Difference Between Partnership Firm, LLP, and Private Limited Company
1. Definition and Legal Identity
Partnership Firm: A partnership firm is an association of two or more individuals who come together to run a business under a partnership agreement. It does not have a separate legal identity from its partners.
LLP (Limited Liability Partnership): LLP is a hybrid business structure that combines elements of both a partnership and a company. It has a separate legal identity from its partners.
Private Limited Company: A private limited company is a business entity registered under the Companies Act, 2013. It has a distinct legal identity separate from its owners (shareholders) and provides limited liability protection.
2. Governing Law
Partnership Firm: Governed by the Indian Partnership Act, 1932.
LLP: Governed by the Limited Liability Partnership Act, 2008.
Private Limited Company: Governed by the Companies Act, 2013.
3. Minimum and Maximum Members
| Entity Type | Minimum Members | Maximum Members |
|---|---|---|
| Partnership Firm | 2 | 20 (10 for banking firms) |
| LLP | 2 | No upper limit |
| Private Limited Company | 2 | 200 |
4. Liability of Members
Partnership Firm: Partners have unlimited liability, meaning they are personally liable for business debts.
LLP: Partners have limited liability, meaning their personal assets are protected from business liabilities.
Private Limited Company: Shareholders have limited liability based on their shareholding.
5. Registration Requirement
Partnership Firm: Not mandatory but recommended for legal benefits.
LLP: Mandatory registration with the Ministry of Corporate Affairs (MCA).
Private Limited Company: Mandatory registration with the MCA.
6. Taxation
Partnership Firm: Taxed at a flat rate of 30% + cess & surcharge.
LLP: Taxed at a flat rate of 30% + cess & surcharge.
Private Limited Company: Taxed at 22% (for domestic companies opting for lower tax rate under Section 115BAA) or 25% (if turnover exceeds Rs. 400 crores).
7. Compliance Requirements
| Entity Type | Compliance Level |
| Partnership Firm | Low |
| LLP | Moderate |
| Private Limited Company | High |
Partnership Firm: Requires minimal compliance; needs to file income tax returns.
LLP: Needs to file annual returns and statements of accounts with MCA.
Private Limited Company: Requires compliance with the Companies Act, including annual returns, financial statements, board meetings, and statutory audits.
8. Continuity and Perpetual Existence
Partnership Firm: Dissolves upon the death or insolvency of a partner (unless specified in the deed).
LLP: Has perpetual succession, meaning it continues to exist regardless of partner changes.
Private Limited Company: Has perpetual succession and continues even if shareholders change.
9. Ease of Raising Funds
Partnership Firm: Difficult to raise capital as it relies on partner contributions and loans.
LLP: Easier than a partnership firm, but cannot raise equity from the public.
Private Limited Company: Easiest among the three; can raise equity from investors, venture capitalists, and banks.
10. Suitability
Partnership Firm: Best for small businesses and family-run enterprises.
LLP: Suitable for professional services, small to medium-sized businesses, and startups that do not require heavy investment.
Private Limited Company: Ideal for startups and businesses looking for scalability, external funding, and strong legal protection.
Conclusion
Choosing the right business structure depends on factors like liability, compliance, taxation, and growth potential. A partnership firm is best for small, trust-based businesses, an LLP is suitable for those seeking liability protection with fewer compliance requirements, while a private limited company is ideal for businesses that aim to scale and attract investors.
If you are planning to register a partnership firm in Rajasthan or India, our blog provides step-by-step guidance on drafting a partnership deed and completing the registration process. Stay tuned for more insights and expert advice!
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