Difference Between National Income and Private Income
Introduction:
When starting a new business, one of the first decisions to make is the type of business structure. Popular formats include sole proprietorships, partnerships, LLPs, Joint-Stock Companies, and more. Understanding the pros and cons of these structures is crucial for making an informed choice.
What is LLP (Limited Liability Partnership)?
LLP stands for Limited Liability Partnership, a business structure that blends the benefits of limited liability from a corporation with the flexibility of a partnership. It is a separate legal entity responsible for its assets, while the liability of individual partners is limited to their contribution. This structure ensures that one partner isn’t held accountable for the actions of another, making LLPs a hybrid between a company and a traditional partnership.
What is Partnership?
In India, partnerships are a common business structure due to their simplicity and minimal regulatory requirements. A partnership is formed by an agreement between individuals who pool resources to run a business. The business may be managed by one or all partners, who share profits and losses as specified in the Partnership Deed.
Differences Between LLP and Partnership
| Feature | LLP (Limited Liability Partnership) | Partnership |
|---|---|---|
| Definition | A hybrid business structure combining partnership and company benefits. A revenue reserve is set up for unexpected events. | A business agreement where partners share resources, profits, and losses. |
| Applicable Act | Limited Liability Partnership Act of 2008 | Indian Partnership Act of 1932 |
| Partner Liability | Limited to the capital contribution | Partners have unlimited liability |
| Registration Requirement | Mandatory registration | Not mandatory |
| Legal Status | Separate legal entity | No separate legal status |
| Naming Requirement | Must include “LLP” after the company name | Can be any name as agreed by partners |
| Document of Agreement | LLP Agreement | Partnership Deed |
| Maximum Number of Partners | No limit | Maximum of 100 partners |
| Perpetual Succession | Exists; partners can come and go without affecting the business | Does not exist; the partnership may dissolve with a partner’s exit |
This comparison outlines the fundamental differences between LLPs and partnerships, helping you understand which structure might be best for your business needs.