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A comparison of LLP Vs other forms
(Company / Partnership)
By:
Rajesh Batra
Head, Centre for MSME
Comparative Chart showing the difference between the three forms of business
organization
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Governing Law The Company’s Act, 1956 and Rules
made therein
The Indian Partnership
Act, 1932 and various
Rules made there
under.
The LLP Act, 2008 and various
Rules made there under
Registration Compulsory registration required
with the ROC. Certificate of
incorporation is the conclusive
evidence.
Registration is not
mandatory.
Unregistered
partnership firms shall
not have the ability to
sue.
Compulsory registration is required
with the ROC.
Nature/Status Company is a body corporate formed
and incorporated under the
Company’s Act, 1956 and which has
a legal entity separate from its
members having perpetual
succession and the liability of its
members shall be limited.
Partnership is a
relation between
persons who have
agreed to share the
profits of business
carried on by all or any
of them acting for all
with unlimited liability.
An LLP is a body corporate formed
and incorporated under the LLP Act
and which has legal entity separate
from that of its partners having
perpetual succession and the
liability of its partner shall be
limited.
Comparative Chart showing the difference between the three forms of business
organization
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Name Public company: to end with the
“limited”
private company : to end with the
words “private limited”
No guidelines. Name to end with “LLP” “Limited
Liability Partnership”
Change of name The name of the company can be
changed by a special resolution and
with the prior approval of the
Central Government. (Section 21)
The name can be
changed.
The name of the LLP can be
changed by filing with the Registrar
a notice of such change of name in
the prescribed form and manner
along with the payment of an
application fee as LLP Rules (Section
16)
Change of the
registered office
within the same
state.
Company can change its registered
office from one place to another
within a State only upon
confirmation by the Regional
Director (Section 17 A)
LLP may change the place of its
registered office by following the
procedure laid down in the LLP
Agreement and file the notice of
change with the Registrar in the
prescribed form and manner and
such change shall take effect only
upon such filing. (Section 13(3) read
with Rule 17(1) & (2)
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Memorandum
and Articles of
Association / LLP
Agreement
Memorandum and Articles of
Association is a charter of the
company which, inter alia, defines
the objects and scope of operation
of the Company.
LLP Agreement is a charter of the
LLP which specifies the mutual
rights and obligations between LLP
and its partners, and partners inter
se.
Internal
Governance
structure
Regulated the Articles of
Association, which are based on the
provisions of the Companies Act,
1956.
The management of the affairs of
the company ought to be conducted
through board/shareholders
meetings, resolutions other defined
provisions etc.
Governed by an agreement
between partners / between LLP
and the partners (LLP Agreement).
No statutory stipulations. LLP
offers far greater flexibility.
Management
ownership
distinction
Inherent in the company. There is no distinction between
management and the ownership.
Minimum paid-up
Capital /
Contribution
Through enactment of Companies
(Amendment) Act, 2015 notified on
25th May, 2015, the amendment
included Omitting requirement for
minimum paid up share capital at
time of incorporation.
No minimum capital
prescribed
No minimum capital prescribed
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Legal entity status
and Perpetual
succession.
Company is a Separate legal entity,
separate from its members and
directors.
A partnership firm is
neither a separate
legal entity nor has a
perpetual succession.
It is not distinct from
the several persons
who compose it.
LLP is a Separate legal entity,
separate from its partners and
designated partners and has
perpetual succession
Legal Proceedings
(Capacity to sue
and to be sued)
Company can sue and be sued in its
own name.
Only registered
partnership can sue.
LLP is a separate legal entity and
therefore, can also sue and be sued
in its name, without involving the
partners.
Purchase of
property
Company can purchase
movable/immovable property in its
name.
Partnership firm
cannot purchase
movable or immovable
property in its name,
the same must be
purchased in the name
of its partners.
LLP can purchase
movable/immovable property in its
name.
Ownership of
assets
Company has ownership of assets
and members own share in the
company.
Partners have joint
ownership of all assets.
LLP has ownership of assets and
partners own capital contribution in
the LLP.
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Agency
relationship
Directors act in fiduciary capacity. Partners are considered as agents
of an LLP, not of other partners.
Director
identification
Number
(DIN)/Designated
Partner
Identification
Number (DPIN)
Each Director is required to have a
DIN before being appointed as a
Director of a company.
