Difference Between a Partnership Firm and a Limited Liability Partnership (LLP)
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Limited Liability Partnership (LLP)
An LLP combines the flexibility of a partnership with limited liability protection.
Key Features:
- Governed by the Limited Liability Partnership Act, 2008.
- Partners are not personally liable for business debts.
- Requires registration with the Ministry of Corporate Affairs (MCA).
Pros:
- ✔ Limited liability protects personal assets.
- ✔ Perpetual succession—business continues despite partner changes.
- ✔ Less regulatory burden than a company.
Cons:
- ✖ Cannot raise funds via equity investments.
- ✖ More compliance requirements than a traditional partnership.
Best Suited For:
- ✔ Startups and growing businesses
- ✔ Consulting firms (legal, IT, financial services)
- ✔ Businesses looking to raise investment or FDI
- ✔ Businesses that want liability protection for owners
- ✔ Firms that want perpetual succession
Partnership Firm
A partnership is a business owned by two or more individuals who share profits and responsibilities.
Key Features:
- Governed by the Partnership Act, 1932.
- Partners share profits, losses, and liabilities.
- Requires a partnership deed outlining roles and responsibilities.
Pros:
- ✔ Shared responsibilities reduce workload.
- ✔ Greater capital access compared to a sole proprietorship.
- ✔ Simple registration process.
Cons:
- ✖ Unlimited liability—partners are personally responsible for debts.
- ✖ Disputes between partners may arise.
- ✖ Limited lifespan—partnership dissolves if a partner exits.
Best Suited For:
- ✔ Small businesses and local traders
- ✔ Family-run businesses
- ✔ Professionals like accountants, doctors, and lawyers
- ✔ Businesses that do not require heavy investment
- ✔ Firms that want minimal compliance and easy tax filing
Comparison Table: Partnership vs LLP
| Feature | Partnership Firm | LLP |
|---|---|---|
| Legal Status | Not a separate legal entity | Separate legal entity |
| Governing Law | Partnership Act, 1932 | LLP Act, 2008 |
| Liability | Unlimited liability | Limited liability |
| Minimum Partners | 2 (max 50) | 2 (no upper limit) |
| Registration | Optional | Mandatory (MCA) |
| Perpetual Succession | No | Yes |
| Ownership Transfer | Difficult | Flexible |
| Taxation | 30% | 30% |
| Compliance | Low | High |
| FDI | Not allowed | Allowed (100% in most sectors) |
| Best Suited For | Small firms, family businesses | Startups, growing firms |
Which One to Choose?
If you want a simple business structure with minimal compliance, go for a Partnership Firm.
If you need limited liability, a separate legal identity, and scalability, an LLP is the better option.
