With the advent of Limited Liability Partnership firms in the Indian legal scenario, most of the people carrying out their activities through a Partnership Firm are converting their existing Traditional Partnership Firms to a Limited Liability Partnership firm, considering the lower risks and other synergies associated with such form of business.
Following is comparison of a Traditional Partnership firm and an LLP:
Particulars |
Partnership firm |
LLP |
Governing law |
The Indian Partnership Act, 1932 |
The LLP Act, 2008 |
Registration |
Optional |
Compulsory |
Status of the Entity |
Not a Separate Legal Entity. |
Separate Legal Entity |
Minimum No of Partners/ Members |
2 |
2 |
Liability of Partners |
Not Limited |
Limited Liability |
Tax Rates |
30% |
30% |
Minimum Capital Requirement |
No Limit |
No Limit |
Audit of Accounts |
No such requirement to get the accounts audited unless required under Tax Audit |
As per the provisions of LLP Act, accounts are to be audited annually except for LLP’s having turnover less than Rs. 40 lacs or contribution less than Rs. 25 lacs in any financial year. |
Reputation with Banks and other Financial Institutions |
Low |
High |
Basis the aforementioned features, an LLP surely has an edge over a Traditional Partnership Firms, considering the limited liability of the partners and the reputation it enjoys with banks and other financial institutions.
Applying for Digital Signatures and DIN/ DPIN.
Drafting and Preparation of the LLP Agreement.
Checking the Name Availability and Filing the Form for Reservation of Name.
Drafting and Preparation of MOA and AOA of LLP.
Registration of LLP and Obtaining the Certificate of Incorporation of LLP.
– No, there are no residency requirements but atleast one designated partner shall be resident in India.
– No, there are no minimum capital requirement norms to setup an LLP.
– As per the LLP Act 2008, the LLP Agreement will define the requirement related to contribution and therefore, the LLP Agreement may also provide for NIL contribution from the Partners. So, LLP can also be incorporated without any contribution from the partners.
– No, you cannot choose any name for your LLP. The LLP Act prescribed guidelines for determining the name of your LLP. Under the said guidelines, name of the LLP should not be identical with an already registered name and the name should not be prohibited. In case the name requires the consent of any regulatory authority, the consent shall be obtained.
– The current rate of the tax on LLP’s is 30% as increased by surcharge and education cess.
– Every LLP shall be under obligation to maintain annual accounts reflecting true and fair view of its state of affairs. A Statement of Accounts and Solvency shall be filed by every LLP with the Registrar of LLP every year.
– No. Since the said conversion does not amount to transfer, accordingly, this is not subject to capital gains taxation.