Difference Between LLP and Partnership

Publishing Date: 24 Oct, 2024

Introduction

Choosing the right business structure is one of the crucial steps for both legal and operational success. A Partnership business structure is a traditional approach which combines resources and share responsibilities, while introduction of LLP has brought a new modern twist or approach. Both LLP and Partnership allowed shared ownership but still they have several differences. In this blog, we will break down the major key differences between LLP and partnership, helping you decide which structure is best for your business.

What is an LLP?

A limited Liability Partnership is a separate legal entity which can enter into agreement with a third party under its own name. LLP has perpetual succession which means it continues to run in the event of the death of a partner. The partners have limited liability which means their liability is only limited capital contributed by them. In case of any debt or liability of an LLP, partners of LLP don’t need to pay from their personal assets.

What is a Partnership?

A Partnership is a business structure in which individuals have agreed to share the profit, losses and responsibilities of a business carried on by all or some of them acting for all as mentioned in section 4 of the Indian Partnership Act. One can run a business in partnership even without Partnership Registration, but it is recommended to do registration to avoid crises in future.

Difference Between LLP and Partnership

There are too many differences between LLP and Partnership based on their Authority, Taxation, Compliance, management, and many more. Following is the detailed table of differences between LLP and Partnership.

LLP vs Partnership:

Basis	LLP	Partnership
Registration	The LLP registration is mandatory in India under section 2(1)(n) of the limited Liability Partnership Act, 2008.	The Partnership Registration is voluntary and not mandatory while it is recommended to do registration to avoid crisis.
Registering Authority	The LLP must submit their documents and forms with Registrar of Companies (RoC)	Partnership firm have to submit their documents and form with Registrar of Firms
Governing Law	LLPs are governed under the Limited Liability Partnership Act, 2008	Partnership firm are governed under the Indian Partnership Act of 1932
Liability	The Liability of partners in LLP is limited to the amount they have invested in the business	Partners have unlimited liability and their personal assets can be used to pay the debt and obligation of the business.
Management	In LLPs, designated partners usually manage the business operations.	In Partnerships, partners are responsible to manage the business operation by themselves
Annual Return Filings	LLP required to file an annual statement of accounts, solvency and yearly return with Registrar of Companies	A Partnership firm isn't required to file any Annual Return with the registering authority.
Name	LLPs msu have the word LLP at the end of the name of the LLP	There is no need to add an extra word required other than the name of the LLP.
Maximum Partners	In LLPs there is no limit of partners	In partnership, the maximum number of partners is limited to 100
Foreign National	A foreign national can open aLLP in India with one Indian resident	No Foreign Capital can run a private limited company
Legal Status	LLPs have separate legal identity as it is separated from its partners	Partnership doesn’t have separate legal entity from its owner
Taxation	LLPs are taxed separately and partner have to pay tax for the profit or salary they have received	Partnership firms are not taxed separately instead each partner have to pay tax for the profit they are sharing
Compliances	LLPs have much more compliances than partnership including annual reports	Partnerships firm have less compliances as compared to LLPs
Dissolution	LLPs can be dissolved voluntarily or by the National Company Law Tribunal (NCLT) order.	An agreement between partners, mutual consent of partners, court order, insolvency, etc., can dissolve a partnership firm.

Conclusion

Both traditional partnerships and LLPs offer opportunities for shared ownership and collaboration but they cater to different needs based on liability, management flexibility, and legal obligations. Understanding these differences is crucial for choosing the right business structure for your business goal and financial security. Ultimately, the choice between an LLP and a partnership depends on your specific needs and long-term vision.

Frequently Asked Questions (FAQs)

1) Can LLP have more partners than Partnership?

Yes, an LLP can have unlimited partners while there can be a maximum of 100 partners in a Partnership.

2) Which is better for tax purposes: LLP or Partnership?

Tax treatment for LLP and Partnership is generally the same.

3) Which structure is better for raising capital, LLP or Partnership?

LLPs tend to be more appealing to investors and lenders due to liability protection. However, Partnerships may find it harder to raise significant capital.

4) What is the main difference between LLP and general Partnership?

The main difference is liability: traditional partners are personally liable for business debts, while LLP partners have limited liability, protecting their personal assets.

About the Author

CA Nayani Agarwal

All India Rank - 24

Nayani Agarwal is a Chartered Accounting who scored All India rank - 24 & 22 in CA final and CA intermediate respectively. She also scored an India rank - 21 in the Company Secretary foundation. She has overall 10 plus experience in banking and financial services. Her areas of expertise is startup consultancy, ESOP, Income Tax, GST, corporate Compliances & import expeort consultancy.