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 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 private limited business.

FAQ’s

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.

Visit Vakilsearch to get further information!

Also, Read:

• Document Required for GST Registration for LLP
  
• How to Modify Name for LLP Companies?