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Difference Between Partnership vs LLP vs Company

LLP is also a form of partnership, where the liability of partners is limited as well as any partner will not be held liable for the acts of other partners.

General Partnership, on the other hand, brings unlimited liabilities to the partners concerned and so they are jointly or severally liable for the debts.

Key Differences Between Partnership and Limited Liability Partnership (LLP)

The following points are vital so far as the difference between partnership and limited liability partnership (LLP) is concerned:

  • The partnership is defined as an association of persons joined for earning profits from business, undertaken by all the partners or any one partner on behalf of all the partners. Limited Liability Partnership is a form of business operation which combines the features of a partnership and a body corporate.
  • The partnership is governed by the Indian Partnership Act, 1932. On the contrary, Limited Liability Partnership Act, 2008 governs LLP in India.
  • The incorporation of the partnership is voluntary, whereas the registration of the LLP is obligatory.
  • The document that guides the partnership is called Partnership Deed. As opposed to limited liability partnership, the LLP agreement is the charter document.
  • A partnership firm cannot enter into a contract in its name. On the other hand, the LLP can sue and be sued in its name.
  • A partnership has no separate legal status apart from its partners, as the partners are individually known as a partner and collectively known as firm. Unlike, LLP which is a separate legal entity.
  • The partner’s liability is limited to the extent of the capital contributed by them. As against this, the partners of a partnership have unlimited liability.
  • Partnership can be started with any name of choice Conversely, the limited liability partnership must use the word “LLP” by the end of its name.
  • Any two persons can start a partnership or LLP, but the maximum number of partners in a partnership firm are limited to 100 partners. In contrast, there is no limit of maximum partners in LLP.
  • A limited liability partnership have perpetual succession whereas a partnership may dissolve any time.
  • The maintenance and audit of books of accounts is not mandatory for a partnership, As against this, the LLP is required to maintain and audit books of accounts if turnover and capital contribution overreaches 40 lakhs and 25 lakhs respectively.
  • The partnership firm cannot hold property in its name. Conversely, the LLP is allowed to held property in its name.
  • In a partnership, the partners act an agent of the partners and the firm. On the other hand, the partners are agents of partners in case of LLP.

