What to choose? LLP , Partnership firm or Company?

Corporate Law & Intellectual Property Rights | By Editor | Last updated on Oct 5, 2017

Selection of the appropriate form of business depends on many factors such as the type of business, the number of members involved, whether want to have a full control over the business, prefer to share responsibilities, capital requirements, tax regulations and various business liability.

What to choose LLP , Partnership firm or Company

Here below is a comparative study between Partnership Firm, Company and LLP (Limited Liability Partnership).

Category Head	Partnership Firm	Company	LLP
1. Prevailing Law	Partnership Firm will be governed by “Indian Partnership Act 1932”, and various other rules and regulations lay under.	Company will be governed under new “Companies Act, 2013”, and various other rules and regulations lay under.	Limited Liability Partnership will be governed under “The Limited Liability Partnership Act, 2008”, and various other rules and regulations lay under.
2. Registration	The registration of a partnership firm is Optional.	The registration of a Company with Registrar is Compulsory.	The registration of a Limited Liability Partnership (LLP) with LLP is Compulsory.
3. Creation	The Firm is Created by Contract.	The company is Created by Law.	The Limited Liability Partnership (LLP) is Created by Law.
4. Distinct Entity	The Firm do not have a separate legal entity.	The Company do have a separate legal entity under New Companies Act, 2013.	The Limited Liability Partnership (LLP) do have a separate legal entity under The Limited Liability Partnership Act, 2008.
5. Cost of Formation	The cost of formation of a firm is negligible.	The cost of formation of Company greatly depends upon the fees structure as stated by the Ministry.	The cost of formation of The Limited Liability Partnership (LLP) is comparatively less than the cost of formation of a Company.
6. Charter Documents	Partnership Deed is considered to be a charter document of the firm. It denotes the scope of operation, right and duties of the partner.	Memorandum and Article of Association are considered to be charter documents of the Company. Further, it defines the actual scope of business of the company.	LLP Agreement is considered to be a charter document of the LLP. It denotes the scope operation, rights and duties of the partner.
7. Legal Proceedings	Only Registered Firm can sue third party. Whereas, the firm which is not registered do not have the power and right to sue any third party.	A company is a legal entity which can further sue a third party.	A Liability Partnership (LLP) is a legal entity which can sue a third party.
8. Number of Members	The minimum number of partners in a firm should be 2. Further, the maximum number of partners should be 20.	In Private Limited Company:- Minimum- 2 Maximum-50 In Public Company Minimum- 7	The minimum number of partners in a LLP should be 2. Further, there is no limit of maximum number of partners.
9. Ownership	Partners have the joint ownership of all the assets belonging to Partnership Firm	The company independent of the members has ownership of assets.	The LLP independent of the partners has ownership of assets
10. Audit of Accounts	Partnership firms are only required to have tax audit of their accounts as per the provisions of the Income Tax Act	Companies are required to get their accounts audited annually as per the provisions of New Companies Act, 2013,	All LLP except for those having turnover less than 40 lacs. Or 25 lacs contribution in any financial year are required to get their accounts audited annually as per the provisions of LLP Act, 2008.
11. Share Certificate	The ownership of the partners in the firm is evidenced by Partnership Deed.	The Share Certificate is considered to be proof of ownership of shares held by the members of the company.	The ownership of the partners in an LLP is evidenced by LLP Agreement.
12. Contractual Relationship	The partners of the firm are free to enter into any contract.	There are some restriction on Board in regard to some specified contracts in which directors are interested.	The partners of the LLP are free to enter into any contract.
13. Digital Signature	There is no requirement of obtaining Digital Signature	As E-forms are filled electronically, at least one Director should have Digital Signature.	As E-forms are filled electronically, at least one Designated Partner should have Digital Signature.
14. Dissolution	The procedure of dissolution is done by agreement, mutual consent, insolvency, certain contingencies, and by court order.	The procedure of dissolution is done Voluntary or by order of National Company Law Tribunal.	The procedure of dissolution is done Voluntary or by order of National Company Law Tribunal.
15. Foreign Participation	Foreign Nationals cannot form Partnership Firm in India	Foreign Nationals can be a member in a Company.	Foreign Nationals can be a Partner in a LLP.

