Benefits of choosing LLP over Partnership Firm

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Introduction of LLP in India:

The concept of Limited Liability Partnership has been brought into by way of enforcing Limited Liability Act, 2008. The idea is to get the flexibility of the Partnership and Benefits of Corporate Body like Company to bring together under one structure of organisation.

In this blog, we will discuss why registering a business as LLP is advantageous over partnership firm registration.

The Comparison:

 Limited Liability PartnershipPartnership Firm
Separate legal entityLLP is a separate legal entity and can hold assets in its name.The status of Partnership Firm does not have separate identity from its Partners.
Liability of PartnersThe liability of Partners is limited to the extent of their contribution in LLP. Further, one Partner is not affected or not held liable for the actions of another Partner.The liability of Partners is not limited and can extend to personal assets of Partners. The action of active Partner can hold another liable.
Number of PartnersMinimum 2 Designated Partners are required to from LLP. However, there is no ceiling limit on number of Partners.The ceiling limit on number of Partners is 50. Partnership Firm having more than 50 Partners are declared as illegal association.
Uninterrupted ExistenceThe existence of LLP is not affected by change in the Partners of LLP.The Partnership Firm dissolves due to removal or death of Partner subject to clauses of Partnership Deed.
RegistrationRegistration 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 as well as unregistered. The registration, if required shall be done with local Registrar of Firm. No online portal is available for its registration.
Statutory CompliancesStatutory Compliances in case of LLP are in addition to compliance under Income Tax Act, as the LLP Act mandates the same. These compliances ensure transparency of operations and financials of the entity.There are no additional compliances prescribed except laid down under Income Tax Act.
Data availabilityThe central Registration with MCA allows availability of Documents to Public except the Agreement between Partners. Also, one can see the last Balance sheet filed with MCA in the Master data of the entity which creates high creditability and reliability among the other parties to the LLPAny of the information or the data of the Partnership are not disclosed on public platform.
Higher CreditabilityDue to higher compliances and transparency in operation, the credibility of LLP is higher and thus it eases the fund raising from financial institutions.Compared to partnership firms, other body corporates are having higher credibility and hence are less preferable.
Uniqueness of NameThe name of the LLP is unique and not identical or similar to any other company or LLP, which helps to establish distinctive image.There is no restriction for using the name in case of Partnership, furthermore it does not necessarily help to establish distinct image of Partnership.
Taxation Aspect:LLP is considered as Partnership Firm for the purpose of Taxation Aspects. The taxation aspects are governed by Income Tax Act, 1961.
Agreement Signed:Operations of both the LLP and Partnership firm are administered by Agreement signed between the Partners of the entity.

On the basis of above comparison above it is clear why LLP is elect over the Partnership Firm as it avails the benefits of the Partnerships with higher preference.

Nature of Simplicity of transaction is intact in the LLP and its distinguished position in Corporate World places an LLP in far more advantageous position than a Partnership. Not necessarily everyone should opt for an LLP but the one who are looking for long term growth and are willing to jump into corporate world without facing the high restriction caused in case of Companies, the person may prefer LLP considering its advantages and disadvantages.

About the Author:

Shrijay Sheth
Shrijay, co-founder of LegalWiz.in, is best known for his business acumen. On this platform, he shares his experiences backed by a strong understanding of digital commerce businesses. His more than a decade-long career includes a contribution to some of the highly successful startups and eCommerce brands across the globe.

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