LLP V/S. PARTNERSHIP FIRM IN INDIA
Partnership firms registered under the Partnership Act, 1932 were a very famous model of businesses in India as a result of their easy manner of registration and maintenance procedures.
However, with the introduction of the Limited Liability Partnership (LLP) in India under the enactment of the Limited Liability Partnership Act, 2008 the eminence of partnership businesses has been replaced by the Limited Liability Partnership’s.
Limited Liability Partnership firms provide additional benefits as compared to a Partnership firm like easy manner of registration, additional benefits to its promoter, tax reliefs etc. which make it more advisable to opt in comparison to Proprietorship firms of Private Limited Company especially for investors of small and medium scale enterprises.
Essential elements of Limited Liability Partnership and Partnership Firm:
MODE OF INCORPORATION
Limited Liability Partnership:
Limited Liability Partnership firms are incorporated under the Limited Liability Partnership Act, 2008.
The partners to a Limited Liability Partnership firm are not personally liable to the affairs of the partnership firm. The liability of each partner is limited to the amount of capital owner or contributed to the Limited Liability Partnership.
The Limited Liability Partnership firm has perpetual existence until it is voluntary dissolved by the partners.
The Limited Liability Partnership firm also derives separate legal status.
The Limited Liability Partnership Agreement shall deduce the necessary aspects of the management of the firm and the role of the partners in it.
Partnership Firm:
Partnership firms are incorporated under the Partnership Act, 1932.
The partners to a partnership firm are personally liable to the affairs of the partnership firm.
The Partnership firm has no perpetual existence and exists until the partners are alive.
The Partnership firm also does not derive any separate legal status.
The Partnership deed shall deduce the necessary aspects of the management of the firm and the role of the partners in it.
PROCEDURE FOR INCORPORATION
Limited Liability Partnership:
A Limited Liability Partnership Firm must be incorporated with the Ministry of Corporate Affairs by executing a Limited Liability Partnership Agreement.
Limited Liability Partnership Firm incorporation process is identical to that of a Private Limited Company Incorporation process i.e. obtaining Digital Signature Certificate, Designated Partner Identification Number, name approval from Ministry of Corporate Affairs, Incorporation Certificate etc.
Partnership Firm:
A Partnership Firms must be incorporated with the Registrar of Firms by executing a Partnership Deed and adhering to the other necessary formalities etc.
REQUIREMENTS OF PARTNERS FOR INCORPORATION
Limited Liability Partnership:
Person desiring to be a partner to a Limited Liability Partnership firm should be an Indian citizen. Minor cannot be made a partner to a Limited Liability Partnership Firm.
A Limited Liability Partnership firm must have minimum two partners and can have unlimited maximum partners.
With the consent of the Reserve Bank of India, Foreign Direct Investment is allowed in a Limited Liability Partnership.
Partnership Firm:
Person desiring to be a partner of a Partnership Firm should be an Indian citizen. Minor can also be a partner to a Partnership Firm.
A Partnership firm must have minimum two partners and maximum twenty partners.
MANDATORY REQUIREMENTS
Limited Liability Partnership:
A Limited Liability Partnership must mandatorily file annual returns with the Ministry of Corporate Affairs (MCA).
Partnership Firm:
There are no mandatory requirements to be adhered with for a Partnership Firm.
RATE OF TAXATION
Limited Liability Partnership:
The profits accrued by a Partnership Firm are taxed at 30% plus additional education cess at the rate applicable at that particular assessment year.
Partnership Firm:
The profits accrued by a Partnership Firm are taxed at 30% plus additional education cess at the rate applicable at that particular assessment year.
TRANSFERABILITY OF SHARES
Limited Liability Partnership:
In a Limited Liability Partnership Firm as well, shares can be transferred to another person with the consent of all the partners to the Limited Liability Partnership Firm. Once share is transferred, the person to whom the share is transferred however, does not automatically become partner to the Partnership firm. However, this transfer of shares is a very tedious process.
Partnership Firm:
In a Partnership Firm, shares can be transferred to another person with the consent of all the partners to the Partnership Firm. Once share is transferred, the person to whom the share is transferred automatically becomes partner to the Partnership firm. However, this transfer of shares is a very tedious process.
CONVERSION OF BUSINESS MODEL
Limited Liability Partnership:
A Limited Liability Partnership can be easily converted into a Private Limited Company or a Limited Company but cannot be converted into a Partnership firm.
Partnership Firm:
A Partnership Firm can be converted into a Private Limited Company or a Limited Liability Company easily. However, this process of conversion is a lengthy process.
SUMMARY
Limited Liability Partnership’s provide additional benefits as compared to Partnerships like easy manner of registration, benefits to its promoter, tax reliefs etc.
For further details refer Company Vakil experts.