The partners are not
required to obtain n
any identification
number.
Each designated partner is required
to have a DPIN (which includes DIN
issued under section 226A, 226B
and 266E of the Companies Act,
1956) before being appointed as a
designated partner of an LLP. If a
person holds both DIN and DPIN,
his DPIN shall stand cancelled and
DIN shall be sufficient for being
appointed as Designated Partner
under LLP Act.
Digital Signature
Certificate (DSC)
At least one Director of the Company
should have a digital signature,
required for e-filing of documents.
Not applicable
Documents are filed
manually.
At least one designated partner
should have; a digital signature,
required for e-filing of documents.
Offences Company/Directors are liable for
offences committed under the
Companies Act.
Partners are personally
liable. Joint and severe
liability of partners.
LLP/Partners/designated partners
are liable; for offences committed
under the LLP Act.
Compounding of
offences
Offences punishable with fine are
compoundable.
Offences punishable with fine are
compoundable.
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Formalities of
incorporation
Various documents / declarations
executed in prescribed formats
prefilled in e-forms (including
consent of Directors) are required to
be filled with the ROC along with the
filing fee. The MOA and AOA are
required to be filed as per provisions
of the Companies Act.
The procedure is mentioned in detail
in Part II of the Companies Act
(Incorporation of Company and
Matters Incidental Thereto.)
In case of registration,
partnership deed along
with form/affidavit
required to be filed
with Registrar of firms
along with requisite
filing fee.
Various documents / declarations
executed in prescribed formats pre-
filled in designated e-
forms(including consent of
designated partners) are required
to be filled with the ROC along with
the filing fee.
The “ incorporation document” is
akin to the MOA of a company. In
addition, LLP Agreement is to be
filled.
The procedure is mentioned in
Chapter III of the LLP Act, 2008
(Incorporation of Limited Liability
Partnership and matters incidental
thereto.)
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Formation for
charitable / not-
for-profit
activities.
A company can be formed with not-
for-profit/charitable purposes
(popularly known as section 25
Companies)
Profit motive is essential.
According to Section 11(1)(a) of the
LLP Act, an LLP to be incorporated
there has to be two or more
persons associated for carrying on a
lawful business with a view to
profit. In view of this, an LLP
structure is not available for non-
profit activities like philanthropy or
trust.
Liability status of
members /
Partners
Limited to the extent of unpaid
capital (to the extent of unpaid
amount on shares held by them)
Unlimited, can extend
to the personal assets
of the partners
Liability of partners Limited to the
extent of their contribution to the
LLP (capital contribution)
However, in case a partner acts
with an intention to defraud
creditors or any other fraudulent
purpose, then the LLP and the
partner who acts in such a manner
shall have unlimited liability. Every
partner shall indemnify the LLP for
any loss caused to it by his fraud in
the conduct of the business of the
LLP.
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Power of
members/partner
s/Directors
Directors have power to conduct
day-to-day affairs of the Company.
Members practically have no say in
the day-to-day affairs of the
company. Members exercise their
powers on the matters which require
their approval in a shareholders
meeting or through postal ballot.
All partners have day
to day management or
as specified in
partnership deed, if
any.
The powers of partners /
designated partners to conduct the
day to day affairs of the LLP are set
forth in the LLP Agreement.
Rights/duties/obli
gations of
Directors/partner
s/designated
partners.
Rights/duties/obligations of
Directors are largely governed by the
AOA and resolutions passed by
shareholders or Directors.
Rights/duties/obligatio
ns of the partners is
governed by the
Partnership deed.
Rights / duties / obligations of
Directors are governed by the LLP
Agreement. Partners not to
compete with the LLP by carrying
any other business of similar
nature. Partners to account to the
LLP for any unjust enrichment.
No. of share-
holders/Partners
Private company: minimum of 2
shareholders
Maximum of 50 shareholders.
Public Company: minimum of 7
shareholders & no limit for max. No.
of shareholders
2-100 partners (After
Companies Act, 2013,
the maximum number
of partners in case of
partnership would be
100)
Minimum of 2 partners and no
maximum limit
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Foreign nationals
as shareholders/
partners
Foreign nationals can be
shareholders
Foreign nationals can
not form partnership
firm
Foreign nationals can be partners.
