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July 27, 2016 Registrationwala

Limited Liability Partnership Vs Partnership Firm

Limited Liability Partnership

Limited Liability Partnership Vs Partnership Firm

Young entrepreneur and readers are always confused about these two terms i.e. LLP and Partnership firm. The main reason for the confusion is the owner of these two entities. The owner of these type of entity is called as partners. Therefore, people understand that there is no difference.

Being a consultant, I usually come across such kinds basic questions that how LLP is different from Partnership firm. If I were not a company secretary, maybe I also used to ask the same question, but fortunately being an expert on incorporation laws, I will take you to the tour from unknown to known about LLP and Partnership so that this nagging issue can be removed from the hard disc of your mind.

Firstly, we need to understand their meanings. LLP is Limited Liability Partnerships; LLP is a unique and new form of business that combines the advantages of both 'Company' and 'Partnership' in a single business entity whereas partnership firm as the name signifies an entity which has at least 2 persons who are called as partners of that entity.

The definitions of these two terms itself do not clear the mist of confusion. So, let’s dig little more to know exactly how one is different from other. If you carefully observe the word “Limited Liability Partnership” then you find that there are two extra words which are limited and liability attached to the partnership to conceive of developing new entity in the form of LLP.

It is time to understand how limited liability makes such a big difference. Liability means liable for debts and obligation of the business. So, limited liability means that in case of losses or entity go bankrupt then the liability of the owner is limited only to the amount of capital which he contributes to the business, not more than that.

This is a thin line of demarcation which distinguishes LLP from the partnership; otherwise, there is no other major difference between the two. Workings of these two entities hardly make any difference. But, there are differences with respect to the compliance part.

Followings are few points of difference between LLP and Partnership firm:

  1. Governing Laws: Limited Liability Partnership Act, 2008 applies on LLPs whereas Partnership Act, 1932 applies to partnership firm.
  2. Formation Process: LLP formation is a long process as compared to the partnership firm. Registration of LLP requires following steps:
  3. Submit form 1 for approval of name of the company.
  4. Submit form 2 with incorporation details.
  • File LLP agreement in form 3.

Whereas registration of partnership firm requires only registration of partnership deed at the registrar office which must be duly stamped.

  1. Annual Compliance: There are few compliances which are prescribed under LLP Act, 2008 such as filing of annual return in form 11 and Statement of accounts and Insolvency whereas Partnership Act, 1932 does not mandate any such requirement to comply.

As far as taxation is concerned, there is no difference. Tax law does not make any difference between these two entities.

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