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.
Registration of name of LLP
LLP: Now, registration of name of LLP on its first registration or on its registration of new name which is identical with or too nearly resembles to any other Limited Liability Partnership or Company and with registered Trademark of a proprietor under the Trade Marks Act, 1999.
Under Partnership Firm registration no provision of checking identical or resemblance to the name of proposed Partnership Firm.
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.
Change in Definition of Resident in India
To be appointed as Designated Partner of Partner out of two shall be the resident in India. For deciding the residential status of Designated Partner or Partner, one should have stayed in India not less than 120 days during the Financial year which was 182 days during the immediate preceding one year.
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.
Ease of doing business
It focuses more on ease of doing business by introducing the concept of Start-up and small LLP. In the Act, Small LLP is defined as a LLP, the contribution of which is up to Rs. 25 Lakhs or such other amount as may be prescribed, not exceeding Rs. 5 Crors. This new concept has been introduced, subject to lesser compliance burden, lesser fee or additional fee in order to promote the Government initiative to Ease of doing business particularly for small enterprises. Partnership firm does not have such kind of classification.
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.
A Partnership does not have perpetual succession. It dissolves upon the retirement, death, or insolvency of a partner unless otherwise specified in the partnership agreement. An LLP, being a separate legal entity, has perpetual succession, which means it can continue to exist irrespective of changes in its partners.
Now, LLP is allowed to resolve matters and disputes through an internal adjudication under the Companies Act or special courts. It aims to remove the fear of criminal prosecution for some offences. Powers conferred to Regional Director to compound any offence which is compoundable with fine only. Unregistered partner cannot bring legal action against each other.
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. It empowers Central Government to prescribe Accounting Standards or Audition Standards in consultation with National Financial Reporting Authority (NFRA) for a class of LLP.
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 but more compliance to the part of LLP.
Decriminalization of offences
The LLP Act 2008 required LLPs to intimate in case of change in partners/change in registered office address and file statements of accounts, insolvency, annual returns, arrangement between an LLP and its creditors etc. Prior to the LLP Amendment, violation of these provisions attracted criminal liability. However, the LLP Amendment Act has de-criminalized these provisions and has restricted the liability to the monetary penalty. Under Partnership Firm no provision of decriminalization of offence.
LLP: LLP offers limited liability protection to its partners. Partners are not personally liable for the debts and obligations of the LLP, except in cases of fraud or wrongful acts committed by them.
Partnership Firm: Partners in a partnership firm have unlimited liability. They are jointly and severally liable for the firm’s debts, and their personal assets can be used to settle business obligations.
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 (Partners/ Designated Partners) 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.
People In India and abroad will have faith and interest to form LLP because of lesser compliance and high assurity to sue and to be sue on LLP with special courts, decriminalization.