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How does LLP differ from a general partnership?

A Limited Liability Partnership (LLP) and a General Partnership are both forms of business ownership involving multiple individuals, but they differ significantly in terms of legal structure, liability, and compliance. Here’s a detailed comparison:

1. Legal Recognition

  • General Partnership:
    • It is not a separate legal entity. The firm and partners are legally the same.
  • LLP:

                       It is a separate legal entity distinct from its partners.

2. Liability

  • General Partnership:
    • Partners have unlimited liability, meaning their personal assets can be used to settle business debts.
    • All partners are jointly and severally liable for the firm’s obligations.
  • LLP:
    • Partners have limited liability, restricted to their capital contribution.
    • Personal assets of partners are generally protected.

3. Registration

  • General Partnership:
    • Registration is optional but recommended for legal benefits.
    • Can operate as an unregistered entity.
  • LLP:
    • Registration is mandatory with the Ministry of Corporate Affairs (MCA).
    • Requires a Certificate of Incorporation to commence business.

4. Number of Partners

  • General Partnership:
    • Minimum: 2 partners.
    • Maximum: 50 partners (as per the Companies Act, 2013).
  • LLP:
    • Minimum: 2 designated partners.
    • Maximum: No limit.

5. Ownership Transfer

  • General Partnership:
    • Ownership is not easily transferable. Requires the consent of all partners.
  • LLP:
    • Ownership can be transferred as per the LLP agreement.

6. Compliance Requirements

  • General Partnership:
    • Lesser compliance.
    • No annual filings with the government.
    • Income tax returns are the primary compliance requirement.
  • LLP:
    • Higher compliance requirements.
    • Annual filings with the MCA:
      • Form 11: Statement of Annual Return.
      • Form 8: Statement of Accounts and Solvency.
    • Income tax returns and GST filings (if applicable).

7. Taxation

  • General Partnership:
    • Taxed at a flat rate of 30% plus surcharge and cess.
    • No Dividend Distribution Tax (DDT).
  • LLP:
    • Taxed at a flat rate of 30% plus surcharge and cess.
    • Exempt from Dividend Distribution Tax (DDT).

8. Flexibility in Operations

  • General Partnership:
    • Greater flexibility in decision-making.
    • Relies on mutual trust among partners.
  • LLP:
    • Operates as a corporate structure with clear roles for Designated Partners.
    • Requires adherence to the LLP agreement and statutory regulations.

9. Suitability

  • General Partnership:
    • Best suited for small businesses with fewer legal complexities.
    • Suitable when partners share mutual trust and personal guarantees are acceptable.
  • LLP:
    • Ideal for professionals, startups, and businesses seeking limited liability and a corporate-like structure.
    • Better for businesses looking to scale or seeking external investment.

10. Dissolution

  • General Partnership:
    • Easier to dissolve with mutual agreement.
    • Partners are responsible for settling liabilities.
  • LLP:
    • Dissolution involves legal procedures through the MCA.
    • Requires filing of specific forms and approval from the Registrar.

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