LLP (LIMITED LIABILITY PARTNERSHIP)
A Limited Liability Partnership is a special type of business model that merges the benefits of two which are combination of traditional partnership firm and the legal structure of a company. In an LLP, two or more people come together to carry on a lawful business and share profits as per the aged rate. However, in like a partnership an LLP provides limited liability protection to its partners meaning their personal assets are not used to repay business debt beyond their agreed contribution. It is governed by the limited liability partnership act 2008 in India.
EXAMPLE:-
If a LLP has debt of Rs. 30 lakhs, and one partner invested Rs.3 lakhs, that partner will lose only Rs. 3 lakh their personal house or car will not be taken to pay the debt.
KEY TAKEAWAYS:-
- Business partners means spreading risk, individual skills and expertise and establish division of labor.
- Limited liability partnership allow for a partnership structure where each partner is liabilities to the amount they put into the business.
- If the partnership fails, then creditors are unable to claim the personal assets or income.
- It continuous even if partners leave or change.
- Give freedom like a partnership but with the safety of limited liability.
DEFINATION OF LLP
Limited liability partnership (LLP) it’s a business form that combines the features of partnership and a company while keeping risk limited its allows flexible management with separate legal identity and protect from business debts to partners
PARTNERSHIP FIRM
A partnership firm refers to a business arrangement where two or more individuals comes together to carry out business activates with the aim of earning profit. It operates under the Indian partnership act, 1932. In thus setup, partners invest capital, share the profit and losses, and collectively manage the business. The partners have unlimited liability meaning if the firm cannot pay debts, the personal assets to partners can be used to settle them.
EXAMPLE:-
Two friends Ravi and Suresh start a restaurant together and agree to share profits and losses equally (50:50) this is partnership firm.
KEY TAKEAWAYS:-
- A partnership deed defines roles, profit sharing, and rules.
- Profit and losses are divided according to the agreed ratio.
- The firm and its partners are considered one legal entity, making partners personally responsible for all liabilities.
- Registration is optional (except in some cases), making it easy to form.
- Partners are personally responsible for firm debt.
Partnership firm is business organized firm where share profit, losses and responsibility in between partners as per their agreed terms this agreement is called partnership deed.
DIFFRENCE BETWEEN LLP AND PARTNERSHIP FIRM
| BASICS | LIMITED LIABILITY PARTNERSHIP | PARTNERSHIP FIRM |
| MEANING | It combines the partnership and company and keeping limited liability. | Agreement between two or more people and share profit & losses but partners have unlimited liability. |
| REGISTRATION | Under LLP Act, 2008 | Under partnership Act, 1932 |
| IDEAL FOR | Small and simple business | Growing business needing limited liability |
| LEGAL STATUS | Separate legal entity (difference from partners) | Same as partner (not separate) |
| AUDIT | Company financial statement is mandatory | Firm’s financial statement is optional |
| Common seal | In LLP has a Common seal which denotes the signature of an LLP. | In partnership firm, common seal is optional. |
| Administration | In LLP designated partners are responsible for administering and managing day to day business and other statutory compliances. | In these partners they administer the business, and there is no requirement to appoint managerial personnel. |
| Foreign national | A foreign national can form an LLP along with an Indian resident as a partner. | Foreign nationals can not form a partnership firm in India. |
| Audit of account | All LLPs are requiring getting their accounts audited annually as per the LLP act. | All partnership audited as per the provision of the income tax act. |
| Dissolution | An LLP can be dissolved voluntarily or by order of the national company law tribunal (NCLT) | Partnership firm can be dissolve by an agreement between partners or by giving notice of dissolution under mutual consent. |
| Maximum partners | There is no limited the number of partners in LLP. | Maximum of 100 partners. |
| Power to own property | An LLP can hold property in its own name just like company | PF cannot hold property in its own name. |
| Perpetual succession | LLP has perpetual succession, it means its existence is not affected when a partners joins or leaves the LLP. | A partnership firm does not have perpetual succession. Existence depends upon the will of its partners only |
CONCLUSION
However, both partnership firm and limited liability partnership (LLP) are form of partnership based business but they differ in structure, liability and legal recognition.
Overall, for small and simple businesses, a partnership firm is cost-effective and easier to operate, whereas an LLP is better for businesses that require growth, external funding, and protection for personal assists. The choice depends on business size, risk level, and future expansion plans.
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