India has seen a large increase in small scale businesses and startups in the past few years.
With
the constantly emerging market and wide scope business activities there is an
increasing need for awareness about the various types of firms that can be
registered in India. The first and most basic step for starting a new venture
is giving it a legal status i.e registering it either as a Company, LLP,
Partnership firm, proprietorship firm, etc. It is very important to choose the right type of
corporate entity keeping in mind the kind of business one is doing and its
liabilities.
Limited Liability Partnership
LLP is
one of the most commonly used and newest forms of business established in
India. It was recently introduced by the Limited
Liability Partnership (LLP) Act of 2008 enacted by the Parliament of India.
Below
given are a few simple points to understand the functioning of a LLP:-
Ø It
is registered under Limited Liability Partnership (LLP) Act of 2008.
Ø A
minimum number of 2 partners are required to incorporate an LLP but there is no
upper limit as to how may partners can be present in an LLP.
Ø The
partners of an LLP are only liable upto the Capital amount invested by them in
the business.
Ø No
partner can be made liable for the independent or unauthorized actions of other
partner(s).
Thus, partners are shielded from joint
liability due to misconduct of others.
Ø LLP
is a legal entity separate from its partners.
Ø LLP
has perpetual existence until it is dissolved by its promoters.
Partnership firm
Ø In this arrangement, the individuals who have entered into the agreement with each other are called as individual ‘partners’.
Ø A Partnership Firm must have a minimum of 2 Partners and can only have a maximum of 20 Partners.
Ø A Partnership firm is not a separate legal entity instead it is same as its partners.
Ø Thus, Partners are liable personally and unlimitedly for all activities conducted in a partnership firm.
Ø The partnership can be transferred by taking consent from all its members.
Ø A partnership firm is dissolved if any one or more of the partner(s) die.
Advantages of
partnership Advantages of LLP
|
Ø Easy
formation
|
Ø Limited
liability
|
|
Ø Sharing
of risk
|
Ø No
limit on members.
|
|
Ø Flexibility
in operation
|
Ø Low
registration cost
|
|
Ø Better
management
|
Ø Perpetual
existence
|
Disadvantage
of partnership Disadvantages of LLP
|
Ø Unlimited
liability
|
Ø Lesser
credibility than company
|
|
Ø Limited
capital
|
Ø Additional
taxes
|
|
Ø instability
|
Ø Not
recognized by all states
|
|
Ø Lack
of harmony
|
Ø Public
disclosure of information
|
Similarities:-
- No partner is allowed to carry on competing for business without the prior consent of other partners.
- The introduction of a new partner to the partnership can be done, only with the consent of the existing partners.
- In the case of insolvency of a partner, he/she is not allowed to continue as a partner.
CONCLUSION:-
So with the above discussion, it is quite clear that both
general partnership and limited liability partnership are the two varieties of
partnership. While both LLP and Partnership are good
options for a new business, care has to be taken in choosing the right option.
An LLP is almost like a company but has lesser obligations than a company. If compared to
a partnership, it is difficult and time consuming to form an LLP. A partnership
firm need not go through formalities like filing of annual statements and
financial statements with a registrar. 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, in a partnership. On the other hand, in the case of limited liability
partnership, the partners are not held responsible for the acts and misconduct
of partners.
