DIFFERENCE BETWEEN LLP AND PARTNERSHIP
Individuals who desire to run their business as partners have two options for the formation of their business entities namely Limited Liability Partnership (LLP) and Partnership Firm.
Partnership firm is a long known concept of carrying out a business as partners while Limited Liability Partnership is a modern approach towards it which has been making headlines currently. The Limited Liability Partnership mode of running a partnership business has been introduced by the Limited Liability Partnership Act, 2008 in India.
In a partnership firm structure, each partner to the partnership firm owns a particular definite share in the business. A partnership firm model of business is a cheaper model than a corporation making it an ideal form of business for small scale businesses.
However, the newly formed Limited Liability Partnership model comprises and includes advantages of partnership firms and other benefits thereby making it a more attractive form of business module for new startups especially.
Key differences between Partnership Firm and Limited Liability Partnership are elucidated below:
Partnership firm is registered under the Partnership Act, 1932.
Limited Liability Partnership is registered under the Limited Liability Partnership Act, 2008.
MODE OF INCORPORATION
A partnership firm can be incorporated by executing a Partnership deed. A partnership deed elucidates the various powers, functions and liabilities of the partners.
A Limited Liability Partnership firm can be incorporated by executing a Limited Liability Partnership Agreement. Just like a partnership deed, it elucidates the various powers, functions and liabilities of the partners.
Partnership firm is registered in the Registrar of Partnership firms.
Limited Liability Partnership is registered in the Ministry of Corporate Affairs.
REQUIREMENTS OF PARTNERS
In Partnership firm, there can be minimum two partners and maximum 20 partners. Also minor can be a partner in the partnership firm
In Limited Liability Partnership firm, there can be minimum two partners however there is no maximum limit to amount of partners that can be included in it. However, unfortunately minor cannot be a partner in a Limited Liability Partnership.
Partners in a Partnership firm are personally liable to the affairs of the partnership firm as the partnership firm is not a separate legal entity and relies upon the status of the partners.
Partners in a Limited Liability Partnership firm are not personally liable to the affairs of the firm as the firm is a separate legal entity and does not rely upon the status of the partners.
TRANSFERABILITY OF SHARES
In a Partnership firm, shares can be easily transferred to another person after obtaining the required consent from all the Partners in the Partnership firm.
In a Limited Liability Partnership firm also, shares can be easily transferred to another person after obtaining the required consent from all the Partners in the Limited Liability Partnership firm.
In Partnership firms no mandatory provisions existing to comply with.
In Limited Liability Partnership firm, it is mandatory to file annual returns to Ministry of Corporate Affairs.
CONVERSION OF BUSINESS MODEL
A Partnership firm can be converted into a Limited Liability Partnership or Private Limited company. However, the process is a very tedious one.
A Limited Liability Partnership firm can be converted into Private Limited Company only but not a Partnership. The conversion process is not very tedious one.
Partnership firm is a known concept of carrying out a partnership business while Limited Liability Partnership is a new approach with added benefits.
Further help refer Company Vakil experts.