How does an LLP differ from a partnership firm?
An LLP is a body corporate with its own legal identity, and a partner’s liability is limited to the contribution that partner agreed to make. A partnership firm is not a separate legal person, and each partner is personally liable for the firm’s debts.
What is an LLP?
The Limited Liability Partnership Act, 2008, creates the LLP. It is incorporated with the Registrar. It can hold property and sue in its own name, and it continues when a partner joins or leaves. At least two partners are required, and at least two of them are designated partners, of whom at least one has stayed in India for 182 days in the preceding year. How an LLP is formed is on the LLP page. Its yearly filings are on the LLP compliance page.
What is a partnership firm?
Section 4 of the Indian Partnership Act, 1932, defines the relation. The persons agree to share the profits of a business carried on by all or any of them acting for all. Registration is optional. An unregistered firm can still work, with the limits in section 69, explained on the section 69 page. The firm cannot have more than 50 partners. How a firm is formed is on the partnership page.
How do the two differ?
| Point | LLP | Partnership firm |
|---|---|---|
| Statute | Limited Liability Partnership Act, 2008 | Indian Partnership Act, 1932 |
| Separate person | Yes | No. The partners carry the business |
| Liability | Limited to the agreed contribution, apart from a partner’s own wrongful act | Unlimited. Personal assets can be used for the firm’s debts |
| Registration | Compulsory. The LLP begins on incorporation | Optional |
| Partners | At least two. No ceiling of 50 | At least two, and not more than 50 |
| Property | Held in the LLP’s name | Held by the partners for the firm |
| Continuity | Continues when a partner changes | Depends on the deed. Death of a partner can dissolve the firm if the deed is silent |
A foreign national can be a partner in an LLP if FEMA allows that investment, and the LLP still needs one resident designated partner. A foreign national is not barred from a firm by the Partnership Act, but the investment still has to meet FEMA. A joint venture housed in either form is a different question, on the joint-venture page.
When is an audit required?
An LLP’s accounts are audited under the LLP Rules when its turnover exceeds ₹40 lakh or its contribution exceeds ₹25 lakh. Below both lines, that audit is not required. A partnership firm does not file a company’s financial statements. Its tax audit, if any, is section 44AB of the Income-tax Act: business turnover above ₹1 crore, or ₹10 crore when cash receipts and cash payments are each within 5 percent. An LLP can also face that tax audit. The two audits are not substitutes for each other.
Frequently asked questions
Four questions cover the partner ceiling, the audit, registration, and a common seal.
Can a firm have 100 partners?
No. A partnership firm cannot have more than 50 partners. An LLP has no such ceiling in the LLP Act.
Must every LLP be audited?
No. The LLP Rules require an audit when turnover exceeds ₹40 lakh or the contribution exceeds ₹25 lakh. A tax audit under section 44AB is a separate test.
Is registration of a firm compulsory?
No. A firm may carry on business without registration. An unregistered firm faces the limits in section 69. An LLP exists only after it is incorporated.
Does an LLP need a common seal?
No. An LLP may have a common seal if its agreement provides one. The seal is not what creates the LLP.
Sources
An LLP is the Limited Liability Partnership Act, 2008. A firm is the Indian Partnership Act, 1932. The ceiling of 50 partners is section 464 of the Companies Act.