What is the Difference Between Partnership & Limited Liability Partnership Firm?
What is the Difference Between Partnership & Limited Liability Partnership Firm?
Partnership and Limited Liability Partnership (LLP) are two different types of business structures with some distinct differences. Understanding the difference between Partnership & LLP is crucial for entrepreneurs looking to start a new business or change the form of an existing one. This article will examine the key differences between Partnership & Limited Liability Partnership firm, including liability, legal status, taxation, compliance, and management.
Partnership Firm
In the partnership business structure, two or more people own and operate the business together. In a partnership Firm, the partners share the profits and losses of the company and are personally liable for its debts and obligations.
Limited Liability Partnership Firm
On the other hand, a limited liability partnership (LLP) is a type of Partnership where the partners have limited liability for the debts and obligations of the business. If the company incurs debts or legal action, the partners’ assets are not at risk. LLPs are typically used in professional services such as accounting, law, and consulting.
Difference between Partnership & limited liability partnership Firm
Partnership and Limited Liability Partnership (LLP) are two types of business structures with some key differences.
| Particulars | Partnership Firm | LLP |
| Registration | The registration of a partnership firm under the Indian Partnership Act is voluntary. | LLP registration is mandatory u. |
| Registering authority | The firm must submit the Partnership firm registration form and other subsequent forms to the Registrar of Firms. | An LLP must submit the registration form and all the subsequent Forms to the Registrar of Companies (ROC). |
| Annual form filling | A partnership firm need not file any annual returns with the Registrar of Firms. | The LLP must also file an annual statement of accounts, solvency, and yearly return with the Registrar of Companies annually. |
| Governing law | The Indian Partnership Act of 1932 | The Limited Liability Partnership Act 2008 |
| Liability | the partners have unlimited liability, which means they are personally liable for all the debts and obligations of the business | the liability of each partner is limited to the amount of money they have invested in the business |
| Legal Status | A partnership is an unincorporated business structure, meaning it does not have a separate legal entity from its owners | an LLP is a registered corporate entity with a separate legal existence from its partners. |
| Taxation | Partnerships are not taxed as separate entities. Instead, each partner is responsible for paying taxes on their share of the business’s profits. | LLPs are taxed as a separate legal entity, and the partners are taxed only on the income they receive as a salary or profit distribution. |
| Compliance | LLPs have more regulatory and compliance requirements than partnerships | LLPs must file annual reports with the registrar of companies and maintain more extensive records than partnerships. |
| Management: | The partners themselves typically manage partnerships. | There are designated partners who are responsible for managing the business. |
| Name | A partnership firm may have any name, and it is not required to include any words. | LLPs must have the word ‘LLP’ at the end of their names. |
| Maximum partners | A partnership firm’s maximum number of partners is limited to 100. | There is no limit on the maximum number of partners in an LLP. |
| Ownership of assets | All assets belonging to the partnership firm are owned jointly by the partners. | The LLP has the ownership of assets that are independent of the partners. No partner owns the help of the LLP. |
| Administration | The partners themselves handle the administration of the partnership firm—Tappoint managerial personnel. | An LLP’s designated partners manage the day-to-day business and other statutory compliance matters. |
| Foreign National | Foreign nationals cannot form a partnership firm in India. | A foreign national and an Indian resident can form an LLP together. |
| Audit of accounts | Partnership firms are required by the Income Tax Act to have their accounts audited. | LLPs must get their accounts audited annually according to the LLP Act (except for those with turnovers or contributions below Rs.40 lakh). |
| Dissolution | LLPs can be dissolved voluntarily or by the National Company Law Tribunal (NCLT) order. | An agreement between partners, mutual consent of partners, court order, insolvency, etc., can dissolve a partnership firm. |
Overall, the key difference between a partnership and an LLP is the level of personal liability and the formal legal status of the business. When starting a business, it’s important to consider these differences carefully and choose the best business structure.
