Partnership Firm v/s LLP

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By Hiral Vakil on March 11, 2019

One of the common question a businessman would ask is whether to form a Partnership Firm or a Limited Liability Partnership (LLP). Technically, an LLP has more advantages than a partnership firm. We could say that a Limited Liability Partnership combines some of the advantages of a Private Limited Company with those of a simple Partnership Firm.

Let us compare some of the features of a partnership vis-a-vis an LLP:

Attributes Partnership Firm Limited Liability Partnership
Separate Legal Entity Not a separate legal entity. A separate legal entity, different from its partners.
Statute governing registration Partnership firm is formed under the Partnership Act, 1932. LLPs are registered under the Limited Liability Partnership Act, 2008.
Maximum Number of partners Partnership Firm can have a maximum of 20 partners. An LLP is allowed to have unlimited partners.
Registration Registration is not mandatory. Registration can be voluntarily done with Registrar of Firms. Registration is mandatory and possible online. LLPs are registered with the Ministry of Corporate Affairs.
Liability of Partners Liability of partner is Unlimited. Even the personal assets of the partners can be annexed to pay off the debts of the partnership firm. Liability of partner is Limited. Only the amount contributed by the partners to the firm can be used to pay off the debts of the partnership firm.
External Investment Difficult to obtain Easily Available
Credibility Low High
Termination It can be terminated Quickly. It is much more stable and not easy to terminate.
Audit of Accounts Tax Audit as per provisions of Income Tax Act, 1961 Accounts audited if Turnover exceeds Rs 40 Lakhs or Contribution exceeds Rs 25 Lakhs
Statutory Compliance No annual return filing requirement. LLP must file an annual return with the Ministry of Corporate Affairs(MCA).