PARTNERSHIP FIRM V/S LIMITED LIABILITY PARTNERSHIP COMPARITIVE STUDY
Choosing between a Partnership Firm and an LLP? This blog compares both business structures in terms of liability, compliance, taxation, and flexibility. Understand the pros and cons to make the right choice for your venture. Perfect for startups, entrepreneurs, and small business owners in India.
4/30/20252 min read
A key decision-making point for any business is: What should be the constitution of my business?
There are many options, and we are trying to analyze the differences between a Partnership Firm and a Limited Liability Partnership (LLP). What are the advantages, compliance requirements, challenges, etc.? This is a comparative study.
A partnership firm is governed by “The Indian Partnership Act, 1932”.The Limited Liability Partnership (LLP) are governed by “The Limited Liability Partnership Act, 2008”. The major difference between a partnership firm and LLP is the liability of the partners. In partnership firm the partner liability is unlimited and all partners are jointly and severally responsible for the liabilities of the firm. Incase of LLP the liability of partners is limited to the extent of agreed capital contribution only.
As far as minimum capital requirements there is no such restriction under both laws. The are free to decide the capital contribution of each partners depending on the business needs and agreement among the partners.
The partnership firms are registered with Registrar of Firms whereas the LLP are registered with Registrar of Companies. The agreement between the partners under partnership is called Partnership Deed whereas incase of LLP it is called LLP Agreement. The provisions regarding profit sharing, remuneration to partners etc are same and is as agreed mutually between the partners.
A non resident cannot be partners in partnership firm but under LLP a non resident can be a partner. The number of members under partnership firm can be max 20 members however there is no such upper limit under LLP. The partners in LLP have to obtain DIN number to become partner in LLP but there is no such requirement under partnership firm.
The process of formation of partnership is relatively simple compared to LLP formation. The LLP Act provides for audit of accounts under the LLP Act if the turnover of the LLP crosses Rs. 40 lacs. The partnership act does not provide any such audit. The LLP unlike partnership firm is also required to file annual returns with the Registrar of Companies. As far as taxation is concerned the tax provisions are same for both the entities and also the tax rates are same.
To sum up, both the concerns have its own advantages and disadvantages. We can fairly say the partnership firm is relative informal kind of structure which suitable for small family businesses or if business is between few close peoples who do not wish to get into more and more compliances. LLP is the mixture of some features of partnership firm and some features of private limited company.
One needs to consider what their requirements are and then decide which type of arrangement will be suitable for them. Keeping in view business needs, compliance requirements and future growth prospects of the business one can choose the most suitable option. LLP will be more suitable option incase where the two or more unrelated persons come together to do business and wish to limit their liability and want legal support to protect their interest.
Disclaimer :
The information comments and analysis expressed above is for informational purpose only and should not be considered or interpreted as any professional or legal advice. We have made efforts to ensure the information given above is reliable however we do not warrant for its accuracy or completeness. We shall not be liable for loss or damages (if any) for any decisions taken based on above content. We recommend obtaining proper professional advice before acting on basis of information contained herein.