Before starting a business, the first thought that comes to a businessperson’s mind is what type of business they would like to start with. There are many types of business formation one can choose. Some of the most popular formats are a sole proprietorship, partnership, LLP, Joint-Stock Company etc.
It makes sense to start a business by knowing the merits and demerits of the various types of business.
What is LLP?
LLP stands for Limited Liability Partnership. It is an alternative corporate business form that provides the benefits of limited liability of a company along with the flexibility of a partnership.
An LLP is a legal entity and is liable to the full extent of its assets but the liability of a partner is limited to their contribution in the LLP.
In LLP, one partner will not be liable for the wrongdoing of another partner. The partner will be held responsible only for his own actions.
LLP is called a hybrid between company and partnership as it incorporates properties of both the organisation structures.
What is Partnership?
A partnership is one of the oldest forms of business structures and is very popular in India. It is relatively easy to set up with a minimum set of rules and regulations.
A partnership is considered to be an agreement between two or more individuals to pool their respective capital and resources, combine them for contributing to the business. It may be run by all or any one of them on behalf of others.
The partners also agree to share the profits and losses as per rules of Partnership Deed.
Let us now look at some of the significant points of differences between these two popular forms of business.
|LLP is a business form that offers the combined benefits of a partnership and a company||Revenue reserve is created to meet unforeseen events in a business organization|
|Limited Liability Partnership Act, 2008||Indian Partnership Act, 1932|
|In LLP partners have limited liability||Partners liability is to the amount of capital invested|
|Need for registration|
|Mandatory to be registered||Registration is optional|
|Do they have any legal status?|
|LLP has a legal status||There is no separate legal status for partnership|
|How to name a firm?|
|Must suffix LLP after the name of the firm||Can be any name as decided by partners|
|LLP Agreement||Partnership Deed|
|Maximum Partners allowed|
|No such limit||Maximum 100 partners allowed|
|Is there any perpetual succession?|
|Perpetual succession is possible as partners may come and go in an LLP||Perpetual succession is not possible in partnership|
This article covers the crucial differences between the business forms of LLP and Partnership. It is a very important concept that should be understood by Commerce and Business Management students. For more such exciting updates stay tuned to BYJU’S.
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