Partnership, Company, LLP: Key Differences for Indian Businesses
Understanding Indian Business Structures: Partnership, Company, and LLP
Choosing the right business structure is a critical decision for any entrepreneur in India. This detailed comparison highlights the key differences between a Partnership Firm, a Company, and a Limited Liability Partnership (LLP) across various legal, operational, and administrative aspects.
| Category | Partnership | Company | LLP |
|---|---|---|---|
| Prevailing Law | Partnerships are governed by the Indian Partnership Act, 1932 and its associated rules. | Companies are governed by the Companies Act, 2013. | Limited Liability Partnerships are governed by the Limited Liability Partnership Act, 2008 and its associated rules. |
| Registration | Registration is optional. | Registration with the Registrar of Companies (ROC) is required. | Registration with the Registrar of LLPs is required. |
| Creation | Created by contract. | Created by law. | Created by law. |
| Distinct Entity | Not a separate legal entity. | Is a separate legal entity under the Companies Act, 2013. | Is a separate legal entity under the Limited Liability Partnership Act, 2008. |
| Name of Entity | Any name, as per choice. | Name must contain ‘Limited‘ for a Public Company or ‘Private Limited‘ for a Private Company as a suffix. | Name must contain ‘Limited Liability Partnership‘ or ‘LLP‘ as a suffix. |
| Perpetual Succession | It does not have perpetual succession, as its existence depends on the will of partners. | It has perpetual succession; members may come and go. | It has perpetual succession; partners may come and go. |
| Charter Document | A Partnership Deed is the firm’s charter, defining its scope of operation, and the rights and duties of partners. | The Memorandum of Association and Articles of Association are the company’s charter, defining its scope of operation. | The LLP Agreement is the LLP’s charter, defining its scope of operation, and the rights and duties of partners vis-à-vis the LLP. |
| Common Seal | There is no concept of a common seal in a partnership. | It denotes the company’s signature; every company shall have its own common seal. | It denotes the signature, and an LLP may have its own common seal, depending on the terms of the agreement. |
| Formalities of Incorporation | For registration, a Partnership Deed, along with the required form/affidavit, must be filed with the Registrar of Firms, accompanied by the requisite filing fee. | Various e-forms, along with the Memorandum of Association and Articles of Association, are filed with the Registrar of Companies with prescribed fees. | Various e-forms are filed with the Registrar of LLPs with prescribed fees. |
| Legal Proceedings | Only a registered partnership can sue a third party. | A company is a legal entity that can sue and be sued. | An LLP is a legal entity that can sue and be sued. |
| Foreign Participation | Foreign nationals cannot form a Partnership Firm in India. | Foreign nationals can be members in a company. | Foreign nationals can be partners in an LLP. |
| Number of Members | Minimum 2 and Maximum 20 partners. | 2 to 50 members for a Private Company; Minimum 7 members for a Public Company. | Minimum 2 partners; there is no limitation on the maximum number of partners. |
| Ownership of Assets | Partners have joint ownership of all assets belonging to the partnership firm. | The company, independent of its members, has ownership of assets. | The LLP, independent of its partners, has ownership of assets. |
| Rights / Duties / Obligations of Partners / Directors | Rights, duties, and obligations of partners are governed by the Partnership Deed. | Rights, duties, and obligations of directors are governed by the Articles of Association (AOA) and resolutions passed by shareholders or directors. | Rights, duties, and obligations of partners are governed by the LLP Agreement. |
| Liability of Partners/Members | Unlimited. Partners are severally and jointly liable for the actions of other partners and the firm; liability extends to their personal assets. | Generally limited to the amount required to be paid up on each share. | Limited, to the extent of their contribution towards the LLP, except in cases of intentional fraud or wrongful acts of omission or commission by a partner. |
| Tax Liability | Income of a partnership is taxed at a flat rate of 30% plus applicable education cess. | Income of a company is taxed at a flat rate of 30% plus applicable surcharge. | Income of an LLP is taxed at a flat rate of 30% plus applicable education cess. |
| Principal/Agent Relationship | Partners are agents of the firm and other partners. | Directors act as agents of the company, not of the members. | Partners act as agents of the LLP, not of the other partners. |
| Transfer / Inheritance of Rights | Not transferable. In case of death, the legal heir receives the financial value of the share. | Ownership is easily transferable. | Regulations relating to transfer are governed by the LLP Agreement. |
| Transfer of Share / Partnership Rights in Case of Death | In case of a partner’s death, legal heirs have the right to a refund of the capital contribution plus their share in accumulated profits, if any. Legal heirs will not become partners. | In case of a member’s death, shares are transmitted to the legal heirs. | In case of a partner’s death, legal heirs have the right to a refund of the capital contribution plus their share in accumulated profits, if any. Legal heirs will not become partners. |
| Director Identification Number / Designated Partner Identification Number (DIN / DPIN) | Partners are not required to obtain any identification number. | Each director is required to have a Director Identification Number (DIN) before being appointed as a director of any company. | Each Designated Partner is required to have a Designated Partner Identification Number (DPIN) before being appointed as a Designated Partner of an LLP. |
| Digital Signature | There is no requirement for obtaining a Digital Signature. | As e-forms are filed electronically, at least one director should have a Digital Signature. | As e-forms are filed electronically, at least one Designated Partner should have a Digital Signature. |
| Dissolution | By agreement, mutual consent, insolvency, certain contingencies, or by court order. | Voluntary or by order of the National Company Law Tribunal. | Voluntary or by order of the National Company Law Tribunal. |
| Transferability of Interest | A partner can transfer their interest subject to the Partnership Agreement. | A member can freely transfer their interest. | A partner can transfer their interest subject to the LLP Agreement. |
| Admission as Partner / Member | A person can be admitted as a partner as per the Partnership Agreement. | A person can become a member by buying shares of a company. | A person can be admitted as a partner as per the LLP Agreement. |
| Cessation as Partner / Member | A person can cease to be a partner as per the agreement. | A member/shareholder can cease to be a member by selling their shares. | A person can cease to be a partner as per the LLP Agreement, or in its absence, by giving 30 days’ prior notice to the LLP. |
| Requirement of Managerial Personnel for Day-to-Day Administration | No requirement for managerial personnel; partners themselves administer the business. | Directors are appointed to manage the business and other statutory compliances on behalf of the members. | Designated Partners are responsible for managing the day-to-day business and other statutory compliances. |
| Statutory Meetings | There is no provision regarding the holding of any meeting. | Board Meetings and General Meetings are required to be conducted at appropriate times. | There is no provision regarding the holding of any meeting. |
| Maintenance of Minutes | There is no requirement for maintaining minutes. | Minutes of Board Meetings and General Meetings are required to be maintained. | There is no requirement for maintaining minutes. |