You may have come across conflicting facts about a Limited Liability Company (LLC) and a Limited Liability Partnership (LLP) when you consider starting a new business (LLP). These two business categories may appear to be the same at first glance, but there are some significant variations between them. Most people misunderstand these two for one and the same thing because they combine the characteristics of a general partnership and a business. In LLP the internal governance structure is regulated by the partnership agreement, but in the case of LLC, the same is regulated by the respective statute. Show The concept of LLPs was first introduced in India in 2008, with the enactment of “The Limited Liability Partnership Act 2008,” while the first limited liability partnership was established in 2009. As previously mentioned, LLP stands for Limited Liability Partnership, which means that each of the incorporated legal entity’s partners has only limited responsibility to the incorporated legal entity. The definition of an LLC (Limited Liability Company) is very similar to that of an LLP (Limited Liability Partnership). It, too, is a legal organization that acts as a combination of a partnership and a corporation, limiting the liability of its ‘partners.’ Since limited liability companies (LLCs) are not incorporated in India, the principles relating to them will be discussed first. State laws do dictate who is and is not allowed to form an LLC and an LLP. Here in this article, we will discuss the basic difference between LLC and LLP. What Is a Limited Liability Company (LLC)?As previously mentioned, a limited liability company (LLC) is a legal entity, although it has yet to be recognized by Indian law. Due to its tax advantages and the essence of its management, it is usually favored by small businesses and companies in international law. LLCs are a combination of conventional companies and partnerships; as a result, LLCs may have multiple owners, ranging from private individuals to international entities and even other LLCs. It’s a hybrid structure in the sense that it incorporates the characteristics of a general partnership and a company. It is the most common business structure in the United States, the United Arab Emirates, Poland, Japan, Brazil, and other nations, with different names. LLCs have a significant amount of versatility. They may, for example, have as many members as they want, and corporations are allowed to be the members. While corporations are subject to state-mandated membership and management reporting standards, however, LLCs are not. Most notably, LLCs are exempt from paying taxes. Instead, like a partnership, their gains and expenses are transferred on to their members’ individual tax returns. As a result, members enjoy the advantages of avoiding the “double taxation” of corporations as well as receiving tax relief from the poor performance of their LLCs. What Is a Limited Liability Partnership (LLP)?A general partnership of two or more owners is known as a limited liability partnership (LLP) (called partners). LLPs enjoy the same tax benefits as LLCs. Corporations, on the other hand, are not permitted to own them. The most notable distinction between LLCs and LLPs is that LLPs are required to have at least one managing partner who is personally liable for the partnership’s conduct. Anyone in possession of an LLP is legally exposed in the same way as the owners of a simple partnership are. If silent partners and investors in an LLP do not take on a managerial role, they are protected from liability. If they do, a court could pierce the veil of liability protection. LLPs shield their partners from liability by restricting their liability to the contribution agreed upon during incorporation. At the same time, as a legal entity, it is responsible to the full extent of its assets. LLPs help to prevent mutual responsibility of a partner who is not engaged with another and whose negligence causes misconduct by allowing liability limits. The partners’ relationship is regulated by the agreement they signed, which aids in the avoidance of minor disputes. A minimum of two partners is required for the establishment of an LLP, with no maximum cap. regulated by the contract or agreement between partners, the roles and responsibilities of the said partners are governed by the law. An individual, corporation, or another LLP, may form a partnership and reach an agreement. Key Differences Between LLC and LLP
Compliance Requirement for Both LLC And LLPIn the case of an LLC, the annual cost of compliance may be significant. A limited liability company is required to consider balance sheet, profit, and loss account, hold meetings, directors report and auditors report; make a declaration with regard to dividend and appoint auditors under the Companies Act, 1956 and the Rules made thereunder. On the other hand, annual compliance in the case of LLP consists of a presentation of statement of account and solvency along with annual report under Section 34(2) and 35(1) respectively of the LLP Act. Practically, the effort and cost of compliance in the case of LLPs is a fraction of what is required in the case of a private limited company. ConclusionLLCs and LLPs have been popular for the past decade because they provide a range of options to their members. Many people mistake these two for one and the same thing because they incorporate the attributes of a general partnership and a corporation. The partnership agreement governs the internal governance structure of an LLP, while the respective statute governs the internal governance structure of an LLC. The LLP’s corporate relations are managed by the partners themselves, while the LLCs are managed by the Board of Directors. These two business vehicles are suitable for small and medium companies due to their versatility in structure and operation. These are also well-known among entrepreneurs, professionals, and service providers, as the two organizational structures perfectly serve their interests. This article is written by M Nikitha. The author can be contacted via email at For more information and professional consultation regarding corporate matters, our expert corporate lawyers in Chandigarh can be contacted from Monday to Friday between 10:00 am to 6:00 pm and between 10:00 am to 2:00 pm on Saturdays. Consult Our Legal ExpertsWhen it comes to the two common types of partnerships that often get confused – general partnerships vs limited partnerships – there are some key differences that will impact how each partner participates in the company. It is important to know exactly what your roles, duties, and liabilities will be when entering into a partnership with a company or another individual. This blog on the differences between Delaware General Partnerships and Limited Partnerships can help. What is a General Partnership?A general partnership is