The Government of India passed the Limited Liability Partnership Act, 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.
According to section 4 of the Indian Partnership Act, 1932, a partnership is an agreement between two or more people to share the profits of the company.
While both of the firms have their own properties, advantages, and disadvantages, it also has so many differences. In this, we will study the differences between a Limited Liability Partnership and a Partnership Firm.
LLP vs Partnership Firm: Key Differences Explained
1. Perpetual Succession
- In a Limited Liability Partnership, death, insanity, retirement, or insolvency of the partners does not affect its existence. Members of an LLP can join or leave but its existence continues forever.
- In a Partnership Firm, events like death, retirement, or insolvency can lead to its dissolution, as it lacks perpetual succession.
2. Liability
- In a Limited Liability Partnership, the liability of each partner is limited to the extent of the contribution agreed between the partners, except in the case of willful fraud.
- While in a Partnership firm, the liability of each partner is unlimited and also extended to the personal assets of the partners.
3. Legal Compliances
- In a Limited Liability Partnership, only the designated partners are responsible for all the compliances and penalties under this act.
- While in a Partnership firm, all the partners are equally responsible for all the compliances and penalties under this act.
4. Annual Filling of the Documents
A Limited Liability Partnership is required to file-
- Annual statement of accounts.
- Statement of solvency
- Annual return with the registration of LLP every year.
While in a Partnership firm, there is no requirement to file any documents with the registrar of firms.
5. Minor as a Partner
- In a Limited Liability Partnership, a minor can not be admitted to the benefits of the company.
- Whereas in a Partnership firm, a minor can be admitted to the benefits of the partnership with the prior consent of the existing partners.
6. Designated Partners
- In a Limited Liability Partnership, at least two designated partners are allowed and one of them should be a resident in India.
- While in a Partnership firm, there are no provisions for such partners under the Partnership Act, of 1932.
7. Mutual Agency
- In a limited Liability Partnership, each partner can bind the LLP on his terms but not the other partners.
- While in a Partnership firm, each partner can bind the firm as well as the other partners by his own acts.
8. Common Seal
- In a Limited Liability Partnership, it may have its common seal as its official signature.
- Whereas in a Partnership firm, there is no such concept about the common seal in the partnership act.
9. Foreign Partnership
- In a Limited Liability Partnership, foreign nationals can become partners.
- Whereas in a partnership firm, foreign partners cannot become partners.3
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