What is the Difference Between LLP and LLC?
- Posted By SuperCA
- On 31 August
LLC stands for Limited Liability Company and LLP on the other hand expands to Limited Liability partnerships. They both are the two most common and adaptable corporate structures. While the terms are related, there are significant distinctions between these two forms in their management requirements, liability protections, liability insurance obligations, and tax benefits. Hence, it becomes crucial to select the proper one when forming a business from a legislative, taxation, and managerial standpoint. In this article, you will know about the difference between LLC and LLP companies.
Difference Between LLP and LLC
Limited Liability Partnership is a partnership business form that provides limited liability to the owners and is comparatively easy to manage and hassle-free. It is allowed under the Limited Liability Partnership Act, 2008. LLP is a unique hybrid combination of a limited and partnership company which provides the advantages of a Company and flexibility of a Partnership firm. The rights and duties of designated partners are governed by the LLP agreement.
Whereas, an LLC (Limited Liability Company) is a legal entity that combines the limited liability protection of a corporation with the tax benefits of a partnership. It is a hybrid structure in the characteristic of a general partnership and a company. It is the most common type of business structure internationally, however, India is yet to get accustomed to LLC’s working protocol and its taxation traits. In addition, LLCs enjoy a lot of flexibility. For instance, they can have as many members as they like, and even other corporations are allowed to be members.
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LLC |
LLP |
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It is a tightly held business entity incorporating the qualities of a corporation and a partnership. |
It is a type of partnership in which participants’ liability is fixed to the amount of money they invest. |
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LLC stands for Limited Liability Company. |
LLP stands for Limited Liability Partnership. |
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The obligation of its members is determined by the number of unpaid investment returns on the shares they own. |
The partners’ liability is restricted to the amount they contribute. |
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It is regulated by a Memorandum of Association(MoA) and Article of Association (AOA) |
It is regulated by the LLP Partnership Agreement. |
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Directors are the owners of the firm. |
Partners are the owners of the firm. |
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The tax on profit is 25%. |
The tax on profit is 33%. |
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The choice of a company name is the first stage in the process of company formation. Then the next step is to submit an application for a Director Identification Number and Digital Signature Certificates. |
To create an LLP, you must first register for a Designated Partner Identification Number (DIN) for each of the two different partners and get a Digital Signature Certificate Registration for at least a one partner |
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An LLC Company continues to exist even if the directors change. |
An LLP ceases to exist if partners leave or die. |
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Audit Requirement is mandatory. |
The audit is mandatory only if annual turnover exceeds Rs. Forty Lakhs or the Capital exceeds Rs. Twenty Five Lakhs. |
Benefits of LLP
⇨ LLP is a body corporate that has a separate legal entity and perpetual succession.
⇨ In the case of LLPs if the number of partners reduces below 2, unlike a general partnership the sole partner can find a new partner without actually dissolving the firm.
⇨ In LLP, the partners will not be held liable for any unauthorized or independent actions of other partners.
⇨ In LLP, the subsistence is not dependent on its partners. The changing of partners of the LLP will not affect the existence or operations of the firm.
⇨ Unlike a general partnership firm which is difficult to operate or move across India, LLPs can open a bank account and shift their registered office anywhere in India as it is registered under the MCA.
⇨ In an LLP, the liability of partners is limited to each partner according to their agreed contribution to the business.
Benefits of LLC
⇨ Like LLP, LLCs also have a separate, independent, and legal existence from their shareholders.
⇨ LLCs do not have to pay taxes themselves. Instead, their profits and losses are passed through to their members' individual tax returns in the same way as a partnership. This results in the members enjoying the advantages of avoiding the "double taxation" of corporations as well as receiving tax relief from the poor performance of their LLCs.
⇨ Unlike other business models, LLC discourages any provision for TDS on account of interest and remuneration.
⇨ The investors are protected against company debts, as the company is a separate legal entity
⇨ LLCs require a small capital compared to other business forms
⇨ LLC format requires fewer compliance formalities pertaining to conducting Board Meetings, Annual general meetings, maintaining records of minutes of meetings, and filing of statutory returns to name a few compared to a Corporation form of business.
⇨ LLC protects its members from personal liabilities as their liability is limited to the amount of agreed contribution and their personal assets cannot be recovered by the debtors.
⇨ A company continues to exist until the time it is wound up. Since shares are transferable, the shares pass on to the nominees or beneficiaries on the death of the shareholder.
Conclusion
While LLPs and LLCs share many similarities, there are also differences between them so choose the one that works for you. Both of these are easy to incorporate into a form of business that offers various benefits along with a handful of challenges. You should consider all aspects of your business goals and present operations before making your ultimate selection. Hope this discussion helps you understand the concept better and further helps you establish a business of your own.
