LLP vs Partnership Firm

LLP vs Partnership Firm

Guides » Limited Liability Partnership » LLP vs Partnership Firm

LLP vs Partnership Firm

LLP was introduced in the year 2010 in India to provide Entrepreneurs with an alternative to Partnership Firms. The purpose of introducing Limited Liability Partnership (LLP) is to introduce a form of business entity, which provides limited liability to the owners and at the same time relatively easy to manage. In this article, we look at some of the major differences between an LLP and Partnership Firm.

Cost for Registration

LLP registration can be completed online through IndiaFilings at just Rs.7899. Partnership registration can be completed online through IndiaFilings at just Rs.5899.

Limited Liability

In an LLP, the partners are liable to extent of their contributions to the LLP. They are not responsible to the external creditors personally. In the case of a partnership firm, the partners are personally responsible to the creditors. Due to this provision, many entrepreneurs hesitate to become a partner of a partnership firm. Hence, by incorporating a LLP, the all the Partners can enjoy limited liability protection.

Know more about Limited Liability Protection.

Number of Partners in LLP

LLPs and Partnership Firms must have a minimum of two partners. There is no limit to the number of Partners an LLP can have.

In case of a Partnership Firm, if the number of partners at any time reduces below the mandatory minimum of 2 due to death, incapacitation or resignation of a Partner, the partnership firm would stand dissolved. On the other hand, in case of a LLP, if the number of Partners reduces below 2, the sole Partner can still find a new Partner to fill the position without dissolution of the LLP. During the time the LLP carries on business with a sole Partner, the sole Partner would be responsible individually for the commitment of the LLP incurred during that period.

Central Government vs State Government

LLP is a separate legal entity registered under the Ministry of Corporate Affairs of Central Government of India. A LLP can shift its registered office between any of the States and also easily open a bank account anywhere in India.

Partnership firms are registered by the Registrar of Firms which is controlled by the State Governments. Hence, its more cumbersome to move operate across India with a Partnership Firm.

Perpetual Existence

LLP is a lawful person and its subsistence does not depend on the partners. Hence, the partners of an LLP can keep changing from time to time, but it will not affect the existence, continutity or operations of the LLP. In a Partnership Firm, the death or resignation of a Partner would have serious consequences and the Partnership would have to be reconstituted.

Membership

Members can be added to a LLP either during incorporation or after incorporation with the concurrence of existing Partner. The following persons can be partners in an LLP:

  • Individuals
  • Limited Liability Partnership
  • Companies
  • Foreign Limited Liability Partnerships
  • Foreign Companies.

A Hindu Undivided Family represented by its Karta can be a partner of a LLP. However, there is no declaration in the Act concerning the admission of HUF.

A minor cannot become a partner of a LLP. However, in a partnership firm, a minor can be admitted for the advantage of the partnership.

Agreement

Within 30 days of incorporation of a LLP, the LLP Agreement must be executed and filed with the MCA. In case a LLP fails to file the LLP agreement or there is no LLP agreement, then the provisions of the First Schedule to the LLP Act will administrate relationship between the partners and LLP. Even if there is a written agreement, but there is no detailed declaration about any of the matters dealt with in the first schedule, such matters will be administered by the first schedule.

In case of a  registered or unregistered Partnership Firm, the Partnership Deed will provide for the rights and responsibilities of all Partners involved.

LLP Agreement

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