Partnership Vs Limited Liability Partnership (LLP)
Comparison Chart
| BASIS FOR COMPARISON | PARTNERSHIP | LIMITED LIABILITY PARTNERSHIP (LLP) |
|---|---|---|
| Meaning | Partnership refers to an arrangement wherein two or more person agree to carry on a business and share profits & losses mutually. | Limited Liability Partnership is a form of business operation which combines the features of a partnership and a body corporate. |
| Governed By | Indian Partnership Act, 1932 | Limited Liability Partnership Act, 2008 |
| Registration | Optional | Mandatory |
| Charter document | Partnership deed | LLP Agreement |
| Liability | Unlimited | Limited to capital contribution, except in case of fraud. |
| Contractual capacity | It cannot enter into contract in its name. | It can sue and be sued in its name. |
| Legal Status | Partners are collectively known as firm, so there is no separate legal entity. | It has a separate legal status. |
| Name of firm | Any name | Name containing LLP as suffix |
| Maximum partners | 100 partners | No limit |
| Property | Cannot be held in the name of firm. | Can be held in the name of the LLP. |
| Perpetual Succession | No | Yes |
| Audit of accounts | Not mandatory | Mandatory, only if turnover and capital contribution over reaches 40 lakhs and 25 lakhs respectively. |
| Relationship | Partners are agents of firm and other partners as well. | Partners are agents of LLP only. |
Definition of Partnership
The term ‘partnership’ is defined as the abstract legal relation between persons. It is the form of business operation; wherein the partners agree to pool their capital and resources, to run a business carried on by all the partners or anyone partner on behalf of all the partners and share profits and losses in the manner prescribed in the agreement called ‘partnership deed’.
In this arrangement, the individuals who have entered into the agreement with each other are called individual ‘partners’. The material thing symbolizing the joint entity for all partners is called ‘firm’ and the name under which business is conducted is called the ‘firm name’. Hence, the partnership is the invisible bond among partners while the firm is the concrete form of partners.
Definition of Limited Liability Partnership (LLP)
Limited Liability Partnership, shortly known as LLP is described as a body corporate created and registered under Limited Liability Partnership Act, 2008. LLP is a business vehicle that integrates the advantages of limited liability of a company and the flexibility of the partnership, i.e. for organizing their internal composition and operation as a partnership.
LLP has a separate legal existence, distinct from its partners and has a perpetual succession. If there is any change, in the partners, then it will not influence the rights, existence or liabilities of the entity. Any individual or body corporate can become a partner in LLP, provided they are capable of becoming a partner.
Key Differences Between Partnership and Limited Liability Partnership (LLP)
The following points are vital so far as the difference between partnership and limited liability partnership (LLP) is concerned:
- A partnership is defined as an association of persons joined for earning profits from business, undertaken by all the partners or anyone partner on behalf of all the partners. Limited Liability Partnership is a form of business operation which combines the features of a partnership and a body corporate.
- The partnership is governed by the Indian Partnership Act, 1932. On the contrary, Limited Liability Partnership Act, 2008 governs LLP in India.
- The incorporation of the partnership is voluntary, whereas the registration of the LLP is obligatory.
- The document that guides the partnership is called Partnership Deed. As opposed to a limited liability partnership, the LLP agreement is the charter document.
- A partnership firm cannot enter into a contract in its name. On the other hand, the LLP can sue and be sued in its name.
- A partnership has no separate legal status apart from its partners, as the partners are individually known as a partner and collectively known as firms. Unlike, LLP which is a separate legal entity.
- The partner’s liability is limited to the extent of the capital contributed by them. As against this, the partners of a partnership have unlimited liability.
- A partnership can be started with any name of choice Conversely, the limited liability partnership must use the word “LLP” by the end of its name.
- Any two persons can start a partnership or LLP, but the maximum number of partners in a partnership firm is limited to 100 partners. In contrast, there is no limit to maximum partners in LLP.
- A limited liability partnership has perpetual succession whereas a partnership may dissolve at any time.
- The maintenance and audit of books of accounts are not mandatory for a partnership, As against this, the LLP is required to maintain and audit books of accounts if turnover and capital contribution overreaches 40 lakhs and 25 lakhs respectively.
- The partnership firm cannot hold property in its name. Conversely, the LLP is allowed to hold property in its name.
- In a partnership, the partners act as agents of the partners and the firm. On the other hand, the partners are agents of partners in the case of LLP.
Similarities
- In both forms of business organisation, partners are not the employees; rather they are agents.
- Partners are entitled to remuneration, only if it is provided in the agreement.
- No partner is allowed to carry on competing for business without the prior consent of other partners.
- The introduction of a new partner to the partnership can be done, only with the consent of the existing partners.
- In the case of insolvency of a partner, he/she is not allowed to continue as a partner.
Conclusion
So with the above discussion, it is quite clear that both general partnership and limited liability partnership are the two varieties of partnership. Further, an LLP is different from a partnership, in the way that partners are joints or severally liable for the acts of the partners and the firm, in a partnership. On the other hand, in the case of a limited liability partnership, the partners are not held responsible for the acts of other partners.