Difference Between Partnership and LLP

Difference Between Partnership and LLP

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Chanchal
Chanchal Aggarwal
Senior Executive Content
Updated on Dec 11, 2023 18:23 IST

The main difference between Partnership and LLP lies in the liability and legal status. In a Partnership, the partners have unlimited personal liability for business debts, while an LLP (Limited Liability Partnership) offers limited liability protection to its partners, safeguarding their personal assets from the business’s financial obligations. Additionally, an LLP has a separate legal entity, providing it with a more formal and distinct status compared to a Partnership.

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Partnership and LLP (Limited Liability Partnership) are two common business structures that differ in several ways. Partnerships are business arrangements in which two or more people agree to share profits and losses. In a partnership, each partner has unlimited liability. It implies they are personally responsible for all the debts and obligations of the business. An LLP is a more formal legal structure that provides the partners with limited liability. It means they are only responsible for their actions and debts, not those of the other partners. LLPs are typically used by professionals such as lawyers, accountants, and architects. Let’s find out the difference between Partnership and LLP.

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Table of Content

Comparative Table: Partnership and LLP

Aspect Partnership LLP
Formation Two or more individuals or entities join together A minimum of two designated partners are required
Liability Unlimited liability for debts and obligations Limited liability of partners
Management All partners have an equal say in the management Designated partners have executive authority
Legal entity Not a separate legal entity Separate legal entity
Perpetual Succession Dissolves on the death or exit of a partner This continues even in the case of the death or exit of a partner
Taxation Partners pay personal income tax on their share of profits or losses LLP pays taxes as a separate legal entity
Transfer of ownership Requires the consent of all partners Easier transfer of ownership through the transfer of partnership interest
Capital contribution Contribution is not mandatory, but partners must share profits and losses equally. Capital contribution is mandatory, but partners can allocate profits and losses unequally.
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What is Partnership?

A partnership is a business arrangement where two or more individuals or entities agree to come together. Moreover, they share a business venture’s profits, losses, and responsibilities. Here, the partners contribute resources such as capital, skills, or expertise towards achieving the objectives of the business. The partners may have equal or different levels of participation and liability in the business, depending on the partnership agreement. Partnerships can be formed for various purposes, including but not limited to conducting research, developing new products, or providing services to customers.

What is Limited Liability Partnership?

LLP stands for “Limited Liability Partnership”. It is a type of business structure combining the features of partnerships and corporations. Limited liability means that LLP partners are not personally liable for the business’s debts or obligations. This differs from a general partnership, where the partners have unlimited liability. Lawyers, accountants, and architects often favour LLPs. This is because they allow them to maintain a partnership structure while limiting their liability. In an LLP, each partner is responsible for their actions and debts, but not for the actions and debts of other partners.

Difference between Partnership and LLP (Limited Liability Partnership)

  • In a partnership, two or more individuals or entities come together to operate a business. An LLP is a hybrid business structure that provides limited liability protection to its partners.
  • The partners are responsible for the business’s debts, liabilities, and management decisions. An LLP is a hybrid business structure that provides limited liability protection to its partners.
  • Each partner has unlimited personal liability, meaning their personal assets are at risk in case of business debts or lawsuits. The partners are not personally liable for the debts and liabilities of the LLP; their liability is limited to their capital contribution.
  • The partnership does not have a separate legal entity; it is an extension of the partners. LLP has a separate legal entity, providing it with perpetual existence irrespective of partner changes.
  • Taxation is done at the individual partner’s level, and the partnership does not file separate tax returns. The taxation is done at the LLP level, and partners also pay tax on their income received from the LLP.

FAQs

What is a Partnership?

A Partnership is a type of business structure where two or more people come together to carry on a business to make a profit. In a Partnership, the partners share the profits and losses of the business.

What is an LLP?

An LLP is a Limited Liability Partnership, a hybrid business structure that combines a Partnership's flexibility with a corporation's limited liability. In an LLP, the partners are not personally liable for the debts and obligations of the business beyond their invested capital.

What is the difference between a Partnership and an LLP?

The main difference between a Partnership and an LLP is the liability of the partners. In a Partnership, all partners are personally liable for the debts and obligations of the business, whereas in an LLP, the partners' liability is limited to the amount of money they have invested in the business.

Do Partnerships and LLPs have different tax implications?

No, Partnerships and LLPs are taxed in the same way. Both types of businesses are considered pass-through entities, meaning that the profits and losses are passed through to the partners and reported on their individual tax returns.

Can Partnerships and LLPs have different numbers of partners?

Yes, both Partnerships and LLPs can have any number of partners. However, the rules and regulations regarding the formation and management of the business may vary depending on the number of partners involved.

About the Author
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Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio

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