If you want to start a business in partnership, then you can either start a Partnership Firm or a Limited Liability Partnership (LLP). While the concept of a partnership-based business is not new, the LLP structure merges the core principles of a business partnership with some essential features of a company, offering a unique business structure. Today, we are going to talk about the difference between LLP and partnership to help you choose the one best for your business.
Difference between LLP and Partnership
Here are some factors that highlight the difference between LLP and partnership:
The Acts that govern both these entities are as follows:
- Partnership Firm – The Indian Partnership Act, 1932
- Limited Liability Partnership – The Limited Liability Partnership (LLP) Act, 2008
Where to register?
You need to register a partnership firm with the Registrar of Firms and Societies. On the other hand, you can register an LLP with the Ministry of Corporate Affairs (MCA).
How many partners are allowed?
- In a Partnership Firm, you must have at least two partners at all times. The limit on the maximum number of partners is 100.
- In a Limited Liability Partnership, you must have at least two partners to register the LLP. There is no limit on the maximum number of partners.
If at any time the number of partners in a Partnership Firm drops below two, then the Firm is dissolved. This is possible due to the death, resignation, or incapacitation of a partner. However, in an LLP, if the number of partners falls below two, it is not dissolved. Instead, the surviving partner can find a new partner to fill the position. During this period, the surviving partner can carry on the business of the LLP. Hence, an LLP has perpetual existence since it is a separate legal entity.
Liability of the partners
In a Partnership Firm, the partners and the firm are not separate legal entities. Therefore, all the partners are personally liable for any liabilities that may arise from the firm.
On the other hand, in a Limited Liability Partnership, the partners and the firm are separate legal entities. Therefore, the liability of each partner cannot exceed the amount that he has invested in the LLP.
Who can become a partner?
The following persons can become a partner in a Limited Liability Partnership:
- Domestic companies
- Foreign companies
- Domestic LLPs
- Foreign LLPs
A minor cannot become a partner in an LLP.
The following persons can become a partner in a Partnership Firm:
- Partner of a partnership firm
- Karta of a Hindu Undivided Family
As far as the partnership is concerned, a Minor can not become a partner in the partnership firm. However, with the mutual consent of all the partners, he can be entitled to the benefits associated with the partnership firm.
You can convert a Partnership Firm into an LLP or a Private Limited Company. While the process is tedious, it is possible.
On the other hand, you cannot convert an LLP into a Partnership Firm. However, you can convert it into a Private Limited Company. Since the LLP has a legal structure, the conversion is relatively easy.
In a Partnership Firm, you can transfer the rights to another person. However, you must seek approval from all the partners in the Firm. Also, the process of transferring partnership rights is lengthy.
On the other hand, in an LLP, you can easily transfer the rights to another person. You also need the approval of all the partners in the LLP. Further, the transferee does not become a partner automatically.
A Partnership Firm has minimal compliance requirements. It does not have to file its annual returns.
On the other hand, an LLP must file its annual returns and statement of Accounts with the MCA every year.
Cost of Registration
With us, the cost of registration for both these entities is as follows:
- Partnership Firm – Rs.2,999 to Rs.5,499
- LLP – Rs.4,499 to Rs.6,999
While the core concept is a business partnership, an LLP embraces several features of a company, making it unique. We hope that this article provided a clear understanding of all the factors that highlight the difference between LLP and partnership. If you are looking for assistance in registering either of them, please feel free to contact us. We will be glad to be of service.