professional and highly credible |
| Investment Readiness | Low | High |
Key Differences Explained
1. Foreign Direct Investment (FDI) Rules
One of the most significant differences between LLPs and Private Limited Companies is how they are treated under FDI norms.
- LLPs are allowed to receive FDI only through the automatic route and only if they operate in non-restricted sectors (i.e., sectors that allow 100% FDI without prior approval).
- On the other hand, Private Limited Companies are permitted to receive FDI under a broader range of sectors, with easier repatriation rules and compliance under FEMA.
2. Structure and Scalability
If you’re thinking long-term — raising funds, building brand value, expanding operations — a Private Limited Company is the better option. The ownership via shares makes it easier to bring in investors, offer stock options, or bring in multiple stakeholders in a transparent way.
LLPs don’t issue shares, which makes them unsuitable for equity funding or large-scale operations. The ownership is structured via a partnership agreement, which limits flexibility.
3. Compliance and Reporting
While LLPs are perceived as easier to maintain, this lower compliance comes with trade-offs in terms of credibility. LLPs must file:
- Statement of Accounts & Solvency
- Annual Return
- Income Tax Return
Private Limited Companies are subject to:
- Annual General Meetings (AGMs)
- Board meetings
- Annual ROC filings (Form AOC-4, MGT-7, etc.)
- Statutory audits
- Director KYC & more
While compliance is higher, it ensures greater transparency and governance, which becomes crucial in foreign ownership scenarios.
4. Taxation
Private Limited Companies can opt for a lower tax rate under Section 115BAA, paying only 22% corporate tax (plus applicable surcharge and cess) without claiming deductions. LLPs, however, are taxed at 30%, which may result in a higher tax outflow.
For a foreign-owned subsidiary, lower taxation and better profit repatriation structures in a Pvt Ltd company make it the smarter choice.
5. Brand and Legal Perception
The business world — including banks, customers, vendors, and investors — tends to associate Pvt Ltd companies with greater professionalism and credibility. LLPs, while valid legal entities, are still seen as more informal and suited for smaller or specialized setups like consulting firms or legal practices.
When is LLP Suitable?
LLPs work well if:
- The foreign company is entering India for limited professional services (e.g., IT consulting, legal, R&D).
- There is no plan to raise funds, scale rapidly, or bring in multiple partners/shareholders.
- You are looking to minimize compliance and operational complexity.
However, even in these cases, FDI restrictions can be a limiting factor.
Wazzeer’s Recommendation
At Wazzeer, we work with many global businesses expanding into India. Our clear advice for companies planning to establish a subsidiary in India is:
✅ Choose a Private Limited Company.
Here’s why:
- No restrictions on foreign investment in most sectors
- Clear shareholding and board structure
- Easier profit repatriation and compliance with FEMA
- Better tax efficiency under Section 115BAA
- Higher brand credibility and investor preference
We help simplify the entire process — from incorporation to compliance — so that you can focus on growing your Indian operations, while we take care of the legal and regulatory framework.
Final Thoughts
Choosing the right legal structure can impact your business operations, tax outgo, investor relations, and long-term scalability. While LLPs offer flexibility, they come with limitations that don’t align with the goals of most foreign subsidiaries. A Private Limited Company, though slightly more regulated, offers the clarity, confidence, and capability required to run a successful and scalable business in India.
Ready to set up your subsidiary in India? Reach out to Wazzeer and get expert guidance from our legal and financial advisors.