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What to choose LLP , Partnership firm or Company

Here below is a comparative study between Partnership Firm, Company and LLP (Limited Liability Partnership).

Category Head	Partnership Firm	Company	LLP
1. Prevailing Law	Partnership Firm will be governed by “Indian Partnership Act 1932”, and various other rules and regulations lay under.	Company will be governed under new “Companies Act, 2013”, and various other rules and regulations lay under.	Limited Liability Partnership will be governed under “The Limited Liability Partnership Act, 2008”, and various other rules and regulations lay under.
2. Registration	The registration of a partnership firm is Optional.	The registration of a Company with Registrar is Compulsory.	The registration of a Limited Liability Partnership (LLP) with LLP is Compulsory.
3. Creation	The Firm is Created by Contract.	The company is Created by Law.	The Limited Liability Partnership (LLP) is Created by Law.
4. Distinct Entity	The Firm do not have a separate legal entity.	The Company do have a separate legal entity under New Companies Act, 2013.	The Limited Liability Partnership (LLP) do have a separate legal entity under The Limited Liability Partnership Act, 2008.
5. Cost of Formation	The cost of formation of a firm is negligible.	The cost of formation of Company greatly depends upon the fees structure as stated by the Ministry.	The cost of formation of The Limited Liability Partnership (LLP) is comparatively less than the cost of formation of a Company.
6. Charter Documents	Partnership Deed is considered to be a charter document of the firm. It denotes the scope of operation, right and duties of the partner.	Memorandum and Article of Association are considered to be charter documents of the Company. Further, it defines the actual scope of business of the company.	LLP Agreement is considered to be a charter document of the LLP. It denotes the scope operation, rights and duties of the partner.
7. Legal Proceedings	Only Registered Firm can sue third party. Whereas, the firm which is not registered do not have the power and right to sue any third party.	A company is a legal entity which can further sue a third party.	A Liability Partnership (LLP) is a legal entity which can sue a third party.
8. Number of Members	The minimum number of partners in a firm should be 2. Further, the maximum number of partners should be 20.	In Private Limited Company:- Minimum- 2 Maximum-50 In Public Company Minimum- 7	The minimum number of partners in a LLP should be 2. Further, there is no limit of maximum number of partners.
9. Ownership	Partners have the joint ownership of all the assets belonging to Partnership Firm	The company independent of the members has ownership of assets.	The LLP independent of the partners has ownership of assets
10. Audit of Accounts	Partnership firms are only required to have tax audit of their accounts as per the provisions of the Income Tax Act	Companies are required to get their accounts audited annually as per the provisions of New Companies Act, 2013,	All LLP except for those having turnover less than 40 lacs. Or 25 lacs contribution in any financial year are required to get their accounts audited annually as per the provisions of LLP Act, 2008.
11. Share Certificate	The ownership of the partners in the firm is evidenced by Partnership Deed.	The Share Certificate is considered to be proof of ownership of shares held by the members of the company.	The ownership of the partners in an LLP is evidenced by LLP Agreement.
12. Contractual Relationship	The partners of the firm are free to enter into any contract.	There are some restriction on Board in regard to some specified contracts in which directors are interested.	The partners of the LLP are free to enter into any contract.
13. Digital Signature	There is no requirement of obtaining Digital Signature	As E-forms are filled electronically, at least one Director should have Digital Signature.	As E-forms are filled electronically, at least one Designated Partner should have Digital Signature.
14. Dissolution	The procedure of dissolution is done by agreement, mutual consent, insolvency, certain contingencies, and by court order.	The procedure of dissolution is done Voluntary or by order of National Company Law Tribunal.	The procedure of dissolution is done Voluntary or by order of National Company Law Tribunal.
15. Foreign Participation	Foreign Nationals cannot form Partnership Firm in India	Foreign Nationals can be a member in a Company.	Foreign Nationals can be a Partner in a LLP.

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