Designated
Partners/Director
s
/Managing
Partners
Minimum 2(two) Directors in case of
a Private company and minimum 3
(three) in case of a public company.
Appointment of Managing Director,
Whole-time Director or Manager to
be made in case of public companies
having paid-up share capital of Rs. 5
crore or more. Further, appointment
of Company Secretary is mandatory
in case of companies having paid up
share capital of Rs. 5 crore or more.
No cap on the
minimum number of
managing partners.
Managing 2 (two) designated
partners. No other mandatory
requirement viz. Appointment of
Managing Partner, Whole-time
Partner, Manager or Company
secretary.
Need for
Designated
Partner / Director
/ Managing
Partner to be a
partner /
Member.
Director need not be a member /
shareholder of the company.
Managing Partner shall
be a partner of the
firm.
Designated partner has to be a
partner of the company. However,
in case of body corporate partner,
the designated partner need not be
a partner of the LLP.
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Change in
Directors/partner
s/ designated
partners
Notice of change of Director is to be
given to the ROC.
Notice of change of
partners should be
given to Registrar of
firms, particularly in
the case of registered
partnership firms.
Notice of change in partner /
designated partner is to be
furnished to the Registrar.
Cessation as
partner/member
A member/shareholder shall cease
to be member if he sells his shares.
A person can cease to
be a partner and will
be entitled to his share
of profit and capital at
the time of retirement
A person may cease to be a partner
of an LLP in accordance with an
agreement with the other partners,
or, by giving notice in writing of not
less than 30 days to the other
partners of his intention to resign
as a partner.
Transferability/as
signment of
interest in a
company/LLP
Share of every company (except in
case of a private company) are freely
transferable.
Transferability of
interest subject to
manual consent of all
members.
Rights/interests of partners in LLP
are transferable as per the
provisions of the LLP agreement.
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Transfer of shares
/ partnership
rights in case of
death
In case of death of a member, shares
are transmitted to the legal heirs by
operation of law.
In case of death of a partner, the
legal heir shall be entitled to
receive an amount equal to the
capital contribution of the former
partner actually made to the LLP
along with his right to share in the
accumulated profits of the LLP.
Share Certificate Right/interest of the members in the
company is evidenced by the
accompanying share certificate(s)
There are no
provisions for issuing
of share certificate.
Rights/interest of the
partners in the firm are
evidenced by
partnership deed, if
any.
There are no provisions under the
LLP Act for issuance of share
certificate. Rights/interest of the
partners in the LLP are evidenced
by the LLP agreement.
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Taxation and
Taxability
Company is treated as a separate
taxable entity under the Income-tax
Act, 1961.
Income Tax rate
for Company upto Rs. 50 Cr
Turnover is 25% from current
financial year.
Surcharge :
If the income is more than 1 Cr. But
less than 10 Cr. , Surcharge is 7%
If the income is more than 10 Cr.,
the surcharge is 12%
Cr. But less than 10 Cr. , Surcharge is
7%
Taxed as “Firm’’at 30%
+ cess = 30.9%
The surcharge is 12% if
the income is more
than Rs. 1 Cr.
LLP is treated as a partnership firm
under the income-tax Act, 1961.
The income is taxed at 30% + cess =
30.9% (effective A.Y. 2010-11) The
surcharge is 12% if the income is
more than Rs. 1 Cr.
Dividend/Profit
share
Subject to Dividend Distribution Tax,
which is 20% (approx.) after grossing
up and Surcharge.
Dividend/Profit share
is exempt.
Dividend/Profit share is exempt.
Wealth Tax Applicable Not Applicable Not Applicable
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Meetings Quarterly board of directors
meetings and annual shareholders
meeting is mandatory and as per
the provisions of the Companies Act.
Not required As per the provisions of LLP
Agreements.
Minutes Decisions taken in the meeting of
Board of Directors / shareholders
must be recorded within the time
prescribed under the Companies
Act.
LLP to follow the timelines for
recording of decisions of
partners/designated partners as
provided in the LLP Agreement. In
the absence of any such provision,
the first schedule of the LLP Act
provides that every LLP shall ensure
that decisions taken by it are
recorded in the minutes with in 30
days of taking such decisions and
are kept and maintained at the
registered office of the LLP.
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Voting rights Voting rights are in proportion to the
shares held by members.
