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LLP

What are the Key Differences Between LLC and LLP?

Let's look at the differences between a limited liability company (LLC) and a limited liability partnership (LLP). With the passage of ‘The Limited Liability Partnership Act 2008’, the concept of Limited Liability Partnerships (‘LLPs’) was introduced in India. LLP means that each of the incorporated legal entity's partners is only liable to a limited extent to the incorporated legal entity. Later on, when we talk about it, we'll get deeper into it.

Embarking on the journey of business structuring prompts a crucial decision: LLC or LLP? This blog unravels the key disparities between Limited Liability Companies (LLC) and Limited Liability Partnerships (LLP). Understanding these differences is fundamental for entrepreneurs navigating the complexities of legal structures. From liability considerations to management frameworks, this introduction lays the groundwork for a comprehensive exploration of the nuances that set LLCs and LLPs apart, aiding businesses in making informed decisions aligning with their goals and operational preferences. Explore the intricacies of these two distinct entities as we delve into the Key Differences Between LLC and LLP.

Key Differences Between LLC and LLP

  1. An LLC is a privately held business that combines the characteristics of a corporation and a partnership, whereas an LLP is a type of partnership in which partners’ liability is restricted to the amount of capital they contribute.
  2. The members of an LLC are known as members, whereas the partners of an LLP are known as partners.
  3. The corporate relations of an LLP are managed by the partners themselves, whereas the corporate relations of an LLC are maintained by the board of directors
  4. Individuals in an LLC are insulated from personal accountability for any debts or litigation brought against the company. Creditors and persons who have been directly damaged by the firm are unable to sue any of the business members for debts, whereas partners in an LLP are personally accountable, but only for their own fault. One partner will not be held liable for the activities of the other. This means that each partner is protected from accountability for the wrongdoings of the other.
  5. The LLC Memorandum and Articles of Association are the two documents that contain all of the information about the LLC, whereas the limited liability partnership agreement is the document that contains all of the information about the LLP.
  6. The suffix ‘LLC’ must be added to the end of the name of a limited-liability corporation. Similarly, the limited liability partnership must have the letters ‘LLP’ after its name.
  7. An LLC can be formed by a single person, who could be a businessperson or someone else, whereas an LLP registration. must be formed by two or more people.
  8. Limited liability companies keep their books on an accrual basis, whereas limited liability partnerships can keep their books on either a cash or accrual basis.
  9. An LLC’s life is limited in the sense that if one of its members dies or leaves the company, it will dissolve. An LLP, on the other hand, has an unlimited succession.
  10. LLC is responsible for paying income tax, dividend distribution tax, and minimum alternate tax, whereas LLP is just responsible for paying income tax and alternate minimum tax.
  11. An LLC is a tightly held business vehicle that combines the components of a corporation and a partnership, whereas a Limited Liability Partnership is a type of partnership in which partners’ liability is restricted to the capital they contribute.
  12. An LLP’s internal governance structure is governed by the partnership agreement, whereas an LLC’s internal governance structure is governed by the applicable statutecheck here to more about: https://www.mca.gov.in/mcafoportal/showCheckLLPName.do

LLC and LLP – Compliance Requirement

In the case of an LLC, the annual cost of compliance can be rather high. It is required to consider balance sheet, profit and loss account, hold meetings, directors report and auditors report; make a declaration with regard to dividend and appoint auditors under the Companies Act, 1956 and the Rules made thereunder.

Annual compliance in the case of an LLP consists of presentation of statement of account and solvency along with annual report under Section 34(2) and 35(1) of the LLP Act, respectively. In practice, the work and cost of compliance for LLPs is a fraction of that of a company registration.

FAQ’s

What is the difference between an LLC and an LLP?

An LLC (Limited Liability Company) is a US concept that combines features of both corporations and partnerships, offering limited liability to its members. An LLP (Limited Liability Partnership) is a type of Indian partnership where each partner has limited liability, protecting them from the actions of other partners.

What is the difference between LLP and company, key difference?

The key difference lies in the structure and liability. An LLP provides limited liability to its partners, similar to a company, but retains the flexibility of a partnership in terms of management and taxation.

What is the difference between a limited liability company and a partnership?

In a limited liability company (LLC), members have limited liability, and management is flexible. In a partnership, personal liability is not limited, and the structure is typically less formal.

What are the benefits of an LLP over a limited company?

LLPs offer limited liability, simpler compliance requirements and flexibility in management. They combine the benefits of a company (limited liability) with those of a partnership (flexibility).

Why is limited liability better than partnership?

Limited liability protects personal assets from business debts and liabilities. This is advantageous over a partnership where personal assets are at risk.

What are the disadvantages of an LLP?

Disadvantages of an LLP include potential complexities in decision-making due to multiple partners, limited capital-raising options compared to companies and varying regulations across jurisdictions.

How many different kinds of LLCs are there?

LLCs can take various forms, including single-member LLCs (SMLLC), multi-member LLCs, manager-managed LLCs, and member-managed LLCs. The structure of an LLC can be customized to fit varying needs.

How is an LLP formed?

To form an LLP in India, partners need to file a registration with the MCA, defining their rights and obligations in an LLP agreement. Compliance with statutory requirements is necessary for legal recognition of an LLP.

Conclusion

For the past decade, LLCs and LLPs have been popular because they offer their members a variety of possibilities. Because they combine the characteristics of a general partnership and a corporation, many people confuse these two for one and the same. Because of their structure and operating versatility these two business vehicles are ideal for small and medium businesses.


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