Major Differences between LLP and Partnership
Hetvi Vashi
Author

Limited Liability Partnership (also known as LLP) and Partnership Firm are similar forms of business structures with differences in their functioning, accounts management, government compliance, mode of dissolution, etc. An aspiring entrepreneur needs to understand the difference between LLP and Partnership, as this helps them make a favorable choice for a business partnership.
What is LLP?
LLP meaning in business structures implies dual benefits of both a partnership firm as well as a company. With a distinct legal identity, the partners within an LLP are responsible solely for their actions and contributions to the LLP. The novel concept of a Limited Liability Partnership was coined after the implementation of the Limited Liability Partnership Act, 2008, with the benefits of LLP giving the partners the scope for limited liabilities, securing the personal assets of the partners from the debts and liabilities of the business.
Furthermore, LLP as a business structure offers the advantage of having no limits on the number of partners in the company. LLP as a business structure facilitates professional and aspiring entrepreneurs engaged in service-based businesses or scientific or technical disciplines. With the benefits of structural and operational flexibility and ease of obtaining investments from venture capitalists, an LLP becomes a preferable business structure for small and medium enterprises.
What is a Partnership firm?
A partnership firm is a very conventional business structure following the guidelines according to the Indian Partnership Act, 1932. Two or more partners can work together for a registered partnership firm by investing their capital and sharing the profits or losses through operations. The partners have complete responsibility for the firm, including liability for the firm’s debts and loans.
This signifies the partners have unlimited liability, risking their personal assets to keep the company floating. The partnership firm does not have a separate legal identity, and so the partners and firm have a united identity.
Key Differences Between LLP and Partnership
When understanding the difference between LLP and Partnership, some of the major aspects include the management structure, control over assets, legal entity, and dissolution. The LLP and partnership firms are types of business structures for two or more partners, but understanding the difference between LLP and Partnership can help aspiring entrepreneurs make a better choice aligning with their preferences for management and compliance.
Sr. No | Attributes | Limited Liability Partnership (LLP) | Partnership Firms |
---|---|---|---|
1 | Regulatory Law | The governing law for LLP is The Limited Liability Partnership Act, 2008. | The governing law for partnership firms is The Indian Partnership Act, 1932. |
2 | Registration process | The LLPs need to have mandatory registration according to the guidelines of the Act. | For the partnership firms, the registration process is voluntary and not compulsory by the act. |
3 | Registering Authority | The LLPs need to fill out the registration form and other relevant e-forms and submit them to the Registrar of Companies. | The Partnership firms must proceed with the registration process by complying with the guidelines of the Registrar of Firms. |
4 | Annual forms submission | Every year, the LLPs should file the yearly records of accounts and solvency along with annual returns according to guidelines to the Registrar of Companies. | It is not compulsory for the partnership firms to present their annual returns to the Registrar of Firms. |
5 | Separate legal entity | The LLPs have a distinct legal entity from the partners under the law. | The partnership firms do not have a separate legal entity from the partners of the firm. |
6 | Liability of Partners | For LLPs, the partners have limited liability proportionate to their contribution to the finances of the LLP. | For partnership firms, the partners have unlimited liability and need to take complete responsibility for the firm. This could involve risking personal assets. |
7 | Power for contract and property | An LLP has the inherent power to proceed with a contract authorized in its own name. The LLPs can also hold a property with its own name as it has a distinct legal entity. | The partnership firms cannot proceed with a contract with its own identity. Further, the partnership firm cannot exercise the right to own the property in its name. The property can be owned by the partners as well as the authorized partners based on the deed. |
8 | Perpetual Succession | The LLPs have the feature of perpetual succession, which implies joining of new partners or the leaving of current partners will not impact the existence of the company. | The feature of perpetual succession is not applicable to partnership firms and the prevalence of firms is highly dependent on the will of the partners running the firm. |
9 | Count of partners | The LLPs do not have a cap on the maximum number of partners to run the company. | The Partnership firms can have a maximum count of 100 partners. |
10 | Ownership of assets | The assets of the LLPs are independent of the partners and no partner can claim ownership of any of the company assets. | The partnership firm does not have any ownership of its assets. The firm’s assets are jointly owned by the partners based on their shares in the firm. |
11 | Audit of Accounts | All LLPs need to have an annual audit for every financial year complying with the LLP Act. However, this provision is not applicable to LLPs having an annual turnover below INR 40 lakh or contributions less than INR 25 lakh. | The partnership firms need to follow the guidelines of the Income Tax Act to audit the accounts of the firm. |
12 | Dissolution | An LLP can be dissolved willingly or as per the orders issued by the National Company Law Tribunal (NCLT). | To dissolve a partnership firm, there needs to be a mutual agreement between the partners or a court order or insolvency of partners. |
Conclusion
The LLP and Partnership firms are business structures to facilitate two or more business partners. When comparing LLP vs partnership, there are significant differences in the structure, operations, and management of the company. The LLPs have a separate legal entity which gives them to scope to form a contract on its name and also has the power to own a property. The partnership firms do not have a separate identity from their partners, so the power to form a contract and own a property is not prevalent.
Frequently Asked Questions
Explore moreHow is the management structure different for LLPs and Partnerships?
When comparing the management structure of LLPs and Partnership, the maximum number of partners for a partnership firm is limited to a count of 100, whereas for LLPs, there is no specific count. The LLPs have a structured approach where partners are assigned different operational aspects of the company and there is complete clarity on the delegation of responsibilities. For partnership firms, the management responsibilities are shared equally among all the partners unless particularly altered.
Does LLP have higher compliance than Partnership firms?
When comparing LLP vs partnership firms for compliance, the LLPs have guidelines for annual returns and financial fillings but they are still relatively less as compared to partnership firms. The conventional partnership firms have very nominal compliances but are devoid of the regulatory benefits and protection that are prevalent with LLP—based business structures.
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