Llp Vs Partnership Firm in India

Partnerships registered under the Partnership Act, 1932 used to be a very popular form of Business Entity in India due to the simplicity of registration and ease of maintenance. With the introduction of the Limited Liability Partnership (LLP) in India through the Limited Liability Partnership Act, 2008, the prominence of Partnership's has been replaced by the LLPs. LLPs are easy to register, offer a range of benefits to the promoters and is easy to maintain, making it ideal for many small and medium-sized business that would otherwise opt to start as a Proprietorship or a Private Limited Company. In this article, we mainly cover the various aspects of Llp Vs Partnership in India:

Llp Vs Partnership: The Entity

Partnership

Partnerships are registered under the Partnership Act, 1932. The partners of a partnership registered under the Partnership Act, 1932 are personally liable for an unlimited amount of Partnership liabilities. Hence, the partnership firm and the Partners are not considered separate legal entities; neither does the Partnership have perpetual existence.

Limited Liability Partnership

Register LLPs under the Limited Liability Partnership Act, 2008. The Partners of an LLP are not personally liable for the liabilities of the Partnership, and the liability of a Partner is limited to the amount of his/her capital contribution to the LLP. Therefore, the LLP and the Partners of an LLP are considered to be separate legal entities and the LLP has a perpetual existence, until dissolved by the Promoters.

Number of Partners & Requirement

Partnership

Any Indian Citizen residing in India can be a Partner in a Partnership Firm, including minors. A Partnership Firm must have a minimum of 2 Partners and can only have a maximum of 20 Partners. The Partnership Deed defines aspects such as Management of the Firm. To manage the Partnership Firm, one or more Partners can be designated.

Limited Liability Partnership

Any Indian Citizen residing in India can be a Partner in an LLP. Foreign Direct Investment is allowed in an LLP with prior RBI approval. Minors are, however, not allowed to be part of an LLP. An LLP must have a minimum of 2 Partners and can also have unlimited Partners. The LLP Agreement governs aspects of management of an LLP and designates one or more Partners to manage the activities of the LLP.

Transferability or Conversion

Partnership

A person can transfer the share in a Partnership to another person after obtaining the permission of all the Partners in a Partnership. The transferability of a Partnership is cumbersome. There is a lengthy process for converting the partnership into an LLP or a Private Limited Company,

Limited Liability Partnership

The share of an LLP can be transferred. However, the Transferee is not allowed to become a Partner automatically. The share of an LLP can be transferred to another person more easily. An LLP can be converted into a Private Limited Company or a Limited Company easily.

Compliance & Taxation

Partnership

The tax on Profits of a Partnership firm is 30% + educational cess. There is no annual return filing requirement for a Partnership firm.

Limited Liability Partnership

The tax on LLP profits is 30% + educational cess. LLP must file an annual return with the Ministry of Corporate Affairs(MCA).

Registration

Partnership

Register Partnership firms with the Registrar of Firms. Draft a Partnership Deed for registering the Partnership firm with the Registrar of Firms. IndiaFilings can register your Partnership Firm for Rs.6,000/-

Limited Liability Partnership

Private Limited Company Incorporation process, viz. obtaining Digital Signature Certificate for the Partners, obtaining Designated Partner Identification Number (DPIN) for the Partners, obtaining name approval from MCA, obtaining Incorporation Certificate and filing LLP Agreement. IndiaFilings can register your LLP for Rs.8000/-

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Frequently Asked Questions

Common questions about LLP vs Partnership Firm India: Key Differences.

The main difference between an LLP and a partnership firm in India is the liability of partners. In a partnership firm, the partners have unlimited personal liability for the firm's debts and obligations. However, in an LLP, the liability of each partner is limited to their agreed contribution to the LLP's capital.

To form an LLP, a minimum of two partners is required, and there is no maximum limit on the number of partners. For a partnership firm, a minimum of two partners is required, with a maximum limit of 20 partners.

Minors can be partners in a partnership firm, but they are not allowed to be partners in an LLP under the LLP Act, 2008.

An LLP has perpetual existence, meaning it continues to exist irrespective of changes in its partners or their insolvency, unless it is dissolved by the partners. A partnership firm does not have perpetual existence and may be dissolved due to various reasons, such as the retirement or insolvency of a partner.

Foreign nationals can be partners in an LLP with prior approval from the Reserve Bank of India (RBI). However, the Partnership Act, 1932, does not explicitly prohibit or allow foreign nationals as partners in a partnership firm.

In an LLP, a partner's share can be transferred more easily to another person, but the transferee does not automatically become a partner. In a partnership firm, a partner can transfer their share to another person only with the consent of all other partners, making the process more cumbersome.

An LLP can be converted into a private limited company or a public limited company more easily. However, converting a partnership firm into a company is a lengthy process.

Both LLPs and partnership firms are taxed at a flat rate of 30% plus applicable cess on their profits. However, LLPs have additional compliance requirements, such as filing annual returns with the Ministry of Corporate Affairs (MCA).

LLPs are registered with the Ministry of Corporate Affairs (MCA), similar to the process of incorporating a private limited company. Partnership firms are registered with the Registrar of Firms under the Partnership Act, 1932, and a partnership deed needs to be drafted.

Registering an LLP typically costs around Rs. 8,000, including filing fees and professional charges. Registering a partnership firm is generally less expensive, costing around Rs. 6,000, including drafting the partnership deed and registration fees.