A Partnership Firm and a Limited Liability Partnership (LLP) are both business structures that allow two or more individuals to come together to conduct business, but they have some key differences. Here are the main distinctions:
1. **Legal Status**:
– **Not a Separate Legal Entity**: A partnership firm is not a separate legal entity from its partners. It does not have its own legal identity, so the partners are personally liable for the debts and obligations of the firm.
2. **Formation**:
– **Simple and Inexpensive**: Formation is relatively simple and inexpensive. It is typically governed by the Partnership Act, 1932 in India.
– **Partnership Deed**: The partnership is usually formed through a partnership deed, which is an agreement among the partners outlining the terms and conditions of the partnership.
3. **Liability**:
– **Unlimited Liability**: Partners have unlimited liability, meaning their personal assets can be used to settle business debts if the firm’s assets are insufficient.
4. **Management and Control**:
– **Jointly Managed**: Management and control of the business are typically shared among the partners according to the partnership deed.
5. **Taxation**:
– **Taxed as a Firm**: The partnership firm is taxed as a separate entity, but the income is divided among the partners, who then pay taxes on their share.
6. **Continuity**:
– **Dissolution upon Changes**: The partnership may dissolve upon the death, retirement, or insolvency of any partner unless otherwise agreed upon.
### Limited Liability Partnership (LLP)
1. **Legal Status**:
– **Separate Legal Entity**: An LLP is a separate legal entity from its partners, meaning it can own property, sue, and be sued in its own name.
2. **Formation**:
– **More Formal and Regulated**: Development of a LLP is more formal and controlled. In India, it is administered by the Restricted Obligation Association Act, 2008.
– **Registration**: Requires registration with the Registrar of Companies and compliance with various legal formalities.
3. **Liability**:
– **Limited Liability**: Partners have limited liability, meaning they are only liable to the extent of their agreed contribution to the LLP. Personal assets are protected.
4. **Management and Control**:
– **Designated Partners**: Management is typically handled by designated partners, who have legal responsibility for the compliance and day-to-day operations.
5. **Taxation**:
– **Taxed as a Firm**: LLPs are taxed as a partnership firm, but the partners are not taxed individually on the profits distributed to them.
6. **Continuity**:
– *Constant Succession**: A LLP has unending development, meaning it keeps on existing paying little mind to changes in embellishments.
### Summary
– **Legal Identity**: Partnership firms do not have a separate legal identity, while LLPs do.
– **Liability**: Partnership firms have unlimited liability, while LLPs provide limited liability protection.
– **Formation**: Partnership firms are easier and cheaper to form, while LLPs require more formal registration and compliance.
– **Management**: Partnership firms are jointly managed by partners, whereas LLPs are managed by designated partners.
– **Continuity**: Partnership firms may dissolve with changes in partners, while LLPs enjoy perpetual succession.
Choosing between a partnership firm and an LLP depends on factors like desired liability protection, management structure, regulatory requirements, and long-term business goals.