LIMITED LIABILITY PARTNERSHIP ACT 2008 NOTES
QUESTION: Distinguish between LLP and Partnership?
LIMITED LIABILITY PARTNERSHIP
A Limited Liability Partnership, popularly known as LLP combines the advantages of both the Company and Partnership into a single form of organization. Limited Liability Partnership (LLP) is a new corporate form that enables professional knowledge and entrepreneurial skill to combine, organize and operate in an innovative and proficient manner.
It provides an alternative to the traditional partnership firm with unlimited liability. By incorporating an LLP, its members can avail the benefit of limited liability and the flexibility of organizing their internal management on the basis of a mutually-arrived agreement, as is the case in a partnership firm.
A partnership is a kind of business where a formal agreement between two or more people is made and agreed to be the co-owners, distribute responsibilities for running an organization and share the income or losses that the business generates.
In India, all the aspects and functions of the partnership are administered under ‘The Indian Partnership Act 1932’. This specific law explains that partnership is an association between two or more individuals or parties who have accepted to share the profits generated from the business under the supervision of all the members or behalf of other members.
The difference between LLP and Partnership is as follows:
|BASIS OF DIFFERENCE||PARTNERSHIP||LIMITED LIABILITY PARTNERSHIP|
|Prevailing Law||Partnership is prevailed by ‘The Indian Partnership Act, 1932’ and various Rules made thereunder||Limited Liability Partnership are prevailed by ‘The Limited Liability Partnership Act, 2008’ and various Rules made thereunder|
|Time of Registration||5-7 days||7-10 days in complete process|
|Name of Entity||Any name as per choice||Name to contain ‘Limited Liability Partnership’ or ‘LLP’ as suffix.|
|Registration||Registration is optional||Registration with Registrar of LLP required.|
|Creation||Created by contract with 2 or more persons.||Created by Law|
|Distinct entity||Not a separate legal entity||Is a separate legal entity under the Limited Liability Partnership Act, 2008.|
|Cost of Formation||The Cost of Formation is negligible||The cost of Formation is statutory filling fees, comparatively lesser than the cost of formation of Company.|
|Perpetual Succession||It does not have perpetual succession as this depends upon the will of partners||It has perpetual succession and partners may come and go|
|Charter Document||Partnership Deed is a charter of the firm which denotes its scope of operation and rights and duties of the partners||LLP Agreement is a charter of the LLP which denotes its scope of operation and rights and duties of the partners vis-à-vis LLP.|
|Common Seal||There is no concept of common seal in partnership||It denotes the signature and LLP may have its own common seal, dependant upon the terms of the Agreement|
|Formalities of Incorporation||In case of registration, Partnership Deed along with form / affidavit required to be filled with Registrar of firms along with requisite filing fee||Various eforms are filled with Registrar of LLP with prescribed fees|
|Foreign Participation||Foreign Nationals can not form Partnership Firm in India||Foreign Nationals can be a Partner in a LLP.|
|Number of Members||Minimum 2 and Maximum 20||Minimum 2 partners and there is no limitation of maximum number of partners.|
|Ownership of Assets||Partners have joint ownership of all the assets belonging to partnership firm||The LLP independent of the partners has ownership of assets|
|Legal Proceedings||Only registered partnership can sue third party||A LLP is a legal entity can sue and be sued|
|Liability of Partners/Members||Unlimited. Partners are severally and jointly liable for actions of other partners and the firm and liability extend to their personal assets.||Limited, to the extent their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.|
|Principal/Agent Relationship||Partners are agents of the firm and other partners.||Partners act as agents of LLP and not of the other partners.|
|Transfer / Inheritance of Rights||Not transferable. In case of death the legal heir receives the financial value of share.||Regulations relating to transfer are governed by the LLP Agreement .|
|Director Identification Number / Designated Partner Identification Number (DIN / DPIN)||The partners are not required to obtain any identification number||Each Designated Partners is required to have a DPIN before being appointed as Designated Partner of LLP.|
|Digital Signature||There is no requirement of obtaining Digital Signature||As eforms are filled electronically, atleast one Designated Partner should have Digital Signatures.|
|Dissolution||By agreement, mutual consent, insolvency, certain contingencies, and by court order.||Voluntary or by order of National Company Law Tribunal.|
|Admission as partner / member||A person can be admitted as a partner as per the partnership Agreement||A person can be admitted as a partner as per the LLP Agreement|
|Cessation as partner / member||A person can cease to be a partner as per the agreement||A person can cease to be a partner as per the LLP Agreement or in absence of the same by giving 30 days prior notice to the LLP.|
|Requirement of Managerial Personnel for day to day administration||No requirement of any managerial; personnel , partners themselves administer the business||Designated Partners are responsible for managing the day to day business and other statutory compliances.|
|Maintenance of Minutes||There is no concept of any minutes||A LLP by agreement may decide to record the proceedings of meetings of the Partners/Designated Partners|
|Voting Rights||It depends upon the partnership Agreement||Voting rights shall be as decided as per the terms of LLP Agreement.|
|Remuneration of Managerial Personnel for day to day administration||The firm can pay remuneration to its partners||Remuneration to partner will depend upon LLP Agreement.|
|Annual Filing||No return is required to be filed with Registrar of Firms||Annual Statement of accounts and Solvency & Annual Return is required to be filed with Registrar of Companies every year.|
|Share Certificate||The ownership of the partners in the firm is evidenced by Partnership Deed, if any.||The ownership of the partners in the firm is evidenced by LLP Agreement.|
|Audit of accounts||Partnership firms are only required to have tax audit of their accounts as per the provisions of the Income Tax Act||All LLP except for those having turnover less than Rs.40 Lacs or Rs.25 Lacs contribution in any financial year are required to get their accounts audited annually as per the provisions of LLP Act 2008.|
|Applicability of Accounting Standards.||No Accounting Standards are applicable||The necessary rules in regard to the application of accounting standards are not yet issued.|
|Compromise / arrangements / merger / amalgamation||Partnership cannot merge with other firm or enter into compromise or arrangement with creditors or partners||LLP’s can enter into Compromise / arrangements / merger / amalgamation|
|Oppression and mismanagement||No remedy exist , in case of oppression of any partner or mismanagement of Partnership||No provision relating to redressal in case of oppression and mismanagement|
|Credit Worthiness of organization||Creditworthiness of firm depends upon goodwill and creditworthiness of its partners||Will enjoy Comparatively higher creditworthiness from Partnership due to Stringent regulatory framework but lesser than a company.|
So with the above discussion, it is quite clear that both general partnership and limited liability partnership are the two varieties of partnership. Further, an LLP is different from a partnership, in the way that partners are joints or severally liable for the acts of the partners and the firm. On the other hand, in the case of limited liability partnership, the partners are not held responsible for the acts of other partners.