the most common type of partnership. It refers to a relationship in which all partners contribute to the day-to-day management of the business. Each partner will have the authority to make business decisions and even legally bind the company in contracts. The liabilities, contributions, and responsibilities of the partners are often equal unless stated otherwise. Typically, a partnership agreement will describe which partners have certain authorities and responsibilities. In a general partnership, each partner will have a partnership account on the books of the company. What is a Limited Partnership?A limited partnership is a relationship where one or more partners are not involved in the day-to-day management of the business. All limited partners, sometimes known as “silent partners,” will serve solely as an investor in the business, with the funds that they contribute being the extent of their liability. However, the limited partners do not have decision-making power in the company, withdrawing funds, etc. Limited partnerships will have at least one general partner to man the day-to-day operations of the business. A general partner may invest money into the company. However, a general partner may also be personally liable for the debts of the company, while the limited partner is not. Only a general partner’s personal assets (in addition to the business assets) can come into play when it comes to paying off the company’s debts. A common purpose of a limited partnership -- vs a general partnership -- is for real estate. There may be several limited partners for the purpose of contributing funds to purchase the real estate, as long as there is at least one general partner. The benefit of being a limited partner vs a general partner is that your liability is limited, while the downside is that a limited partner will not have the decision-making powers that a general partner has. Similarly, limited partnerships are an extremely popular choice for private equity firms, which purchase privately-owned companies in the hopes of increasing their value. Often, the private equity company’s name is not particularly well-known compared to the companies it invests in. For example, the Roark Capital Group is a large private equity firm and limited partnership that has invested in companies such as Arby’s, Jamba Juice, Sonic, Maaco and Meineke. There have been cases where a limited partner has unintentionally given up his limited liability status by being involved in the organization’s management. This determination can be made by a court if a lawsuit is filed alleging that the limited partner has participated in the day-to-day activities. It is important to note that the General Partner’s name and address are listed on the Certificate of Limited Partnership that is filed with the state, making the General Partner public information. The General Partner is often an LLC, but there are times when we have seen clients choose to list a person as the General Partner. We recommend clients will work with an attorney to ensure they understand their liability and protections in any partnership, including Delaware General Partnerships and Delaware Limited Partnerships. For clients who wish for all members to have limited liability protection, the popular choice is the Delaware LLC. *Disclaimer*: Harvard Business Services, Inc. is neither a law firm nor an accounting firm and, even in cases where the author is an attorney, or a tax professional, nothing in this article constitutes legal or tax advice. This article provides general commentary on, and analysis of, the subject addressed. We strongly advise that you consult an attorney or tax professional to receive legal or tax guidance tailored to your specific circumstances. Any action taken or not taken based on this article is at your own risk. If an article cites or provides a link to third-party sources or websites, Harvard Business Services, Inc. is not responsible for and makes no representations regarding such source’s content or accuracy. Opinions expressed in this article do not necessarily reflect those of Harvard Business Services, Inc. More By Devin Scott
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There are 6 comments left for General Partnership vs Limited Partnership Dew said: Thursday, September 23, 2021I set up a DE LLC at HBS last year. I would like to be informed if an LLC can serve as a holding company while a C-Corp will be established for a specific purpose tech product/service HBS Staff replied: Friday, September 24, 2021Hello Dew, Yes, we often see an LLC formed to serve as a holding company while a Corporation is established for a specific purpose. Often clients will have sperate companies for all their business ventures so not all their eggs are in one basket. If you have any additional questions we are here to assist. Shankar Jha said: Tuesday, March 16, 2021great information on General Partnership vs Limited Partnership Shankar, Thank you for reading our article and glad you found it helpful. If you have any questions we are here to assist. John Osborne said: Monday, July 15, 2019"The effectiveness and efficiency of offshore jurisdictions change from time to time depending on various contributing factors. The Bahamas, Panama, and Switzerland have always been major centres for company formation. Despite changes in their banking laws, Switzerland and the Bahamas are still strong contenders however, the strongest is undeniably Panama, since its government has been stable for a long period of time and is firmly invested in the offshore banking sector." - http://confiduss.com/en/services/incorporation/structure/general-partnership/ What do you think about that? What countries do you prefer for partnership jurisdiction? I would be very thankful if you write your TOP 3. Thank you in advance. HBS Staff replied: Friday, July 19, 2019John, unfortunately this is outside of our area of expertise. We can give you plenty of reasons why Delaware is the most business-friendly state in the U.S., but we are unable to provide a list of other countries and jurisdictions. Mr. Fenwick said: Tuesday, April 9, 2019What will happen with the Limited Partnership if a General Partner is administratively dissolved? Who will be in charge? HBS Staff replied: Thursday, April 11, 2019Mr. Fenwick, This would be a question best suited for an attorney as it pertains to your specific company and its partners. Anwar Hossain said: Tuesday, January 15, 2019If a firm has five general partners & two limited partner then will it be a general partnership firm or a limited partnership firm or both? HBS Staff replied: Thursday, January 17, 2019Anwar - Typically, clients that want to have both general and limited partners will form a Limited Partnership. If you need assistance determining which type of company to form, please contact via phone, email, or chat for assistance. |