LLP vs Partnership Firm

In terms of safeguarding the personal assets from financial losses occurred during course of business, LLP is the best option. The following post enumerates the concept in detail.

Any business owner shall think of continuity of business irrespective of the members joining or leaving the entity. The status of the entity should remain same in case of death or insolvency or bankruptcy of any member so that the interest of other members are safeguarded. Hence, LLP can be treated as best option that any business owner can choose.

WHAT IS A PARTNERSHIP FIRM?

An association of two or more persons who have agreed to share the profits of a business which they run together. The liability of partners is unlimited with respect to capital. The losses can be recovered from the personal assets of partners.

WHAT IS A LIMITED LIABILITY PARTNERSHIP?

A business entity in which the partners liability is restricted to the capital contribution by them.

Let us understand various concepts under Private limited company and Limited Liability Partnership.

	PARTNERSHIP FIRM	LLP
Existence	Separate Legal Entity	Separate Legal Entity
Governed by	The Partnership Act,1932	Limited Liability Partnership Act,2008
Members are called as	Partners	Partners
Underlying documents and certificates	Partnership deed, Firm Registration Certificate	Certificate of Incorporation and LLP agreement.
Liability of members	Personal assets are held liable	Restricted to share capital
Minimum number of members	2	2
Maximum number of members	20	No limit
Minimum Capital requirement	No such requirement	No such requirement
Public deposits	CANNOT raise from public	CANNOT raise from public
Acts binding on members	Partners are severally and jointly liable for actions of other partners	Partners are severally and jointly liable for actions of other partners
Audit requirements	Audit is mandatory if Turnover exceeds Rs.1 Crore or the profits are less than 8%	Audit is mandatory if Turnover exceeds Rs.1,00,00,00  OR Share Capital exceeds Rs.25,00,000
Rate of income Tax	30% +applicable surcharge and Cess	30% +applicable surcharge and Cess
Administered by	Registrar of Firms	ROC
Changes can be incorporated through	Modification of partnership deed and amendment of registration	Amending the partnership agreement and filing the agreement with ROC

Process for Registering a partnership firm:

Requirements:

1) Pan card copy of all partners

2) aadhar copy of all partners 

3) 2 colour photos of all partners

4)rental agreement (in case of rented) or sale deed (in case of own) copy of proposed office

5) electricity bill of office latest

6) name of business 

7) type and nature of business 

8) mobile numbers of all partners

9) mail ids of all partners

10) Partnership deed

Process of Registering a Limited Liability Partnership:

Requirements:

1) Digital Signature Certificates of all directors

2) DIN of all directors

3) Application for name approval

4) Executing an LLP agreement

5) Filing ROC forms

Any change in constitution of LLP shall be amended through LLP agreement and filing the required ROC form. Every LLP shall file 2 forms annually Form 8 and Form 11 within respective due dates. However, Penalties for late filing the forms is pretty high compared to penalties levied for a private limited company.

 

Points to be noted:

1) Digital signature certificate is mandatory for all the partners in case of LLP and can be used in case of certifications. It is valid for a period of 2 years.

2) All the forms that have been uploaded to ROC can be downloaded and are available to public. We can download them by paying Rs.100.

3) In case of LLP, all the designated partners shall hold a DIN and update the KYC every year with ROC.

Annual Compliances in case of Partnership firm:

Income tax return

Annual Compliances in case of LLP:

Form 8
Form 11
Income tax return
DIN KYC of all the partners every year
Renewal of DSC for every 2 years