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Both Limited Liability Partnership (LLP) and Partnership Firm are partnership business models. In both of these models, two or more individuals, known as partners, agree to carry on a business together with the intention of making a profit. However, LLPs and Partnership Firms are quite different from each other when it comes to legal structure and liability.
While the LLPs in India are governed by the Limited Liability Partnership Act 2008, the Partnership Firms are governed by the Indian Partnership Act 1932. In this interesting blog post, we will shed some light on the difference between limited liability partnership and partnership firm.
Limited Liability Partnership (abbreviation: LLP) is a hybrid business structure that combines the benefits of partnership with limited liabilities of a company. In India, LLPs are governed by LLP Act 2008, which came into force on 31 March 2009.
The Registrar of Companies (ROC) registers LLPs in India. Without registration, a business entity cannot be considered an LLP. To register an LLP, Form 2 (Application for Incorporation of LLP) needs to be filed with the ROC.
Partnership Firm, sometimes simply known as partnerships, is a business structure where two or more partners agree to share profits and losses of a business. It is not considered as a separate entity from its owners. Therefore, the partners are personally liable for the debts and liabilities of the partnership. In India, the Indian Partnership Act 1932 governs partnership-firms.
The responsibility of registering partner firms in the country lies with the Registrar of Firms (ROF). With that being said, it is not mandatory to register a partnership-firm. It is a voluntary choice made by the partners. If you want to register a partnerships firm, you need to file Form No. 1 (or Form A) with ROF.
The key difference between Limited Liability Partnership vs Partnership Firm can be understood with the help of the following comparison table:
|
Parameters |
Limited Liability Partnership |
Partnership Firm |
|
Definition |
It is a legal business entity where two or more partners share limited liabilities, meaning their personal assets are protected against business debts and losses. |
It is a business where two or more partners come together and agree to share profits and losses of business. |
|
Governing Law |
The LLP Act 2008 governs LLPs in India. |
The Indian Partnership Act 1932 governs partnerships in India. |
|
Registering Authority |
Registrar of Companies is responsible for LLP registration in India. |
Registrar of Firms is responsible for registering partnerships in India. |
|
Business Name |
Every LLP must have ‘LLP’ word as the last word of its name. |
A partnership can have any name. It doesn’t need to have any mandatory word in its name, unlike an LLP. |
|
Liability |
LLP offers limited liability protection, meaning a partner’s personal assets are not at risk if the LLP incurs debt or losses. |
A partnership doesn’t offer limited-liability protection to the partners. They have unlimited liability. |
|
Separate Legal Entity Status |
An LLP is regarded as a separate legal entity from its partners. |
A partnership is not a separate legal entity from its partners. |
|
Perpetual Succession |
LLPs have perpetual succession, meaning they continue to exist even after their partners leave. |
Partnerships do not have perpetual succession. They cease to exist if the partners leave. |
|
Maximum No. of Partners |
LLPs do not have a limit on the maximum number of partners they can have. |
Partnerships can have a maximum of 100 partners. |
|
Audit of Accounts |
An LLP must mandatorily get its accounts audited by a practicing CA if its annual turnover goes beyond Rs. 40 lakhs or its contributor goes beyond Rs. 25 lakhs. |
Partnerships firms need to get their accounts audited as per provisions of Income Tax Act. |
|
Foreign Nationals |
A foreign national can join an LLP as a partner. |
A foreign national cannot join a partnership-firm in India. |
|
Essential Document |
LLP Agreement is an essential document for an LLP. |
Partnership Deed is an essential document for a partnership. |
|
Power to Own Property |
An LLP can own a property in its name. |
A partnership cannot own a property in its own name. Its partner(s) must own it in their name. |
Limited Liability Partnerships and Partnership Firms differ in many ways. While LLPs are governed and regulated by the LLP Act 2008, the partnership firms are governed and regulated by Indian Partnership Act 1932. On one hand, the LLPs offer limited liabilities to their partners/owners. On the other hand, Partnership Firms’ partners/owners have unlimited liability. In India, it is mandatory to register an LLP with ROC. However, it is not mandatory to register a partnership firm with ROF. It is entirely a voluntary choice. If you’re still confused between LLP vs Partnership Firm, connect with Registrationwala. We’ll help you decide which business model would be appropriate for you!
Q1. Is it mandatory to register a partnership-firm?
A. No, it is a voluntary choice. However, it is recommended to register a partnership because it provides legal protection and makes the business more credible.
Q2. Which authority registers LLPs in India?
A. The Registrar of Companies registers LLPs in India.
Q3. Are LLPs and companies registered by the same authority?
A. Yes, LLPs and companies are registered by the same authority, i.e., Registrar of Companies. However, the registration forms and process differ for them.
Q4. Can partnerships own properties in their own names?
A. No, partnerships (registered under Partnership Act) cannot own properties in their own names. However, the partnerships’ partners can own properties in their names.
Q5. Can LLPs own properties in their own names?
A. Yes, the LLPs can own properties in their own names. This is because LLPs are considered as separate legal entities from their owners or partners.
Q6. Does an LLP offer perpetual succession?
A. Yes, an LLP offers perpetual succession. This means that an LLP continues its existence despite any changes in partners, such as exit, retirement or demise of any of the partners.
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