Difference between llc and llp

Limited liability protection for its members, preventing them from using their personal assets to pay LLC debts in most cases. Usually more liability protection than LLPs. Flexibility in taxation, in that LLCs can opt to file taxes as an S corporation. Simple filing requirements.

Key Advantages of LLCs and LLPs

Liability protection–LLPs have an advantage if some owners want more passive ownership with no management responsibility and lower liability as limited partners. All LLC owners have the same liability protection unless an owner is a manager.

In a limited partnership, limited partners can invest in the business and share the profits and losses, but cannot actively manage the daily operations of the LP. However, in an LLC, the members can in fact oversee the daily operations of the business so long as the LLC is member-managed and not manager-managed.

Limited liability partnerships (LLPs) allow for a partnership structure where each partner’s liabilities are limited to the amount they put into the business. Limited liability means that if the partnership fails, then creditors cannot go after a partner’s personal assets or income.

It is clarified that as per section 5 of LLP Act, 2008 only an individual or body corporate may be a partner in a Limited Liability Partnership. An HUF cannot be treated as a body corporate for the purposes of LLP Act, 2008. Therefore, a HUF or its Karta cannot become designated partner in LLP.

Husband and wife can be designated partners in an LLP. There is a special agreement pertaining to tax liability that can be made so as to minimize the family tax liability. Besides, they can choose any of the above-mentioned types of LLP according to their convenience and need.

An LLP is a type of body corporate, introduced in 2001 by the Limited Liability Partnerships Act 2000. Unlike a company, an LLP does not have shares or shareholders, nor does it have directors – it simply has members.

There is no such designation of chief executive officer in the scenario as LLP in India is governed by LLP Act where there is no provision to appoint key managerial personnel like MD or CEO. But he can be appointed among designated partners who play the role similar to that of Board of directors in a company.

Limited liability partnerships are owned by its ‘members’ who are referred to as ‘partners’. LLPs don’t have shareholders or directors, nor do they have shares. You need at least two members to set up an LLP.

Any salary, bonus, commission, or remuneration (by whatever name called) to a partner will be allowed as a deduction if it is paid to a working partner who is an individual. Only a working partner can get salary. No sleeping partner can get salary. if a LLP is paying salary to a sleeping partner then it is not allowed.

As needed with Loan agreement LLP can accept/ raise Funds from Partners as Loan. LLP is an legal entity and it is distant from the partners and it can accept loan from partners. Making such fund raising transaction transparent with other partners , LLP and partner can execute Loan from Partner in LLP agreement.

Unlike private limited company, you cannot raise equity funding in llp from any person other than its partner. However debt funding such as term loan, overdraft from bank is possible.

If we talk about LLP, it is a legal entity separate from its partners and can enter into contracts, buy property, take loans etc. The consent of all the members of the limited liability partnership must be taken in order to apply for cash credit facility in the bank.

Contents. You can set up (‘incorporate’) a limited liability partnership ( LLP ) to run a business with 2 or more members. Each member pays tax on their share of the profits, as in an ‘ordinary’ business partnership, but isn’t personally liable for any debts the business can’t pay.

Due to higher compliances and transparency in operation, the credibility of LLP is higher and thus it eases the fund raising from financial institutions. Compared to partnership firms, other body corporates are having higher credibility and hence are less preferable.

LLPs combine the operational advantages of a Company as well as the flexibility of Partnership Firms. The fee for incorporation of an LLP firm is very nominal as compared to that for Private Limited Company. The compliance requirements for an LLP are significantly lower than those for a private limited company.

LLP Taxation Policy

From assessment year 1993-94, a partnership firm is treated as a separate taxable entity and has to pay tax on its income. Income of a partnership firm is taxed at 30% plus 2% education cess plus 1% secondary and higher education cess – similar to a private limited company.

Ease of raising capital

Sole proprietorships are generally limited to the finances of the business owner while LLPs are limited to the finances of the partners. However, sole proprietorships only have one business owner while LLPs are allowed to have an unlimited number of partners.

The Central Government recently notified that the Limited Liability Partnerships (LLP) registered under the 2008 Act must be considered as a partnership firm or Firm under the Goods and Services Tax (GST) regime. In an LLP, each partner is not responsible or liable for another partner’s misconduct or negligence.

The prime interest of any owner in any business is yielding a healthy return from the capital and efforts invested in the entity. In case of LLP, working Partners of LLP may get the return in form of remuneration, which is allowable up to certain limit as prescribed under the Income Tax Act.