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A Limited Liability Partnership (LLP) is a form of business entity that combines the flexibility of a partnership and the limited liability of a company. It is a separate legal entity from its partners and has perpetual succession. LLP registration is suitable for small and medium-sized businesses, such as startups, professional service providers, as it provides limited liability protection to its partners while allowing them to maintain flexibility in managing the business.
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1. Number of Partners:
LLP partners require a minimum of two partners with no limit to maximum partners.
2. LLP Agreement:
LLP Agreement governs LLPs, outlining operation, management, rights, and duties of designated partners.
3. Competence of Partners:
All partners must be competent to enter into the partnership agreement.
4. Sharing of Profit and Loss:
In partnership firms, profits and losses are shared according to agreed ratios.
5 Liability:
Partner liability is limited according to their contribution to the business.
6. Legal Status:
Partnership firms have a separate legal status from partners.
7. More Preferable to General Partnership:
LLP combines advantages of a corporation with a traditional partnership.
8. Purchase of property:
LLP can purchase property in its name; Partnership firms cannot.
9. No Partners’ Dependency:
In LLPs, changing partners will not affect existence or operations, unlike Partnership firms.
General Partnership and LLP are similar but differ in structure, regulation, liabilities, advantages / disadvantages. One can Choose based on business goals. Few of the differences are highlighted below
| Parameter | |||
|---|---|---|---|
| Number of Partners | General Partnership has 2-10 members, while LLP needs 2 partners, with no limit on maximum. | ||
| Legal Status | Partnerships lack separate legal status while LLPs have perpetual succession and separate entity. | ||
| Compliance | LLPs must file annual returns with MCA and ROC, while partnership firms don't need to file. | ||
| Transferability | Partnership requires all partners' consent for share transfer, while LLP allows more flexibility. Transferee isn't automatically a partner. LLP's ownership structure is more complex. | ||
| Perpetual succession | Partnership Firm does not have perpetual succession whereas LLP has perpetual succession. | ||
| Property Purchase | Partnership can't buy property in its name, while LLP can buy movable/immovable property in its name. | ||
| Audit of accounts | Partnership firms need to have their accounts audited as per the provisions of the Income Tax Act. In contrast, an LLP's audit requirements depend on its annual turnover which is 40 lakhs annually | ||
| Agreement between Partners. | Partnership governed by Partnership Act, while Partnership Deed controls operation. LLP governed by LLP Act, and LLP Agreement controls operation. | ||
| Manageability | Partnership firms tied to state government, while LLPs registered under MCA and have more flexibility to move and operate. | ||
| Partners’ Dependency | Partnership's dissolution affected by partner's resignation or death, while in LLP, the subsistence doesn't depend on partners. | ||
| Dissolution | Partnership can dissolve by agreement, court order, etc. LLP can dissolve voluntarily or by order of National Company Law Tribunal. | ||
| Private Limited Company | |
|---|---|
| It is a tightly held business entity incorporating the qualities of a corporation and a partnership. | It is a type of partnership in which participants’ liability is fixed to the amount of money they invest. |
| LLC stands for Limited Liability Company. | LLP stands for Limited Liability Partnership. |
| The obligation of its members is determined by the number of unpaid investment returns on the shares they own. | The partners’ liability is restricted to the amount they contribute. |
| It is regulated by Memorandum of Association(MoA) and Article of Association (AoA) | It is regulated by the LLP Partnership Agreement. |
| Directors are the owners of the firm. | Partners are the owners of the firm. |
| The tax on profit is 25%. | The tax on profit is 33%. |
| The choice of a company name is the first stage in the process of company formation. Then the next step is to submit an application for a Director Identification Number and Digital Signature Certificates. | To create an LLP, you must first register for a Designated Partner Identification Number (DIN) for each of the two different partners and get a Digital Signature Certificate Registration for at least a one partner |
| A Private Limited Company continues to exist even if the directors change. | An LLP ceases to exist if partners leave or die. |
| Audit Requirement is mandatory. | The audit is mandatory only if annual turnover exceeds Rs. Forty Lakhs or the Capital exceeds Rs. Twenty Five Lakhs. |
