The demo application is traditionally a full-featured application that works only for a limited time or does not allow you to save anything or cripple in some way to make it useless, except for demonstration.
The lite application works fully independently. If the user is never upgraded to the full version, the Lite application should still do something useful, even if it is rather limited. One of the important things that Apple will look at is not the user interface part that should be disabled in the Lite app. If a little functionality does not work in the lite version, it should not be part of the user interface at all.
In a Lite application, you may have a button or other user interface element that allows the user to update. If the user reaches a certain limit imposed by the lite version, you can tell the user that they can upgrade if they want. But never ask a user to update him.
Lite application does not require IAP. You can create a couple of applications (lite / paid) if you want.
If you decide to use the same application with IAP for updating, do not call the Lite application. Do not put "lite" in the icon. Because if you do this, your customers will hate you as soon as they update the application, and still say "lite" anywhere.
source share