The government of India passed the Limited Liability Partnership Act (LLP) 2008, to address these important issues. A Limited Liability Partnership is a business entity that gives limited liability to the partners and provides stability in the partnership company.
Whereas according to the Companies Act, 2013 a limited liability company is a company whose owners only have to pay a limited amount of its debts if it fails.
While both firms have their own features, advantages, and disadvantages, they also have their own differences. In this, we will study the main differences between a limited liability partnership and a limited liability company.
Key Difference Between an LLP and an LLC Company
1. Liability of Partners/Shareholders
In a Limited Liability Partnership, the liability of partners is limited to their agreed contribution, except in cases of fraud or misconduct.
Whereas, in this, the liability of a member is limited to the amount unpaid on the shares held by them.
2. Internal Governance Structure
In a Limited Liability Partnership, the internal governance structure is governed by a contract agreement between the partners.
Whereas in this, the internal governance structure is governed by the Companies Act, 2013.
3. Number of Partners/Members
In a Limited Liability Partnership, the minimum number of members is two but there is no such limit in the maximum number of members. The members of an LLP can be individuals or body corporates through the nominees.
Whereas in this, the number of members is as follows;
- In a private company, the minimum number of members is two and the maximum number of members is 200.
- In a public company, the minimum number of members is seven and there is no such limit in the maximum limit of members. In this, the members can be organizations, trusts, another business form, or individuals.
4. Management
In an LLP, the business of the company is managed by the partners including the designated partners authorized in the agreement.
However, in this, the affairs of the company are managed by the board of directors elected by the shareholders.
5. No. of Directors/Designated Partners
In a Limited Liability Partnership, the minimum number of designated partners is two.
In this, the numbers of directors are as follows;
- Private Company= 2
- Public Company=3
Conclusion: Which One is Right for You?
Deciding between an LLP and an LLC comes down to what works best for your business goals.
Go for an LLP if:
- You want more flexibility in how you run your business.
- You prefer fewer legal formalities and compliance requirements.
- You don’t want restrictions on the number of partners in your business.
An LLC is the better choice if:
- You’re looking to attract investors or raise funding.
- You prefer a structured corporate setup with a Board of Directors.
- You want higher scalability and credibility for long-term growth.
At the end of the day, both LLPs and LLCs offer limited liability protection, but they function differently. Take a step back, consider your business needs, regulatory requirements, and future plans, and pick the structure that sets you up for success.
