Is LLP Better than a Partnership Firm?

Is LLP Better than a Partnership Firm?

Partnerships registered under the Partnership Act, 1932 used to be a very popular form of Business Entity in India due to the simplicity of registration and ease of maintenance. With the introduction of the Limited Liability Partnership (LLP) in India through the Limited Liability Partnership Act, 2008, the prominence of Partnership’s has been replaced by the LLP. LLPs are easy to register, offer a range of benefits to the promoters and is easy to maintain, making it ideal for many small and medium-sized business that would otherwise opt to start as a Proprietorship or a Private Limited Company. In this article, we mainly cover the various aspects of LLP vs Partnership in India:

The Entity


Partnership

Partnerships are registered under the Partnership Act, 1932. The partners of a partnership registered under the Partnership Act, 1932 are personally liable for an unlimited amount of Partnership liabilities. Hence, the partnership firm and the Partners are not considered separate legal entities; neither does the Partnership have perpetual existence.

Limited Liability Partnership

Register LLPs under the Limited Liability Partnership Act, 2008. The Partners of an LLP are not personally liable for the liabilities of the Partnership, and the liability of a Partner is limited to the amount of his/her capital contribution to the LLP. Therefore, the LLP and the Partners of an LLP are considered to be separate legal entities and the LLP has a perpetual existence, until dissolved by the Promoters.

Number of Partners & Requirement

Partnership

Any Indian Citizen residing in India can be a Partner in a Partnership Firm, including minors. A Partnership Firm must have a minimum of 2 Partners and can only have a maximum of 20 Partners. The Partnership Deed defines aspects such as Management of the Firm. To manage the Partnership Firm, one or more Partners can be designated.

Limited Liability Partnership

Any Indian Citizen residing in India can be a Partner in an LLP. Foreign Direct Investment is allowed in an LLP with prior RBI approval. Minors are, however, not allowed to be part of an LLP. An LLP must have a minimum of 2 Partners and can also have unlimited Partners. The LLP Agreement governs aspects of management of an LLP and designates one or more Partners to manage the activities of the LLP.

Transferability or Conversion

Partnership

A person can transfer the share in a Partnership to another person after obtaining the permission of all the Partners in a Partnership. The transferability of a Partnership is cumbersome. There is a lengthy process for converting the partnership into an LLP or a Private Limited Company,

Limited Liability Partnership

The share of an LLP can be transferred. However, the Transferee is not allowed to become a Partner automatically. The share of an LLP can be transferred to another person more easily. An LLP can be converted into a Private Limited Company or a Limited Company easily.

Compliance & Taxation

Partnership

The tax on Profits of a Partnership firm is 30% + educational cess. There is no annual return filing requirement for a Partnership firm.

Limited Liability Partnership 

The tax on LLP profits is 30% + educational cess. LLP must file an annual return with the Ministry of Corporate Affairs(MCA).

Registration

Partnership

Register Partnership firms with the Registrar of Firms. Draft a Partnership Deed for registering the Partnership firm with the Registrar of Firms. IndiaFilings can register your Partnership Firm for Rs.6,000/-

Limited Liability Partnership

Register LLPs with the Ministry of Corporate Affairs. LLP registration process is similar to that of a Private Limited Company Incorporation process, viz. obtaining Digital Signature Certificate for the Partners, obtaining Designated Partner Identification Number (DPIN) for the Partners, obtaining name approval from MCA, obtaining Incorporation Certificate and filing LLP Agreement. IndiaFilings can register your LLP for Rs.8000/-



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