You may have come across contradictory information
concerning a Limited Liability Company (LLC) and a Limited Liability
Partnership while thinking about forming a new firm (LLP). Despite the
first similarities between these two business groups, there are some
significant distinctions. Due to the fact that they resemble both a general
partnership business and a trading company, many people believe them to be the
same. The internal governance structure of an LLC is regulated by its
individual Articles of Incorporation, whereas that of an LLP is governed by the
LLP's Articles of Incorporation.
With the passage of the Limited Liability Partnership Act
2008, the LLP concept was first introduced in India in 2008, and the first
Limited Liability Partnership was founded in 2009.As was already noted, LLP
stands for Limited Liability Partnership, which denotes that each corporation's
partners are only partially liable to the corporation. LLP and LLC (Limited Liability
Company) definitions are extremely similar (Limited Liability Partnership).
Additionally, it is a legal entity that restricts the responsibility of its
members and functions as a hybrid partnership and legal entity. We'll start by
talking about the guiding principles for Limited Liability Companies (LLCs), as
they aren't established in India. Who is allowed to create an LLC or LLP is
determined by state legislation.
#What is Limited Liability Company (LLC)?
A Limited Liability Company (LLC) is a legal entity, as was
already explained, but Indian law has not yet recognized it as such. It is
typically favored by SMEs and enterprises in international law because to its
tax advantages and administration style. A standard company and a partnership
are combined to form an LLC. As a result, LLCs can have a variety of owners,
including individuals, big organizations from abroad, and even other LLCs.
It is a hybrid form that combines the traits of a stock
company and a general partnership firm. The United States, United Arab
Emirates, Poland, Japan, Brazil, and other nations with various names all use
this corporate structure the most frequently. LLCs have a wide range of uses.
For instance, you are allowed to have an unlimited number of members, including
businesses.
However, LLCs are exempt from the government-mandated
membership and management reporting rules that apply to corporations. LLCs
specifically are not required to pay taxes. Instead, similar to a partnership,
its advantages and costs are carried over to the member's individual tax
return. Members avoid corporation "double taxation" as a consequence,
and they also gain from tax savings provided by underperforming LLCs.
#What is Limited Liability Partnership (LLP)?
A Limited Liability Partnership (LLP) is a general
partnership with two or more shareholders (called partners). The same tax
advantages apply to LLPs as to LLCs. On the other hand, corporations are unable
to possess them. The main differences between LLP and LLC is that an LLP registration is
required to have at least one managing partner who is physically in charge of
carrying out the partnership's operations. Owners of LLPs are subject to the
same legal risks as owners of basic partnerships. Unless they take on control
roles, the LLP's anonymous partners and investors are immune from
responsibility. Courts may disregard liability protection if this is not done.
By restricting their liability to the contributions agreed
upon at incorporation, LLPs shield its partners from liabilities. In addition,
we are liable for all of our assets as we are a legal company. LLPs assist in
preventing mutual liability of partners who do not work with other partners and
whose negligence results in misbehavior by establishing liability restrictions.
Contracts that have been signed by the parties control their interactions,
preventing insignificant disputes.
An LLP must have a minimum of two partners, but there is no
maximum. Contracts or agreements between partners, whose obligations and tasks
are defined by law, govern it. It is possible for people, businesses, or other
LLPs to create partnerships and agreements.
#Key differences between LLP and LLC
- A private company called an LLC combines the traits of a
partnership and a corporation.
- Members refer to LLC owners.
- In an LLC, no one is held personally liable for any debt or
legal action taken against the business. No member of the firm may be sued for
debt by creditors or by anyone directly injured by it.
- Two documents that include all the information about
an LLC are the Memorandum and the Articles of Incorporation
- You must end his name with "LLC" if you are a
limited liability company.
- Only one person, who may be a business or any other person,
can create an LLC.
- A limited liability company keeps accrual-based books
of accounts.
- An LLC's lifespan is constrained in that it will cease to
exist if one of its members passes away or quits the business.
- LLCs are required to pay a number of taxes, including
alternative minimum tax, dividend distribution tax, and income tax.
- A LLC is a type of privately owned business entity
that combines characteristics of both a corporation and a partnership.
Main differences between LLP- A kind of partnership
where the liability of the partners is constrained to the amount of the
investment is an LLP.
- A partner is LLP's owner.
- Partners and LLPs are individually liable, but only if it is
their fault. Partners are not liable for the other party's activities. This
indicates that each person is protected from accountability for errors
committed by the other partner.
- An LLP's core information is included in a Limited Liability
Memorandum of Association.
- Similar to that, a limited liability firm needs to finish
its name with "LLP."
- Organizations in LLPs are restricted to those who hold a
professional license in the relevant subject.
- LLPs have the option of keeping their accounts on an accrual
basis or in cash.
- An LLP, on the other hand, has a permanent legal
successor.
- Only income tax and the alternative minimum tax apply to
LLPs.
- A kind of partnership known as an LLP restricts the
participants' responsibility to the amount of capital they have committed.
Compliance Requirements for LLCs and LLPs
Annual compliance expenses for LLCs may be high. In line
with the Companies Act of 1956 and the rules thereunder, a limited liability
company is required to audit its balance sheet, profit and loss account, have
meetings, hold reports of directors and audit reports, declare dividends, and
appoint auditors. a need.
In contrast, LLPs must comply with Sections 34(2) and 35(1)
of the LLP Act every year by producing annual reports, bank statements, and
proof of solvency. In reality, complying with LLPS takes far less time and
money than it does for a limited liability corporation.
Conclusion
Due to the variety of alternatives they provide to their
members, LLCs and LLPs have been more popular over the past ten years. Many people
mistakenly believe that a general partnership and a corporation are the same
thing since they combine some characteristics of both. The internal governance
structures of the LLP and LLC are governed by their respective articles of
incorporation, respectively. An LLC's corporate connection is overseen by a
board of directors, whereas an LLP's corporate relationship is regulated by the
partners themselves. These two commercial vehicles are appropriate for small
and medium-sized businesses due to their variety in design and use.
Additionally, they are widely recognized to business owners, independent
contractors, and service providers, and two organizational structures precisely
suit their needs.
I hope after read this article you understood what is the differences between LLP and LLC.
