How To Know Difference Between LLP and Partnership Firm?

November 26, 2021


Individuals can choose from different types of partnerships to find the one that best suits them. We’ll talk about two types of partnerships in this article: Limited Liability Partnerships and Partnership Firms.

Knowing the difference between LLP and partnership firm is critical because they are two of the most commonly formed relationships, and individuals frequently get them mixed up. However, knowing the difference between the two is necessary to take decisions.


About Partnership Firm

The Indian Partnership Act, 1932 governs partnership firms in India. According to section 4 of the Indian Partnership Act, “partnership is the relation between persons who have agreed to share the profits of a firm carried on by all or any of them acting for all”.

In the eyes of the law, a partnership firm is not a different legal entity from its partners. It’s possible to think of it as a collective name for the people who make up the partnership. As a result, it has no separate property and all partners are responsible for the partnership business.

In order to start a partnership firm in India, five key factors must be present. Even if one of them is not present, then a partnership can’t be formed.


About Limited Liability Partnership

It was created in India in 2010 as an alternative to partnership firms for entrepreneurs. The goal of introducing this type of partnership in India is to provide owners with limited liability while also making management easier.

The Limited Liability Partnership Act of 2008 regulates limited liability partnerships.

The partners in this type of partnership are liable only to the extent of their contributions to the partnership, as the name implies. It means that the partners are not obligated to contribute.

The maximum number of partners in a limited liability partnership is unlimited, but the partnership must have at least two partners to be formed.

Limited liability partnerships are a legal entity in the eyes of the law, and it’s registered with India’s Ministry of Corporate Affairs. It can change its registered office to any state and open a bank account in the LLP’s name.

In LLP, partners can be added during and can be changed after incorporation with the consent of the existing partner in a limited liability partnership.

Any individual, company, limited liability partnership, foreign company, and foreign limited liability partnership can be added to a limited liability partnership as a partner. One issue to notice is that a minor cannot become a partner of an LLP.

One thing to keep in mind is that, while a minor cannot join an LLP as a partner, he can be accepted for the LLP’s benefit.

Within one month of an online LLP registration, the LLP agreement must be signed and filed with the MCA.

The limited liability partnership’s relationship with its partners will be controlled by the requirements of the First Schedule to the LLP Act if no agreement is produced within the time limit.


Key Factors of Partnership Business

1. Contract

For a partnership firm, a contract is a must where the partnership is the result of the contract. The contract is the foundation of the partnership which administers the partnership.

2. Maximum number of partners can be 20

As the partnership is a form of contract only so at least two persons are required to form a partnership, but the maximum number of members can be only 20.

More people or partners in the partnership over the specified limit are illegal. And only the persons competent to contract can enter into a contract of partnership.

3. Lawful Business

With other elements, it is also necessary for a partnership to carry on a legal business. All the partners of the partnership must agree to carry on a business according to law. This business term includes every trade, profession, and occupation.

But it doesn’t include any charitable work, and the nature of the business has to be commercial to gain profits.

4. Sharing of Profits

This essential element of the partnership states that the agreement to carry on a business must be with the objective of sharing profits amongst all the partners of the partnership.

However, the partners may agree to share the profits in any ratio they like or is suitable for them.

But there is no such provision for the losses, and it is not necessary that the partners should agree to share the losses, and one or more partners can agree to bear all the losses.

5. Mutual Agency

The fifth essential element of the partnership is that the business must be carried on by all the partners or any of them acting for all. So there has to be a mutual agency in the partnership.


Differences Between LLP and Partnership firm

As a result, we can observe that these two types of partnerships are quite different on every level.


There are, however, other distinctions between a limited liability partnership and a partnership business. The partnership’s incorporation is optional, but the limited liability partnership’s registration is required. Partnership registration is a physical process while one can register LLP online.

Partnership firms are registered by the Registrar of Firms, which is controlled by the State Governments. LLPs are registered by the Ministry of Corporate Affairs of the Central Government of India, and partnership firms are registered by the Registrar of Firms, which is controlled by the State Governments.

Legal existence

A limited liability partnership can sue and be sued in its own name, but a partnership business cannot enter into a contract in its own name.


In addition, while maintaining and auditing the books of accounts, audit is mandatory if the turnover exceeds 40 lakhs and the investment exceeds 25 lakhs. For a partnership firm tax audit is mandatory if turnover increases from Rs. 1 crore or gross receipts exceed Rs. 25 lakhs.


An LLP is registered with MCA, hence it has to file its return with the Income tax department as well as with MCA. It also has to follow other form filings as per the LLP Rules. While a partnership firm has independent registration hence, it only has to file an Income tax return and no other fixed compliance. Therefore, the cost of compliance is more in LLP than in a partnership firm.



Both of these partnerships have their own set of perks and regulations that govern them. As a result, before entering any type of partnership, you should be aware of all the options available to you and then make an informed decision. Wisefilings is here to guide you further in detail and makes easy for you to choose between an LLP and Partnership firm.

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