Differences Between the Two Forms of Business
There are so many types of businesses type – Sole Proprietorship, Partnership, Limited Liability Partnership, Company form, Cooperative Society, and lots more. It is often confusing what is the requirement of one, or how is it different from the other form, which will be more advantageous than the other. To clear all these queries, we have come up with the differences between different company forms. We will concentrate our discussion on differences mainly between these forms – LLP, Partnership, LLC, Company, and Pvt. Ltd. Company.
LLP and Partnership
While you want to start a business, the common question which will strike your mind is – ‘What type of business do I want?’ This question arises out of the fact that there are a variety of businesses to choose from. If you are updated enough about the types of business, requirements of the same you will result in choosing the best suitable business for you.
In this section, we will focus our discussion on – the difference between LLP and Partnership Firm. Students are required to follows and precisely learn the differences between these two. LLP originated with the concept of Partnership, hence there are some minute details that are suggested to be paid attention to.
Following is the difference chart which depicts -
Difference Between Partnership and Limited Liability Partnership
Difference Between LLC and LLP
Here we will learn about – difference between LLC and LLP, the difference chart is as follows:
Difference Between LLP and Company
The difference between LLP and Company are as follows:
Difference Between Pvt. Ltd. and LLP
The difference between a Limited Liability Partnership and a Private Limited Company are as follows-
FAQs on Difference Between LLP and Partnership
1. What is the main difference between an LLP and a traditional Partnership firm?
The primary difference lies in liability and legal status. In a Limited Liability Partnership (LLP), the partners' personal assets are protected from business debts, as the LLP is a separate legal entity. In a traditional Partnership, partners have unlimited liability, meaning their personal assets can be used to pay off business debts.
2. What exactly is a Limited Liability Partnership (LLP)?
An LLP is a modern business structure that combines the flexibility of a traditional partnership with the benefits of a private limited company. Key features include:
- It is a separate legal entity, distinct from its partners.
- The liability of each partner is limited to their agreed contribution.
- It has perpetual succession, meaning the business continues even if partners change.
3. Which is better for a small business, an LLP or a Partnership?
It depends on the business's needs. A Partnership is often simpler and cheaper to set up, making it suitable for very small or low-risk ventures. An LLP is better for businesses that want to limit the personal liability of partners and have a more formal, scalable structure, even if it involves higher compliance costs.
4. Why is the liability of partners 'limited' in an LLP but 'unlimited' in a partnership?
The liability difference is due to legal structure. An LLP is legally considered a separate corporate body, just like a company. It owns its assets and is responsible for its own debts. A traditional partnership, however, is not legally separate from its partners. The law views the business and the partners as one, so the partners are personally responsible for the firm's debts.
5. Which laws govern Partnerships and LLPs in India?
In India, traditional Partnership Firms are governed by the Indian Partnership Act, 1932. Limited Liability Partnerships are governed by a separate, more recent law called the Limited Liability Partnership Act, 2008.
6. What are some key disadvantages of choosing an LLP structure?
While LLPs offer significant advantages, some disadvantages include higher compliance costs due to mandatory filings with the Ministry of Corporate Affairs, more complex dissolution procedures, and potential penalties for non-compliance. Profit distribution is also less flexible compared to a partnership.
7. How does a Private Limited Company differ from an LLP?
An LLP and a Private Limited Company are both separate legal entities with limited liability. However, an LLP offers more operational flexibility and has lower compliance requirements. A company structure is more rigid but is often preferred for raising external funds from investors like venture capitalists, which is more difficult for an LLP.
8. How does the process of forming an LLP differ from that of a Partnership?
Forming an LLP is a more formal process that involves getting a Digital Signature Certificate (DSC), Director Identification Number (DIN), and registering the name and incorporation documents with the Ministry of Corporate Affairs (MCA) online. A partnership can be formed simply by creating a Partnership Deed, and its registration with the Registrar of Firms is optional, though highly recommended.
