Selection of the correct form of business entity is the most important decision taken by an entrepreneur. To make choices simpler and assist you in taking a well informed decision, here is a basic comparison chart of Limited Liability Partnership (LLP) vs Partnership
Limited Liability Partnership – A corporate form of Partnership
Limited Liability Partnership has been introduced in India by way of Limited Liability Partnership Act, 2008. The basic premise behind the introduction of Limited Liability Partnership (LLP) is to provide a form of business organization that is simple to maintain while at the same time providing limited liability to the owners. It exhibits elements of both partnership and corporation. In LLP, one partner is not responsible or liable for another partner’s misconduct or negligence unlike a traditional partnership in which each partner has joint and several liabilities.
Partnership is governed by Indian Partnership Act, 1932. It is the relation between two or more partners who have agreed to share the profits of a Business carried on by all or any of them acting for all. The partners can enter into a verbal or written agreement between them as per their discretion. The Registration of partnership firm is not compulsory.
The Comparison chart will give you a clear distinction between all the three forms of business.
|Factors of Comparison||Limited Liability Partnership||Partnership|
|Legal Identity||It has separate Legal entity different from partners||No separate legal entity|
|Minimum Members||Designated Partners – 2||Minimum Partners – 2|
|Maximum Members||No limit||100|
|Minimum Capital||No minimum requirement||No minimum requirement|
|Regulator||Registrar of Companies||Registrar of Firms|
|Compliance Requirements||Annual Return Filing||No mandatory compliances|
|Taxation||Taxed at 30%||Taxed at 30%|
|Cost of compliance||As there are no compulsory compliances for a partnership firm, there are no cost of compliance as such|
|Liability||Limited to Capital contribution||Unlimited liability of partners|
|Statutory Audit||Mandatory if Contribution is above 25 lacs or, if Turnover is above Rs. 40 lacs||Not Mandatory|
|Conversion||Can be converted into a Company by following the procedures of Companies Act||Can be converted into a Company by following the procedures of Companies Act|
|Time Taken for Registration||10 -15 Days||7-10 days|
|Relation inter se partners||Partners are the agent of firm and the partners. One is responsible for the act of other(s)||Partners are agents of the firm only.|
|Ease of closure||An LLP can be closed by meeting certain conditions and following the procedures of LLP Act 2008.||A Partnership can be closed anytime as per the conditions laid down in the deed or agreement.|
– Partnership firm, even if registered, is not a separate legal entity.
– LLP is comparatively a more organized form of business, hence has more credibility.
– Partners of a partnership are agent of one another, which makes all the partners responsible for any fraudulent act of one of the partners.
– And partners are personally liable to the extent of dues of the partnership. But contrary to this, in LLP, partners are not liable for the act of one another. They are only responsible for their acts and liable to the extent of their contribution.