Why prefer LLP over Partnership Firm?

To enforce the Limited Liability Act, 2008, the Limited Liability Partnership concept has been brought into by way. The objective is to get the adaptability of the partnership and benefits of corporate body like company to bring together under one structure of an organisation.

In this article, we’ll be discussing why you should registering your business as LLP is more beneficial rather registering as a partnership firm.

1) Limited liability partnership is a separate legal entity and it can hold assets in its name, on the other hand, the partnership firm does not have a separate legal entity.

2) The liability of partners is limited to the extent of their input in LLP. Moreover, one partner is not affected or not held at risk for the actions of another partner. And in partnership, the liability of partners is not limited and it can extend to personal assets of partners. The activity of active partner could liable another one.

3) Minimum two designated partners are required to form an LLP and there is no upper limit on the maximum number of partners. But a partnership firm which is having more than 100 partners are announced as an illegal firm.

4) It is compulsory to get register the LLP and it is registered with registrar of companies (ROC) on the online portal of MCA. Hence, it gets the benefit of centralized registration. On the other hand, there is no requirement to get the partnership firm registered. If one wants to get registered firm then it shall be done with local Registrar of Firm. No online portal is there for its registration.

5) Statutory compliances are in addition to compliance under the income tax act in respect of LLP, as the LLP Act mandates the same. These compliances provide clarity of operations and financials of the firm. And in partnership, there are no further compliances prescribed aside from laid down under the income tax act.

6) The central registration with MCA permits accessibility of documents to public except for the agreement between partners. Further, one can see the last balance sheet filed with ROC in the master data of the entity which generates high creditability and accuracy among the other parties to the LLP. On the other hand, any of the information on the partnership is not disclosed on a public platform.

7) LLP name should be unique and not identical or like with other company or LLP, which helps to build up a special image. In the case of partnership, there is no restriction for utilizing the name; moreover, it doesn't really help to establish a distinct image of partnership.

Business and transactions of both firm has to be regulated by the clauses of agreement that is being executed by the partners of the entity. Based on the above comparison it is clear that why one should the LLP over the partnership.

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