LLP (Limited Liability Partnership) VS Partnership

LLP enjoys a wide range of benefits over partnership firm by way of separate legal status with perpetual succession, unlimited liability, transferability, number of members, foreign ownership, dissolution.

 

 

Traditional partnership was replaced by LLP (Limited Liability Partnership) which offers a wide range of benefits to the medium and small businesses.Partnerships and LLP have a few fundamental differences in the way they are registered, the name approval process, taxations, transferability, annual statutory filings, the filing of annual returns etc. The chart below will give you an overview of how these vary and their core differences.

 

Comparison between traditional partnership and LLP (Limited Liability Partnership)

Particulars

Partnership

LLP

Prevailing Law

Partnership is prevailed by ‘The Indian Partnership Act, 1932’ 

LLP (Limited Liability Partnership) are prevailed by ‘The Limited Liability Partnership Act, 2008’ 

Registration

Registration of Partnership is optional; it may or may not be registered.

Registration of LLP is compulsory with the MCA (Ministry of Corporate Affairs)

Name Approval of the business entity

There is no need to take any prior approval for the name of the partnership. The promoters can choose any name, however, it is recommended not to take trademarked names.

The Name of the LLP needs an approval from the Registrar of Company. All the names which are already existing are not permitted to use. The word ‘LLP’ must contain with the name of the limited liability partnership.

Perpetual Succession

 

It’s perpetual succession i.e. existence of partnership firm depends upon the will of partners.

It has perpetual succession i.e. entity will be in existence whether partners may come and go.

Legal Status of the Entity

 All the partners are responsible for the liabilities related to the Partnership, as partnership is not considered as a separate legal entity..

On the contrary, partners or designated partners are not responsible for any liability of the LLP, as it is considered a distinct legal entity registered under the Limited Liability Partnership Act, 2008.

Liability of the Members

All the partners in Partnership have unlimited Liabilities, it extends to the personal assets also and are responsible for all the debts related to the firm.

All the partners/designated partners of an LLP have limited liabilities which can be extended only till the amount that they have contributed.

Number of Members

Minimum no.of members- 2

Maximum no.of members- 20

Minimum no.of members- 2

Maximum no. of members- No limit

Foreign Ownership

NRIs are not permitted to be a partner in a partnership firm.

With a prior approval from the RBI(Reserve Bank of India), NRIs can be a member of an LLP.

Taxation

The earning of the Partnership are taxed as follows

30% flat rate + 3% cess+ 10% surcharge

(Surcharge will applicable if taxable income exceed Rs. 1 crore.)

LLP profits are also taxed 30% in addition to the surcharge as applicable.

Annual Filing

There is no requirement of annual filing compliances.Therefore, no need to file the Annual Return but the Tax filing (Income Tax Return) must be filed by Partnership.

It is mandatory to file the Annual Statement of Accounts & Solvency, Annual Return and Tax Returns with the Registrar each year in the prescribed forms.

Common Seal

There is no concept of common seal in partnership.

LLP required to have a common seal which denotes the signature of the LLP.

Director Identification Number(DIN)

In the traditional form of partnership, no partner is required to obtain DIN (Director Identification Number).

In LLP, every Designated Partners is required to have a DIN before being appointed as Designated Partner of LLP.

Digital Signature

There is no requirement of obtaining Digital Signature by any designated partner.

 At least one Designated Partner should have Digital Signatures for which eforms are filled electronically.

Dissolution

Partnership can be dissolved by way of:

agreement or mutual consent or insolvency or certain contingencies or by court order.

An LLP can be comes to an end by way of:

 voluntary winding up or by an order of NCLT (National Company Law Tribunal).

Audit of accounts

There are no provisions for accounts auditing in partnership but tax audit is required as per the provisions of the Income Tax Act.

All LLP except for those having turnover less than Rs.40 Lakhs or Rs.25 Lakhs contribution in any financial year are required to get their accounts audited annually as per the provisions of LLP Act 2008.


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