Key differences between LLP and Company

Limited Liability Partnership (LLP)

Limited Liability Partnership (LLP) is a hybrid business structure in India that combines the flexibility of a partnership with the limited liability protection of a company. Introduced under the Limited Liability Partnership Act, 2008, LLPs provide partners with the advantage of restricted personal liability, shielding their assets from business debts. Each partner is liable only for their agreed contribution, and the actions of one partner do not bind others. LLPs are widely preferred for professional services and small businesses due to their minimal compliance requirements, tax benefits, and operational ease. They must be registered with the Ministry of Corporate Affairs (MCA).

Features of a Limited Liability Partnership (LLP)

• Separate Legal Entity

An LLP is a distinct legal entity, separate from its partners. It can own assets, incur liabilities, enter contracts, and sue or be sued in its own name, ensuring continuity even if partners change.

• Limited Liability of Partners

The liability of each partner is limited to their agreed contribution, protecting personal assets from being used to settle business debts or obligations. Partners are not responsible for the misconduct or negligence of others.

• Flexible Management Structure

LLPs do not follow a rigid hierarchy. Partners can define their roles and responsibilities in the LLP agreement, providing operational flexibility and decision-making freedom.

• Perpetual Succession

An LLP has perpetual succession, meaning its existence is not affected by the death, retirement, or insolvency of partners. It continues to operate until formally dissolved.

• No Minimum Capital Requirement

There is no mandatory minimum capital contribution to start an LLP, making it an accessible business structure for startups and small businesses. Contributions can be in cash, property, or intangible assets.

• Tax Efficiency

LLPs enjoy tax benefits under Indian law. They are exempt from Dividend Distribution Tax (DDT) and Alternate Minimum Tax (AMT) does not apply to them. Additionally, profits are taxed only once, unlike companies where dividend taxation applies.

• Low Compliance Requirements

LLPs require less compliance compared to companies. For instance, there are no mandatory board meetings, and annual compliance involves filing just two forms: the Annual Return (Form 11) and Statement of Accounts and Solvency (Form 8).

• Partner and Entity Separation

Partners act as agents of the LLP, not of each other. This separation ensures that the LLP is liable for obligations arising from authorized business activities, not individual partners, unless specified otherwise in the agreement.

Company

Company is a legal entity formed by individuals, associations, or other entities to conduct business activities, governed by the Companies Act, 2013 in India. It possesses a separate legal identity, meaning it is distinct from its members, and enjoys perpetual succession, ensuring continuity regardless of ownership changes. Companies can enter contracts, own assets, and sue or be sued in their name. They are categorized as private, public, or one-person companies. Shareholders’ liability is limited to their shareholding, offering legal protection, scalability, and opportunities to raise capital through equity or debt.

Features of a Company

• Separate Legal Entity

Company is a distinct legal entity, separate from its owners (shareholders). It can own property, enter into contracts, sue or be sued in its own name. This ensures that the company is independent of the individuals managing or owning it.

• Limited Liability

Shareholders’ liability in a company is limited to the amount unpaid on their shares. This protects personal assets from being used to settle the company’s debts, offering financial security to investors and owners.

• Perpetual Succession

Company enjoys perpetual succession, meaning its existence is unaffected by changes in membership, such as death, insolvency, or withdrawal of shareholders or directors. It continues to operate until legally dissolved.

• Separate Ownership and Management

In a company, ownership lies with the shareholders, while management is entrusted to a board of directors. This separation ensures professional management and allows shareholders to focus on returns rather than day-to-day operations.

• Transferability of Shares

Shares of a company can be freely transferred in public companies, subject to certain restrictions in private companies. This feature provides liquidity to shareholders, enabling easy entry and exit.

• Artificial Legal Person

Company is an artificial person created by law. It has rights and obligations, such as owning assets, incurring liabilities, and entering contracts, similar to a natural person, but it acts through its authorized representatives.

• Common Seal (Optional)

Company traditionally uses a common seal as its official signature for authenticating documents. Although optional under the Companies Act, 2013, it symbolizes the company’s approval on agreements.

• Statutory Compliance and Governance

Companies must adhere to statutory regulations under the Companies Act, 2013, including regular filings, audits, and annual meetings. This ensures accountability and transparency, promoting trust among stakeholders.

Key differences between LLP and Company