Two leading business structures through which partners conduct their business are a Limited Liability Partnership or LLP and a partnership firm. At least two individuals are required to establish a partnership or LLP firm. Although the concept of LLP is relatively new, a partnership firm is older. Hence, comprehending the distinction between LLP and partnership is vital for business owners considering commencing a new business or modifying the existing one’s form.
These types of partnership businesses might face disputes from time to time, which necessitates a partnership disputes attorney to stay compliant with the agreement. If you’re wondering about the difference between the two partnership business types, this article thoroughly distinguishes them.
Table of Contents
Partnership Firm: Overview
Two or more individuals own and operate the business together in the partnership business structure. Whereas, in a partnership firm, they split the profits & losses of the organization and are responsible for its debts & commitments.
Limited Liability Partnership Firm: Overview
LLP is a leading type of partnership where the business associates have restrained commitment to the debts and responsibilities of the business. The associates’ assets are not at stake if the organization incurs debts or litigation. LLPs are mainly used in professional services, including law, accounting, and consulting.
Significant Differences Between Partnership & LLP
Below are some of the crucial differences between LLP and partnership firm:
- LLP registration according to the LLP Act is necessary, whereas the partnership firm’s registration under the Partnership Act is voluntary.
- Law enforces an LLP, whereas a partnership firm is established by agreement.
- LLP possesses an isolated legal entity under the law. Contrarily, a partnership firm possesses no isolated legal status apart from its associates.
- LLP can start an agreement in its name, whereas a partnership firm can’t begin a contract.
- LLP contract is the charter document. Unlike a partnership firm, the documents that authenticate the partnership are known as Partnership Deeds.
- The associate’s commitment is restricted to the degree of the capital shared by the LLP partners. Compared to this, the partners of a partnership have limitless obligations to fulfill.
- An entrepreneur can start a partnership with any name of preference. On the other hand, the LLP people must utilize the word “LLP” by its name’s end.
- The business partners act like agents of the allies and the company in a partnership. Conversely, the partners are the representatives of partners in LLP.
- A partnership is described as an organization of individuals established to make money through commercial ventures carried out by all stakeholders or by one partner acting on behalf of the others. An organization that combines the characteristics of a corporate body and a lawful entity is known as a limited liability partnership.
- Partnerships are subject to fewer legal obligations and commitments than LLPs. LLPs must keep thorough records instead of alliances and submit annual documents to the companies’ registrars.
- The partners in a partnership firm tackle the management of the partnership firm – Tappoint managerial personnel. On the other hand, an LLP’s appointed partners handle daily business & other statutory adherence cases.
- An LLP has eternal succession, whereas a partnership firm may get dissolved at any moment.
- A partnership firm is unable to retain property in its name, whereas the LLP can own property in this name.
- An LLP possesses an ordinary seal that indicates the signature of an LLP, where the ordinary seal is used to sign papers. Contrarily, a partnership firm has yet to learn of an ordinary seal. The certified partner should sign the documents.
Conclusion
A partnership company and LLP are identical entities but vary in their supervision of accounts, functioning, and nullification strategy. Both are regulated by distinct Acts & Regulations. Therefore, understanding the distinction will assist a business owner in opting for the correct type of partnership structure for their business.