Difference between Limited Liability Partnership (LLP) and Partnership
Difference between LLP and Partnership can be analysed on parameters such as Business Formation and Legal Status, Business Risk on Personal Assets, Acceptance and Credibility, Attracting Investments, Tax and Legal Compliances, and Startup advantages, Business Succession etc. etc.
Selecting the suitable business structure is the very first step in starting a business. This selection is based on different parameters including business plan, number of partners, investment requirements, foreign investment, area of operation, ability to take risk, etc. Comparing the advantages and disadvantage of different business structure is very important in selecting the suitable business structure by an entrepreneur.
Different Business Structures
In India, a business can be organized in different forms such as Sole Proprietorship, Partnership, One Person Company, Limited Liability Partnership, Private Limited Company or Public Limited Company. While selecting a business organization, one must have an understanding about the different types of business structures, its merits and demerits, public acceptance and image.
Comparison of Company and LLP
Here is the Comparison of Partnership and Limited Liability Partnership (LLP) on the parameters such as Business Formation, Benefits of Business Structure, Business Management, Taxation, Accounts, Audit, Records And Legal Compliances
BUSINESS FORMATION
Criteria | Partnership Firm | LLP |
| Incorporation / Registration | Created by the agreement among partners and by Indian Partnership Act, 1932. Registration is not mandatory. | Incorporated under provision of LLP Act, 2008 |
| Minimum number of owners | 2 Partners required | 2 Partners required |
| Minimum Number of Directors / Designated Partners | No such concept. Generally, all Partners manage the business | 2 Designated Partners required |
| Maximum number of owners | Maximum 10 in case of banking business and 20 in case of other business | No such limit. An LLP can have any number of partners |
| Capital Requirements | No Minimum capital requirements | No Minimum capital requirements |
| Cost of Registration | Less when compared to Company | Less when compared to Company |
| Constitution Documents | Constituted through Partnership Deed | Constituted through a Statement of Subscription by Partners and Certificate of Incorporation by ROC LLP agreement is to be executed and filed with ROC with in 30 days of Registration |
BENEFITS OF BUSINESS STRUCTURE
Criteria | Partnership Firm | LLP |
| Liability of Owners | Partner have Unlimited Liability on business transactions | Limited to the agreed contribution |
| Duration of Business | Change in owners will end the partnership or Partnership can be closed at the will of partners | Continue until winding up under LLP Act. |
| Changes in the ownership | Partnership will cease on change in partners / ownership | LLP will continue irrespective of changes in the ownership |
| Ownership of property | Owned by partners jointly | All assets and liabilities owned by the LLP |
| Withdrawal of Capital | Partner can withdraw capital subject to partnership deed. It is also possible for a partner to reduce contribution liability subject to partnership deed and after giving notice to creditors. | Partners can withdraw capital subject to LLP agreement. It is also possible for a partner to reduce contribution liability after giving notice to creditors |
| Interest on capital | Can provide interest on capital without any approval subject to partnership deed. | LLP can provide interest on capital without any approval subject to LLP Agreement. |
| Termination of ownership | Termination of a partner leads to dissolution of partnership firm. | A partner continues as a partner in the LLP even after transferring all his rights in the LLP unless LLP agreement provides otherwise. A partner can even resign from the LLP. |
| Removal from the ownership | Removal of a partner leads to dissolution of a partnership firm. | It is possible to remove a partner from the LLP subject to the LLP agreement. |
BUSINESS MANAGEMENT
Criteria | Partnership Firm | LLP |
Directors / Designated Partners | No such concept. | Designated Partner should be a partner in LLP. |
| Management | Managed by partners in terms of partnership agreement | LLP is managed by partners as per LLP agreement. Partners can delegate management power to a management team or single partner |
| Meetings for Management Decisions | No such requirements of meetings. Decision process as per Partnership Deed. | No such requirements of meetings. Decision process as per LLP Agreement. |
| Ownership Meetings for specific Decisions | No requirements of meetings. | No requirements of meetings of Partners of LLP. |
| Remuneration | Working partners can take remuneration subject to Partnership Deed. | Working partners can take remuneration subject to LLP agreement |
ACCOUNTS, AUDIT, RECORDS AND LEGAL COMPLIANCES
Criteria | Partnership Firm | LLP |
| Accounts | Accounts to be maintained with all supporting documents | Accounts to be maintained with all supporting documents |
| Audit Requirements | Accounts to be Audited by a Chartered Accountant only if the turnover exceeds Rs.1 Crore. | Accounts to be Audited by a Chartered Accountant only if the turnover exceeds Rs.40 Lakhs or contribution exceeds Rs.25 Lakhs. |
| Registers and Records | No need of maintaining Registers Records and Minutes.
| LLP is not required to maintain any Registers, Records and Minutes unless specifically mandated by LLP agreement. Partners are at liberty decide the requirements. |
| Annual and Event based Filings | No such requirements | LLP is required to file certain statutory returns annually and other filings based on certain events from time to time irrespective of doing business or not. |
TAXATION
Criteria | Partnership Firm | LLP |
| Permanent Account Number (PAN) | Partnership is required to have a separate PAN other than partners | LLP is required to have a separate PAN other than partners |
| Tax Rate | Partnership is as Firm at 34.80% on net profit. | LLP is taxable at ‘Firm’ tax at 34.80% on net profit of the LLP. |
| Dividend Distribution Tax (DDT) | Profit after tax will be credited to partners’ account and it will not be taxable in the hands of partners again. | Profit after tax will be credited to partners’ account and it will not be taxable in the hands of partners again. |
| Taxability of Dividend in the hands of Shareholder / Partner
| Profit distributed by an Partnership is completely exempted in the hands of Partner. | Profit distributed by an LLP is completely exempted in the hands of Partner. |
| Tax Filings | Required to file Tax returns every year. In case of no business, a ‘NIL’ return is required to be filed. Delay in tax return Filings will attract Penalties and the Loss can’t be carried forwarded for setoff | Required to file Tax returns every year. In case of no business, a ‘NIL’ return is required to be filed. Delay in tax return Filings will attract Penalties and the Loss can’t be carried forwarded for setoff |
STARTUP BUSINSES CRITERIAS
| Criteria | Partnership Firm | LLP |
| External Investment – Angels / VC / PE etc. | External Investors will not prefer a Partnership model of Business | External Investment and even Foreign Direct Investment is Possible. However, attracting Investors to LLP is a difficult task. |
| Start-up India Registration | Partnership Firm can be registered under Start-up India program. However, attracting Investors to partnership is not possible. | LLP can be registered under Start-up India program. |
| Employee Stock Options Plans for attracting Employees
| Not Possible | Not Possible |