The concept of LLP is new while Partnership is an old concept. Each partner owns a share of the business under their partnership. This is a business structure which is less expensive and it is even more customizable. While a Limited Liability Partnership has the advantages of both Partnership and LLP as it has limited the liability of Partners.
Separate Legal Entity
LLP may be a separate legal entity and may hold assets in its name.
The status of Partnership Firm doesn’t have separate identity from its Partners.
The liability of Partners is restricted to the extent of their contribution in LLP. Further, one Partner isn’t affected or not held responsible for the actions of another Partner.
The liability of Partners isn’t limited and may reach personal assets of Partners. Active Partner’s action can hold the other one liable.
The LLP that is independent of the partners has ownership of its assets.
All the assets belonging to partnership firm have joint ownership.
Number of Partners
To from LLP a minimum 2 Designated Partners are required. However, there’s no ceiling limit on number of Partners.
The maximum limit on the number of Partners is 50. Partnership Firm having a number 50 Partners are declared as illegal association.
Registration of LLP is mandatory and it is registered with Registrar of Companies on online portal of MCA. Hence, it gets benefit of Centralised Registration.
Partnership Firm can be registered and also as unregistered. The registration, if required shall be through with local Registrar of Firm.
The LLP Act mandates statutory compliance, which is in addition to Income Tax Act compliance in the case of LLPs. These regulations guarantee the entity’s functioning and financial transparency.
There are not any additional compliances prescribed except laid down under tax Act.
Due to higher compliances and transparency operational , the credibility of LLP is higher and thus it eases the fund raising from financial institutions. Compared to partnership firms, other corporate have higher credibility and thus are less preferable.
The tax to be paid on LLP profits is 30% + the educational cess. LLP must file an annual return with the Ministry of Corporate Affairs.
The tax to be paid on a Partnership firm is 30% + the educational cess. There is no annual return filing requirement for a Partnership firm.
Thus both are taxed at the same percent.
On the basis of above comparison above it’s clear why LLP is elected over the Partnership Firm because it avails the advantages of the Partnerships with higher preference.
LLPs are easy to register, offer a variety of advantages to the promoters and is straightforward to take care of , making it ideal for several small and medium-sized business that might otherwise prefer to start as a Proprietorship or a personal Ltd.