A partnership firm is a business owned by two or more people who have agreed to share profits and act on behalf of the business. The people who own the business are called partners, and the name of the business is the firm name. An LLC is a privately held business that combines the characteristics of a corporation and a partnership firm.
In the United States-, LLC is a specific form of a private limited company that protects its owners from personal liability for the company’s debts and other liabilities.
The limited liability company, or LLC, in India, is a business structure that is separate from its founders and where the investors are only liable up to the extent of capital they invest in the business. The LLC can enter into agreements, sue, and be sued to commence legal proceedings. The following are the differences between a partnership and a Limited Liability Company.
| Basis | Partnership | Limited Liability Company |
| Legal Status | A partnership firm is not a legal entity. Partners are personally liable for the debts and obligations of the partnership | The registration process for an LLC in India is handled by the Ministry of Corporate Affairs (MCA). An LLC is considered a separate legal entity from its shareholders, so its existence is not tied to theirs. |
| Distribution of Profits | The profits of a firm must be distributed among the partners according to the terms stated in the partnership deed. | Distribution of entire profit to Shareholders is not compulsory. A portion of the profits becomes distributable among the shareholders when dividends are declared. |
| Extent of Liability | The liability of each partner is unlimited. Every partner is liable for the business debts of a firm that may be recovered by the lender from the partner’s private assets. | Investors in an LLC are protected from company debts. In a Limited Liability Company (LLC), shareholders are only liable for the debts of the company up to the amount they have invested in the company. |
| Assets | The partnership firm’s asset is known as a “Joint Estate” of all the partners. It does not belong to anybody distinct in law from its members. | In an LLC, its assets are separated from that of its members who can receive it back only in the form of a dividend or a refund of the capital. |
| Management | All the partners are entitled to control the management of the firm if there is no express agreement in this regard. | Directors manage the business and members (shareholders) have the right to attend the General Body Meeting and participate in the election of directors, appointment of auditors, etc. |
| Partners/members required | The maximum number of partners in a partnership firm in India is 20, except for banking firms, which are limited to 10 partners. Minimum partners 2. | There is no limit to the maximum number of members in a limited liability company (LLC). At least two founders are required for registration. At least one director must be an Indian citizen or have Indian residency. The minimum paid-up share capital is 1 million rupees. Capital can only be in rupees, but like-kind contributions can be made instead of cash. |
| Perpetual existence | Partnership firms in India do not have a perpetual existence, unlike companies and LLPs. A partnership firm’s existence is dependent on the will of its partners and can end at any time. This can happen if a partner dies, the firm becomes insolvent, or a partner gives notice of dissolution, etc. | LLCs continue to exist as a separate legal entity. The operating agreement of an LLC can specify the conditions for admitting new members, and the circumstances under which a member can withdraw, resign, or be expelled. |
| Transferability of shares | In India, the transfer of shares in a partnership firm is restricted. A partner in a partnership firm is not allowed to transfer their share or make someone else a partner without the consent of the other partners. This is because the partnership principle, which is the basis of private companies, restricts the transfer of shares. | The operating agreement of an LLC can specify the conditions for admitting new members, transfer of shares, and the circumstances under which a member can withdraw, resign, or be expelled. |
| Taxation | Under the income tax law, the total income of the firm will be determined as a separate entity and it will be computed under various heads of income. At present, in India partnership firms are liable to pay income tax at a rate of 30% on their taxable income. Surcharges: If the taxable income of the partnership firm exceeds one crore rupees, a surcharge of 12% is applicable in addition to the income tax. | Taxation rules of Partnership firms also apply to LLCs. |
| Foreign investment | Only NRI/OCI can make investments in partnership firms or proprietary concerns in India. However, a person resident outside India other than NRIs/ OCI may make an application and seek prior approval from RBI for making such an investment in a firm or proprietary concern in India. | An LLC in India allows for 100% foreign ownership. |
| Capital | In India, there is no minimum capital requirement to start a partnership firm. The amount of capital contributed by each partner is determined by mutual agreement among the partners. The capital contributions are usually mentioned in the partnership firm registration. | No minimum capital for investors who open an LLC in India. Minimum number of shareholders. 2. Number of directors, 2. LLC requires less capital than other business forms. |
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