Comparison between Partnership Firm, Company and LLP

Category Partnership Company LLP
Prevailing Law Partnership is prevailed by ‘The Indian Partnership Act, 1932’ and various Rules made there under Companies are prevailed by ‘Companies Act, 2013’ Limited Liability Partnership are prevailed by ‘The Limited Liability Partnership Act, 2008’ and various Rules made there under
Registration Registration is optional Registration with Registrar of ROC required. Registration with Registrar of LLP required.
Creation Created by Contract Created by Law Created by Law
Distinct entity Not a separate legal entity Is a separate legal entity under the Companies Act, 1956. Is a separate legal entity under the Limited Liability Partnership Act, 2008.
Name of Entity Any name as per choice Name to contain ‘Limited’ in case of Public Company or ‘Private Limited’ in case of Private Company as suffix. Name to contain ‘Limited Liability Partnership’ or ‘LLP’ as suffix.
Perpetual Succession It does not have perpetual succession as this depends upon the will of partners It has perpetual succession and members may come and go. It has perpetual succession and partners may come and go
Charter Document Partnership Deed is a charter of the firm which denotes its scope of operation and rights and duties of the partners Memorandum and Article of Association is the charter of the company that defines its scope of operation. LLP Agreement is a charter of the LLP which denotes its scope of operation and rights and duties of the partners vis-a-vis LLP.
Common Seal There is no concept of common seal in partnership It denotes the signature of the company and every company shall have its own common seal It denotes the signature and LLP may have its own common seal, dependant upon the terms of the Agreement
Formalities of Incorporation In case of registration, Partnership Deed along with form / affidavit required to be filled with Registrar of firms along with requisite filing fee Various E-forms along the Memorandum & Articles of Association are filled with Registrar of Companies with prescribed fees Various E-forms are filled with Registrar of LLP with prescribed fees
Legal Proceedings Only registered partnership can sue third party A company is a legal entity which can sue and be sued A LLP is a legal entity can sue and be sued
Foreign Participation Foreign Nationals can not form Partnership Firm in India Foreign Nationals can be a member in a Company. Foreign Nationals can be a Partner in a LLP.
Number of Members Minimum 2 and Maximum 20 2 to 50 members in case of Private Company and Minimum 7 members in case of Public Company. Minimum 2 partners and there is no limitation of maximum number of partners.
Ownership of Assets Partners have joint ownership of all the assets belonging to partnership firm The company independent of the members has ownership of assets The LLP independent of the partners has ownership of assets
Rights / Duties / obligation of the Partners / Managing Partners / Directors Rights / Duties / obligation of the partners are governed by Partnership Deed. Rights / Duties / obligation of the directors are governed by AOA and resolution passed by shareholders or directors. Rights / Duties / obligation of the partners are governed by LLP Agreement.
Liability of Partners/Members Unlimited. Partners are severally and jointly liable for actions of other partners and the firm and liability extend to their personal assets. Generally limited to the amount required to be paid up on each share. Limited, to the extent their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.
Tax Liability Income of Partnership is taxed at a Flat rate of 30% plus education cess as applicable. Income of Company is Taxed at a Flat rate of 30% Plus surcharge as applicable. Income of LLP is taxed at a Flat rate of 30% plus education cess as applicable.
Principal/Agent Relationship Partners are agents of the firm and other partners. The directors act as agents of the company and not of the members Partners act as agents of LLP and not of the other partners.
Transfer / Inheritance of Rights Not transferable. In case of death the legal heir receives the financial value of share. Ownership is easily transferable. Regulations relating to transfer are governed by the LLP Agreement.
Transfer of Share / Partnership rights in In case of death of a partner, the legal In case of death of member, shares are In case of death of a partner, the legal heirs
case of death heirs have the right to get the refund of the capital contribution + share in accumulated profits, if any. Legal heirs will not become partners transmitted to the legal heirs. have the right to get the refund of the capital contribution + share in accumulated profits, if any. Legal heirs will not become partners
Director Identification Number / Designated Partner Identification Number (DIN / DPIN) The partners are not required to obtain any identification number Each director is required to have a Director Identification Number before being appointed as Director of any company. Each Designated Partners is required to have a DPIN before being appointed as Designated Partner of LLP.
Digital Signature There is no requirement of obtaining Digital Signature As eforms are filled electronically, atleast one Director should have Digital Signatures As eforms are filled electronically, atleast one Designated Partner should have Digital Signatures.
Dissolution By agreement, mutual consent, insolvency, certain contingencies, and by court order. Voluntary or by order of National Company Law Tribunal. Voluntary or by order of National Company Law Tribunal.
Transferability of Interest A partner can transfer his interest subject to the Partnership Agreement A member can freely transfer his interest A partner can transfer his interest subject to the LLP Agreement
Admission as partner / member A person can be admitted as a partner as per the partnership Agreement A person can become member by buying shares of a company. A person can be admitted as a partner as per the LLP Agreement
Cessation as partner / member A person can cease to be a partner as per the agreement A member / shareholder can cease to be a member by selling his shares. A person can cease to be a partner as per the LLP Agreement or in absence of the same by giving 30 days prior notice to the LLP.
Requirement of Managerial Personnel for day to day No requirement of any managerial; personnel , partners themselves administer the business Directors are appointed to manage the business and other Designated Partners are responsible for managing the day to
Administration themselves administer the business statutory compliances on behalf of the members. day business and other statutory compliances.
Statutory Meetings There is no provision in regard to holding of any meeting Board Meetings and General Meetings are required to conducted at appropriate time. There is no provision in regard to holding of any meeting.
Maintenance of Minutes There is no concept of any minutes The proceedings of meeting of the board of directors / shareholders are required to be recorded in minutes. A LLP by agreement may decide to record the proceedings of meetings of the Partners/Designated Partners
Voting Rights It depends upon the partnership Agreement Voting rights are decided as per the number of shares held by the members. Voting rights shall be as decided as per the terms of LLP Agreement.
Remuneration of Managerial Personnel for day to day administration The firm can pay remuneration to its partners Company can pay remuneration to its Directors subject to law. Remuneration to partner will depend upon LLP Agreement.
Contracts with Partners/Director Partners are free to enter into any contract. Restrictions on Board regarding some specified contracts, in which directors are interested. Partners are free to enter into any contract.
Maintenance of Statutory Records Required to maintain books of accounts as Tax laws Required to maintain books of accounts, statutory registers, minutes etc. Required to maintain books of accounts.
Annual Filing No return is required to be filed with Registrar of Firms Annual Financial Statement and Annual Return is required to be filed with the Registrar of Companies every year. Annual Statement of accounts and Solvency & Annual Return is required to be filed with Registrar of Companies every year.
Share Certificate The ownership of the partners in the firm is evidenced by Partnership Deed, if any. Share Certificates are proof of ownership of shares held by the members in the Company The ownership of the partners in the firm is evidenced by LLP Agreement.
Audit of accounts Partnership firms are only required to have tax audit of their accounts as per the provisions of the Income Tax Act Companies are required to get their accounts audited annually as per the provisions of the Companies Act, 2013, All LLP except for those having turnover less than Rs.40 Lacs or Rs.25 Lacs contribution in any financial year are required to get their accounts audited annually as per the provisions of LLP Act 2008.
Applicability of Accounting Standards. No Accounting Standards are applicable Companies have to mandatorily comply with accounting standards The necessary rules in regard to the application of accounting standards are not yet issued.
Compromise / arrangements / merger / amalgamation Partnership cannot merge with other firm or enter into compromise or arrangement with creditors or partners Companies can enter into Compromise / arrangements / merger / amalgamation LLP’s can enter into Compromise / arrangements / merger / amalgamation
Oppression and mismanagement No remedy exist , in case of oppression of any partner or mismanagement of Partnership Provisions providing for remedy against Oppression and mismanagement exists No provision relating to redressal in case of oppression and mismanagement
Credit Worthiness of organization Creditworthiness of firm depends upon goodwill and creditworthiness of its partners Due to Stringent Compliances & disclosures under various laws, Companies enjoys high degree of creditworthiness. Will enjoy Comparatively higher creditworthiness from Partnership due to Stringent regulatory framework but lesser than a company.
Whistle Blowing No such provision is provided under Partnership Act, 1932 No such provision is provided under the Companies Act, 2013. Provision has been made to provide protection to employees & partners, providing useful information during an investigation or convicting any partner or firm.