Home Compliances for an LLP LLP versus Partnership Firm in India

LLP versus Partnership Firm in India

August 12, 2019

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Partnership firm is a type of business in which two or more individuals join together for jointly carrying the business. The Indian Partnership Act, 1932, Section 4, defined partnership as

“the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all”.

The persons who retain the partnership business are individually called ‘partners’ and collectively called as ‘partnership firm’. The name under which their partnership business is carried on called as ‘Firm Name’. In a simple way, the firm is nothing but an abbreviation for partners. They pool money, skills, and other resources, share profit and loss in accordance with terms of the partnership agreement.

Essentials of Partnership are:
According to Section 4,
1. There should be association of two or more person.

2. There should be an agreement between the persons who wants to be partners.
2. The purpose should be carrying on of business
3. The object should be of earning and sharing profits.
4. The business of the firm should be carried on by all of them or any of them acting for all, i.e., in mutual agency.

Limited Liability Partnership entities, the world wide recognized form of business organization has been introduced in India by Limited Liability Partnership Act, 2008.It is a partnership in which partners have limited liability.

Features of LLP are:

1. As a corporate body separate from its members. It has a perpetual succession.

2. Every LLP shall have at least 2 partners and all the partners are the agent of LLP.

3. It is a form of business which is organized and operates on the basis of agreement.

4. It is easy to become or leave as a partner under LLP.

5. The ownership can easily be transferred under this.

6. As a juristic person LLP can sue or be sued in its own name. The partners are not liable to be sued for the debts of the LLP.

7. No exposure to personal assets of the partners except in case of fraud.

8.Less requirement as to maintenance of statutory records.

9. Less Government Intervention.

10. They have the ability to create floating charges

KEY POINTS OF DIFFERENCIATION BETWEEN THE TWO ARE:

FEATURES	LIMITED LIABILITY PARTNERSHIP	PARTNERSHIP FIRM
Registration under Act	It is registered under LLP Act, 2008.	It is registered under Partnership Act, 1932
Registration	Its registration is optional and if so then registered to Ministry of Corporate Affairs	Its registration is compulsory and registered to Registrar of firms.
Liability	Since the partner and the firm is considered as a separate legal entity.Hence , Liability of the partners is limited to the amount invested in the company.	Since the partner and the firm is not considered as a separate legal entity. Hence, Partners are personally liable for the unlimited amount if liabilities of the partnership.
Assets	LLP can purchase its assests in its name.	It can purchase the assets in the name of its partners only.
Voting rights	No such rights.	The partners have one right to vote.
Legality	It has a separate legal entity.	It has no separate legal entity.
Governed Under	LLP act 2008.	Under Partnership act 193522.
Capital Formation	No limit prescribed in the act.	No guidelines given.
Foreign Nationals as Partners	Can become partners.	Cannot become partners.
Dissolution	Less procedure. Can be voluntary or by order of national company law tribunal.	By agreement of partners or insolvency or by court order.
Number of partners and requirements	Minimum 2 and no upper limit for maximum number of partners in LLP. No minor can be partner.	Minimum 2 and maximun 20 partners can be the member of the partnership firm .Minor can be partner.
Agreement between partners	LLP Agreement governs the operation , management and decision making methodologies and other.	Partnership Deed governs the operation , management and decision making methodologies and other.
Transferability/ Conversion	Shares can be easily transferred to another person after obtaining the required consent from all the partners in a LLP. Transferee cannot become partner automatically. LLP cannot be converted back to partnership but can be converted to Private Limited Company or Limited Company esaily.	Shares can be transferred to another person after obtaining the required consent from all the Partners in a Partnership. Transferability of partnership to LLP or Private Limited Company is burdensome process.
Compliance	Mandatory file annual return of Ministry of Corporate Affairs.	No requirement of annual return filing.