An individual can start his/her business in the form of a sole proprietorship/one-person company. Similarly, if two or more persons want to start their business, they have choices of different types of business structures in India such as partnership firm, LLP, company, etc.
Before starting any business, it is good to know the advantages and disadvantages of various types of entities. It helps to make your decision easy regarding which type of business entity is suitable for us.
In this article, we have explained the difference between LLP and partnership. It will help you to choose between LLP and partnership.
The concept of Limited liability partnership (LLP) is covered under the Limited Liability Partnership Act, 2008. It is a hybrid between a company and a partnership. A person can start LLP with two or more designated partners.
LLP enjoys the benefit of limited liability. In such a case, one partner will not be liable for the mistakes made by another partner.
Starting a business in partnership is one of the popular business structures in India. A partnership firm is governed under the Indian Partnership Act, 1932. Two or more individuals can start a partnership by contributing the capital and agrees to share the profits and losses.
The partners of the firm enter into a “Partnership deed.” It contains various terms and conditions that the partners will follow.
Basis of difference | LLP | Partnership firm |
Governed act | Limited Liability Partnership Act, 2008. | Indian Partnership Act, 1932. |
Registration | LLP registration is compulsory with the ROC. | Partnership registration is optional. However,you can registera partnership firm with the local registrar of firms. |
Minimum & maximum partners | Minimum: 2 designated partners Maximum: no limit Minor can’t be a partner | Minimum: 2 Maximum: 50 Minor can be a partner |
Liability of partners | The partner’s liability is limited up to theamount invested by them in the company. Hence, they can’t be liable for their personal assets. | Partners haveunlimited liability. Hence,they can also be liable personally. |
Separate legal entity | LLP is a separate legal entity. | A partnership firm is not legally separated from its partners. |
Constitution documents required | Certificate of incorporation | Partnership deed |
Perpetual succession | The retirement or death of any partner can’t dissolve the LLP. Hence, it enjoys perpetual succession. | The retirement or death of any partner can dissolve the partnership firm. Therefore, perpetual succession is not possible. |
Compliances | Mandatory to file the annual return to the MCA portal. | No such requirement for annual return filing. |
Conversion | LLP can’t be converted to a partnership firm. It can be converted to a private limited or a limited company easily. | A partnership can be converted to LLP or private limited company after fulfilling the prescribed conditions. |
Audit requirements | Audit of the books is mandatory if the turnover exceeds Rs.40 Lakhs or contribution exceeds Rs.25 Lakhs. | Audit of the books is mandatory if the turnover exceeds Rs. 1 crore. |
The above article has explained the differences between LLP and partnership, making it clear that LLP has various advantagesoverthe partnership firm.
One of the major advantages of choosing a limited liability partnership is its partner’s limited liability. Starting an LLP over the partnership firm gives protection to the partners from being personally held liable. On the other hand, in partnership, any liability can be paid off through the business and personal assets.
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