Difference Between LLP and Partnership Firm
Difference Between LLP and Partnership Firm Partnership and Limited Liability Partnership (LLP) are distinct business structures with significant differences. Entrepreneurs considering starting a new business or altering the structure of an existing one should understand these variances. This article will explore the key disparities between Partnership and LLP, covering aspects such as liability, legal status, taxation, compliance, and management.
Limited Liability Partnership (LLP)
Difference Between LLP and Partnership Firm An LLP combines the advantages of a partnership firm and a company, making it a hybrid business form. It incorporates elements from both structures, providing benefits that suit the needs of business partners.
An LLP is recognized as a separate legal entity under the law, and it bears full liability for its assets. Partners’ liability is restricted to their investment in the LLP, and they are accountable solely for their own actions.
LLPs offer professionals, entrepreneurs, and businesses in scientific, technical, or service-oriented fields a flexible and commercially efficient business structure. It’s particularly suitable for small and medium enterprises (SMEs) due to its adaptability in structure and operations, as well as its attractiveness to venture capitalists for investment purposes.
Partnership Firm
In India, partnership firms are widely favoured and represent one of the oldest business structures. Establishing a partnership firm is straightforward, requiring adherence to a minimal set of rules and regulations.
A partnership involves an arrangement where two or more individuals combine their capital and resources to contribute to a business venture, agreeing to share the resulting profits. A partnership firm is formed when all partners enter into a partnership agreement or deed, operating the business under the agreed-upon firm name.
Registration of a partnership firm is not mandatory. Difference Between LLP and Partnership Firm The law acknowledges the existence of a partnership firm even without formal registration, and all partners are collectively liable for any losses incurred by the firm that affect third parties.
LLP Vs Partnership Firm
Here’s a comparison between LLPs and partnership firms in India:
| Particulars | LLP | Partnership Firm |
| Governing law | The Limited Liability Partnership Act, 2008 governs LLPs. | Under the Indian Partnership Act, registration of a partnership firm is optional. |
| Registration | Mandatory under the LLP Act. | Voluntary under the Indian Partnership Act. |
| Registering authority | Registrar of Companies (RoC). | Registrar of Firms. |
| Creation | Created by law. | Created by contract. |
| Binding document | LLP agreement. | Partnership deed. |
| Annual form filing | Annual statement of accounts and solvency, and annual return with RoC. | No requirement for annual returns. |
| Power to enter into contract | Can enter into contracts in its name. | Cannot enter into contracts in its name. |
| Separate legal entity | Has separate legal entity. | No separate legal status apart from partners. |
| Liability of partners | Limited to capital contribution. | Unlimited liability. |
| Name | Must contain ‘LLP’ at the end. | Can have any name. |
| Perpetual succession | Yes. | No. |
| Maximum partners | No limit. | Limited to 100 partners. |
| Ownership of assets | Assets owned by LLP, not partners. | Joint ownership by partners. |
| Power to own property | Can hold property in its name. | Cannot hold property in its name. |
| Agency relationship | Partners are agents of LLP. | Partners act as agents of each other and the firm. |
| Common seal | Yes. | No. |
| DPIN and DSC | Designated partners need DPIN and DSC. | Not required for partnership firm partners. |
| Administration | Managed by designated partners. | Managed by partners; no need for managerial personnel. |
| Foreign National | Can form LLP with an Indian resident partner. | Cannot form partnership firm in India. |
| Audit of accounts | Required for LLPs meeting specified criteria. | Required as per Income Tax Act provisions. |
| Dissolution | Can be dissolved voluntarily or by NCLT order. | Dissolution by agreement, court order, etc. |
| Arrangement, compromise, amalgamation | Can enter into arrangements, compromises, and amalgamations. | Cannot enter into such arrangements. |
LLPs and partnership firms, while similar in being partnership structures, vary in their operations, accounting practices, dissolution procedures, and regulatory frameworks. Understanding these distinctions aids entrepreneurs in choosing the most suitable partnership structure for their businesses.
Conclusion:-
In conclusion, both Limited Liability Partnerships (LLPs) and partnership firms offer partnership-based business structures, yet they diverge significantly in their operations and legal frameworks. While LLPs provide limited liability protection and a separate legal entity status, partnership firms are more straightforward to establish and operate.
LLPs are governed by the Limited Liability Partnership Act of 2008, whereas partnership firms fall under the Indian Partnership Act of 1932. Differences extend to registration requirements, liability limits, management structures, and more. Entrepreneurs seeking to establish a partnership-based business should carefully consider these variances to choose the structure that best aligns with their goals and needs. Whether opting for the flexibility of an LLP or the simplicity of a partnership firm, understanding these differences is crucial for making informed decisions in business ventures.
Sources :Â https://cleartax.in/s/difference-between-llp-and-partnership
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