Difference Between Partnership and LLP

Legal status and liability are key differences between an LLP and a partnership firm. An LLP is a separate legal entity, offering limited liability to partners. In contrast, a partnership firm lacks separate legal recognition, and partners have unlimited liability, making them personally accountable for the firm’s debts and actions.

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.

For those looking to understand these structures better, especially from a legal and practical standpoint, online law courses offer valuable insights into both models' legal distinctions, formation process, and compliance requirements. Let’s now explore the key differences between a Partnership and an LLP.
Table of Content

• Comparative Table: Partnership and LLP
• What is Partnership?
• What is Limited Liability Partnership?
• Difference between Partnership and Limited Liability Partnership

Comparative Table: Partnership and LLP

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 assets are at risk in case of business debts or lawsuits. The partners are not personally liable for the LLP's debts and liabilities; 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. Taxation is also done at the LLP level, and partners pay tax on their income received from the LLP.

  Conclusion

  While both Partnership and LLP involve two or more people running a business, they differ in legal status and liability. A partnership has unlimited liability and no separate legal identity, whereas an LLP offers limited liability and is legally separate from its partners. Understanding these differences helps choose the right structure for legal safety and business needs.