Difference between LLP and Traditional Partnership Firm

When 2 or more persons are willing to start a partnership business then they must first decide amongst themselves that what type of business structure they want to choose to start the business operations. The most popular format for the partnership business would be either Partnership Firm or LLP. The best way to choose the best suitable format of business for oneself shall be to compare the nature, merits and demerits of all types of business that he/she can start with. This is why it is said that the first decision that is the choosing the type of business decides the future of the business.

The Partnership Firm and LLP are two different types of business structures which are formed by two or more persons known as partners. All partners agree to share profits/losses of the business in the ratio prescribed under the governing agreement. Both LLP and Partnership Firm conceptually look similar but are significantly different from each other in various ways.

In this blog, we will discuss the difference between LLP and partnership firm in detail.

What is Partnership Firm?

The Partnership Firm is one of the oldest and popular types of business structures in India as it is in existence in India since 1932. It is very easy to form a partnership firm as it has minimum set of rules and regulations. It is basically an agreement between 2 or more individual persons who agree to contribute capital in the business and agree to share and profit in accordance with the Partnership Deed.

What is LLP?

The MCA introduced the concept of LLP in the year 2008 to provide a type of business having benefits of both Partnership firm and body corporate.

Limited Liability Partnership (LLP) is basically a hybrid of partnership firm and Private Limited. Thus, it enjoys the benefits of limited liability, separate legal existence and other privileges available to a Private Limited Company along with the flexibility of a Partnership Firm.

Key differences between the LLP and Partnership Firm

BASIS	FIRM	LLP
Governing Law	Indian Partnership Act, 1932	Limited Liability Partnership Act, 2008
Liability of Partners	Unlimited Liability Each & every partner of the firm is Jointly as well as severally liable along with all the other partners for all the acts of the firm done while he/she is a partner in such firm.	Limited Liability Every partner is liable to the extent of his/her agreed contribution to the LLP
Whether a Foreign National Can be a partner?	No, a Foreign National is not allowed to form a partnership firm in India.	Yes, a Foreign National can become a partner in a LLP in India.
Designated Partner Identification (DPIN)	Not applicable	Each and every designated partner of LLP must have DPIN.
Dissolution	A per the Partnership Deed or mutual consent of partners.	LLP can be dissolved either voluntarily or by the order of NCLT.
Admission of a partner	A new partner can be admitted in the Firm as per the Partnership Deed.	A new partner can be admitted in the Firm as per the LLP Agreement.
Cessation of Partner	A partner can cease to be a partner as per the Partnership Deed.	A partner can cease to be a partner as per the LLP Agreement or by giving a 30 days’ notice to the LLP.
Separate Legal Entity	No	Yes
Registered under	Registrar of Firms	Ministry of Corporate Affairs
Types	Registered Partnership Firm Unregistered Partnership Firm	Registered LLP
Minimum & Maximum No. of Partners	Minimum – 2 Maximum – 20	Minimum -2 Maximum – No limit
Can minor become a partner	Yes	No
Agreement between partners/Designated partners	Partnership deed	LLP Agreement
Annual Return	Not required	Mandatory to file annual return with MCA
Legal Proceedings	Firm can’t sue and be sued in its own name. Only partners can sue each other or any other person on behalf of Firm.	LLP can sue and be sued in its own name
Digital Signature	Not Required	Designated Partner requires DSC

Consequently, we can say that both the LLP and Partnership Firm share certain similarities but are substantially different from each other by way of functioning, laws, terms & conditions and many more. This is why it is very important to understand the key differences between these two business structures.

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