LLP Agreement may specify the
manner of voting and the voting
right of partners. First Schedule of
LLP Act, however, provides that any
matter or issue relating to the LLP
shall be decided by a resolution
passed by majority in number of
the partners, and for this purpose,
each partner shall have one vote.
However, no change may be made
in the nature of business of the LLP
without the consent of all the
partners.
Authority to
conduct business
Individual member or non-
executive/nominee Director does
not have authority in conduct of
business of the company.
Unless the LLP Agreement provides,
To the contrary, every partner may
take part in the management of LLP.
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Admission as a
partner/member
A person can become a member by
subscribing to, or buying shares in
the company.
A person can be admitted as a
partner as provided in the LLP
Agreement. In the absence of any
provision in the LLP Agreement to
the effect, the first schedule of the
LLP Act provides that no person
may be introduced as a partner
without the consent of all the
existing partners.
Filing of Annual
accounts and
Annual Return
Annual Accounts and Annual Return
to be filed with ROC annually in the
prescribed format.
No Returns to be filed
with the Registrar of
Firms
Annual statement of accounts and
solvency & annual returns has to be
filed with ROC annually in the
prescribed format. Form # 8
Compromise/arra
ngements/merger
s/amalgamation
Provision for
compromise/arrangement/mergers
and amalgamations for companies in
Part VI, Chapter V of the Companies
Act. (Arbitration, Compromises,
Arrangements and Reconstructions)
There are no
provisions under the
Indian Partnership Act
for compromise/
arrangements or
reconstruction of
partnership firms)
Provisions exist for
compromise/arrangement/merger/
amalgamation for LLP in Chapter XII
of the LLP Act. (Compromise,
Arrangement or Reconstruction of
Limited Liability partnership)
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Books of Account Books of Account to be prepared and
maintained as specified in the
Companies Act.
Not applicable Books of Accounts to be prepared
and maintained as specified in the
LLP Act.
Manner of
keeping books of
Account
Accrual basis and double entry
system of accounting. (Section
209(3)(b))
Cash basis or accrual basis and
double entry system of accounting.
(Section 34(1))
Preservation of
books of account
8 years (Section 209(4A)) 8 years (Rule 24(3))
Jurisdiction of
NCLT, when
constituted
NCLT shall have jurisdiction over the
affairs of the company.
NCLT shall have jurisdiction over
the affairs of the LLP.
Audit As per provisions of the Companies
Act, 1956, books of account are
required to be audited annually.
Compulsory, irrespective of share
capital and turnover
Not compulsory As per provisions of the LLP Act,
books of account are required to be
audited annually. Exemption from
audit given to small-size LLPs if the
contribution is above Rs 25 lakhs or
if annual turnover is above Rs 40
lakhs.
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Profit sharing /
remuneration
Remuneration can be given to the
executive / non-executive Directors
in accordance with the provisions of
the Companies Act.
The firm can pay
remuneration to its
partners.
Profit sharing / drawings to be as
per the LLP Agreement. In the
absence of any provision to the
effect in the LLP Agreement, the
first schedule provides that all the
partners of an LLP are entitled to
share equally in the capital profit
and losses of the LLP. Remuneration
of partners should be as per the LLP
Agreement.
How do the
bankers view
High creditworthiness, due to
stringent compliances & disclosures
requirements
Creditworthiness
depends on goodwill
and credit worthiness
of the partners
Perception is higher compared to
that of a partnership but lesser
than a company
Dissolution
/Winding up
Very procedural. Either voluntary or
by order of National Company Law
Tribunal (Part VII of the Companies
Act), a company can be wound up.
Winding up cases to be heard by 2-
member Bench instead of a 3-
member Bench in NCLT.
By agreement of the
partners, insolvency or
by Court order
Less procedural compared to
company. A LLP can be wound up
Either voluntary or by order of
National Company Law Tribunal.
(Section 63)
Features Company (incorporated under the
Company’s Act, 1956)
Partnership Firm LLP (incorporated under the LLP
Act, 2008
Dissolution by an
act of partner
Conventional
partnership firms,
being very small in
terms of number of
partners, are usually
dissolved upon
death/exit of any of its
partners.
Continuance of LLP is not affected
by the acts of its partners. The
retirement or death of a partner
would not dissolve the LLP.
Thank you
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