myecaindia@gmail.com
+919555815200

Comparison between Partnership Firm, Company and LLP

A Comparison between Partnership firm Company and LLP- An overview

 

Category

Partnership

Company

LLP

Prevailing Law Partnership is prevailed by ‘The Indian Partnership Act, 1932’ and various Rules made there under Companies are prevailed by ‘Companies Act, 2013’ Limited Liability Partnership are prevailed by ‘The Limited Liability Partnership Act, 2008’ and various Rules made there under
Registration Registration is optional Registration with Registrar of ROC required. Registration with Registrar of LLP required.
Creation Created by Contract Created by Law Created by Law
Distinct entity Not a separate legal entity Is a separate legal entity under the Companies Act, 1956. Is a separate legal entity under the Limited Liability Partnership Act, 2008.
Name of Entity Any name as per choice Name to contain ‘Limited’ in case of Public Company or ‘Private Limited’ in case of Private Company as suffix. Name to contain ‘Limited Liability Partnership’ or ‘LLP’ as suffix.
Cost of Formation The Cost of Formation is negligible Cost of formation of private limited company varies in between Rs 11000/- to Rs. 15000/- 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 members may come and go. 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 Memorandum and Article of Association is the charter of the company that defines its scope of operation. 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.
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 along the Memorandum & Articles of Association are filled with Registrar of Companies with prescribed fees Various eforms are filled with Registrar of LLP with prescribed fees
Legal Proceedings Only registered partnership can sue third party A company is a legal entity which can sue and be sued A LLP is a legal entity can sue and be sued
Foreign Participation Foreign Nationals can not form Partnership Firm in India Foreign Nationals can be a member in a Company. Foreign Nationals can be a Partner in a LLP.
Number of Members Minimum 2 and Maximum 20 2 to 100 members in case of Private Company and Minimum 7 members in case of Public Company. 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 company independent of the members has ownership of assets The LLP independent of the partners has ownership of assets
Rights / Duties / obligation of the Partners / Managing Partners / Directors Rights / Duties / obligation of the partners are governed by Partnership Deed. Rights / Duties / obligation of the directors are governed by AOA and resolution passed by shareholders or directors. Rights / Duties / obligation of the partners are governed by LLP Agreement.
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. Generally limited to the amount required to be paid up on each share. Limited, to the extent their contribution towards LLP, except in case of intentional fraud or wrongful act of omission or commission by the partner.
Tax Liability Income of Partnership is taxed at a Flat rate of 30% plus education cess as applicable. Income of Company is Taxed at a Flat rate of 30% Plus surcharge as applicable. Income of LLP is taxed at a Flat rate of 30% plus education cess as applicable.
Principal/Agent Relationship Partners are agents of the firm and other partners. The directors act as agents of the company and not of the members 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. Ownership is easily transferable. Regulations relating to transfer are governed by the LLP Agreement .
Transfer of Share / Partnership rights in case of death In case of death of a partner, the legal heirs have the right to get the refund of the capital contribution + share in accumulated profits, if any. Legal heirs will not become partners In case of death of member, shares are transmitted to the legal heirs. In case of death of a partner, the legal heirs have the right to get the refund of the capital contribution + share in accumulated profits, if any. Legal heirs will not become partners
Director Identification Number / Designated Partner Identification Number (DIN / DPIN) The partners are not required to obtain any identification number Each director is required to have a Director Identification Number before being appointed as Director of any company. 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 e-forms are filled electronically, atleast one Director should have Digital Signatures As e-forms 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. Voluntary or by order of National Company Law Tribunal.
Transfer ability of Interest A partner can transfer his interest subject to the Partnership Agreement A member can freely transfer his interest A partner can transfer his interest subject to the LLP Agreement
Admission as partner / member A person can be admitted as a partner as per the partnership Agreement A person can become member by buying shares of a company. 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 member / shareholder can cease to be a member by selling his shares. 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 Directors are appointed to manage the business and other statutory compliances on behalf of the members. Designated Partners are responsible for managing the day to day business and other statutory compliances.
Statutory Meetings There is no provision in regard to holding of any meeting Board Meetings and General Meetings are required to conducted at appropriate time. There is no provision in regard to holding of any meeting.
Maintenance of Minutes There is no concept of any minutes The proceedings of meeting of the board of directors / shareholders are required to be recorded in 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 are decided as per the number of shares held by the members. 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 Company can pay remuneration to its Directors subject to law. Remuneration to partner will depend upon LLP Agreement.
Contracts with Partners/Director Partners are free to enter into any contract. Restrictions on Board regarding some specified contracts, in which directors are interested. Partners are free to enter into any contract.
Maintenance of Statutory Records Required to maintain books of accounts as Tax laws Required to maintain books of accounts, statutory registers, minutes etc. Required to maintain books of accounts.
Annual Filing No return is required to be filed with Registrar of Firms Annual Financial Statement and Annual Return is required to be filed with the Registrar of Companies every year. 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. Share Certificates are proof of ownership of shares held by the members in the Company 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 Companies are required to get their accounts audited annually as per the provisions of the Companies Act, 2013, 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 Companies have to mandatorily comply with accounting standards 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 Companies can enter into Compromise / arrangements / merger / amalgamation 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 Provisions providing for remedy against Oppression and mismanagement exists 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 Due to Stringent Compliances & disclosures under various laws, Companies enjoys high degree of creditworthiness. Will enjoy Comparatively higher creditworthiness from Partnership due to Stringent regulatory framework but lesser than a company.
Whistle Blowing No such provision is provided under Partnership Act, 1932 Provision has been made to provide protection to employees & partners, providing useful information during an investigation or convicting any partner or firm. Provision has been made to provide protection to employees & partners, providing useful information during an investigation or convicting any partner or firm.

Related Articles:

In case of any query, feel free to ask them ⇓