LLP vs Partnership
Depending upon requirements, there can be many different forms or structures of businesses. Out of these, partnership is perhaps the most commonly heard one. We all know of businesses where many friends bring up capital and start a venture and divide the profits in proportion of their investment. However, there is another business model that has recently been introduced, and that is Limited Liability partnership (LLP). Many people remain confused between partnership and LLP and thus unable to choose between the two models when deciding on a new business. This article attempts to find out these differences.
Partnership is a business where two or more people come together to do business and share the profits earned by working together of all partners or by one of the partners working on behalf of all others. It also describes the relation between the members of the business and all are called partners of the business. In case of partnership, the firm or the business has no legal entity, and we talk in terms of partners and not the firm in such a business model. From the purposes of tax laws, partnership is a legal entity. Even registration of a partnership firm is not compulsory. In this case, no financial disclosures are required by law. The most important feature of partnership is that, for all acts of the business, each partner is equally liable or responsible. Similarly, all partners are responsible for the misconduct of a single partner.
Limited Liability Partnership (LLP)
Limited Liability Partnership is a new concept that tries to combine the benefits of partnership with those of limited personal liability. This means that, in LLP, a partner is not responsible for misconduct or negligence of another partner. In all other circumstances, all features of a partnership firm apply on a limited liability partnership. This distinction sets LLP apart, and it is very much a legal entity, unlike the partnership firms where the firm means the partners.
What is the difference between LLP and Partnership?
• LLP is a legal entity whereas partnership is not a legal entity.
• All partners are equally liable and responsible for misconduct or negligence of a single partner in case of partnership firm while the LLP is not responsible for the misconduct of any of its partners.
• Registration of LLP is compulsory while that of partnership is not compulsory.
• Financial disclosures are not required in case of partnership firm while they are compulsory in the case of LLP.
• LLP gives an alternative business model that gives the flexibility of partnership firm and yet allows the benefit of limited liability.
• LLP has a distinct identity and can continue if there is a change in partners while a partnership firm cannot.
• Foreign nationals cannot become partners in a partnership firm while they can be partners in a LLP.