limited liability company

How To Differentiate Between LLP And LLC? – An Overview

PUBLISHED ON: Mar 14 2023

Limited liability partnership (LLP)

LLP is a type of partnership formed by multiple owners; It acts as a bridge between partnership and corporation, where owners or the partners enjoy the liability, which indicates they are not liable for the losses of the firm; the Parliament of India enacts this act in the year 2008, the partnership is synchronized through partnership deeds which include liabilities, rights and responsibilities of partners. 

The eligibility for LLP are:-

  • The LLPs incorporated in India must have two (2) or more people.
  • One should be a resident of India.
  • The person must be eligible to carry out lawful business activities.

The Advantages Of LLP:-

  • The provisions of the LLP act provide protection to one partner from the negligent actions of other partners.
  • Two or more partners are required to run a business firm as LLP.
  • The LLP operations in India are governed by a partnership deed.
  • The partnership deeds work as a written agreement; they discuss the profit and losses and also define the responsibilities, rights and liabilities.
  • Partnership deeds act as a piece of evidence in a court of law.
  • All the partners have the authority to manage the activities of the business.
  • Limited liabilities for all the members, No paying off the debts of the firm from members.
  • No restrictions on entry exist for the partners from the partnership.

 

The Disadvantages of LLP:-

  • As per Indian laws, an LLP must appoint a minimum of 2 designated partners in the firm.
  • The process of incorporation is lengthy and requires a lot of paperwork.
  • Even if an LLP is not performing any business activity, it is still required to file the income tax return and MCA annual return for each financial year.

Limited Liability Companies (LLC)

Limited Liability Companies (LLC) is a firm structure that curbs the liability of its owners or members, and it is legally recognized in multiple nations as a hybrid structure in the sense that it incorporates the characteristics of a general partnership and a company. It is the most common type of business structure in the United States, UAI, Poland, Brazil, etc. The LLCs are exempted from paying taxes, so their gains and expenses are directly transferred onto their members.

The Advantages Of Limited Liability Companies:-

  • The incorporation process of LLC is very understandable and stands in need of fewer documents.
  • Limited Liability Companies provide more liability protection in comparison to LLPs.
  • Limited liability for every member, the members are not accountable for paying off the debts of the company by using their personal assets. 
  • Only one member is required during the incorporation.

 

The Disadvantages of LLC:-

  • Limited Liability Companies are required to file yearly reports with the state.
  • No professional is allowed to form an LLC, not even as a member of it.
  • The profit of an LLC is required to be mentioned in the personal taxes of the respected members.
  • More capital is required to run LLC than LLP.
  • People are careful of investing in Limited Liability Companies until members file their taxes.
  • Creditors of the firm have all the rights to male members personally liable.
  • Accurate business records should be maintained by the managing member that is separate from their own personal accounts.

Key Differences Between LLP And LLC:-

S.NO

Limited Liability Partnership

Limited Liability Companies

  !.

It is a particular kind of partnership where each partner's liability is constrained to the amount they have invested in the business

It is a privately owned corporation that combines the traits of partnerships and corporations.

  2.

To regulate LLPs in India, the national government passed a unique statute. The Limited Liability Partnership Act of 2008 discusses a number of LLP provisions.

In India, this kind of company entity is not accepted.



  3.

The firm's partners are in charge of managing all corporate interactions.

The company's board of directors oversees all corporate interactions.

  4.

The partnership deed contains a list of all the rules for managing the business

The AOA and MOA contain a list of all the regulations defining how the firm will be run

  5.

All limited liability partnership-incorporated businesses are required to append LLP at the end of their names.

The letter LLC must be added to the end of the name of any company formed as a limited liability company

Both business structures have advantages and disadvantages. Thus, before starting a business, one should carefully consider each one's structure.

If you want to establish a limited liability partnership and require assistance with the registration process, you can rely on Lawgical India. Our services allow you to delegate the registration procedure, enabling you to concentrate on other critical aspects of your business. Additionally, we provide a range of legal services designed to facilitate the growth and success of your business.

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