To start any kind of business in India, the first thing is to choose the type of entity. There are different types of entities in India, sole proprietorship and LLP are two of them. There are many differences between sole proprietorship and LLP, a few of which will be discussed in the current blog. Both proprietorship and LLP are suitable for different types of businesses. It is very confusing for business owners to choose between sole proprietorship and Limited Liability Partnership. This happens because the difference between both of them is not clear among business owners. Hence it’s very important to know the difference between sole proprietorship and LLP. Without knowing the difference between them, business owners cannot pick one out of these two.
Sole Proprietorship Meaning
Sole proprietorship firms are those firms where a single individual runs a business. In the hands of a single person, entire business-related management is operating. In this kind of business, the sole liability is of the proprietor. Such kinds of firms are mostly adopted by small business owners who are running their businesses on a small level. There are some people who mix the concept of proprietorship firms with Person Company. But both of them are two different types of entities suitable for two different types of businesses.
Limited Liability Partnership Meaning
Limited Liability Partnership Firm, generally known as LLP came into existence through the Limited Liability Partnership Act of 2008. It is a kind of business entity that can be established through two or more partners. It is a modern version of partnership firms. This type of entity is a combination of both partnership firms and companies. LLP is formed through an online procedure with the help of the Ministry of Corporate Affairs. In LLP there is separate legal liability which means partners are not liable for the FIRM. Partners liability is different from the LLP’s liability. Such a business model was adopted by businesses where two or more partners are involved and secondly, their business is on a better level, it’s not just limited to a certain place.
Benefits of LLP V/S Sole Proprietorship Firm in India
There are many benefits associated with LLP and Sole Proprietorship Firms. The few are given below in the form of a table, for a better understanding of the difference between sole proprietorship and LLP :
| Limited Liability Partnership Firm | Sole Proprietorship Firm |
| Easily incorporated through the Ministry of Corporate Affairs through online procedure. | Quick and easy incorporation as there is no requirement to register it anywhere |
| There is a proper law that governs its activities | No governing law, hence no limitations |
| Allows unlimited partners because there is no limitation on the number of partners in a LLP | In a Proprietorship Firm only only proprietor who has complete control of the entity |
| Personal and business assets are separate | Personal and business assets are combined |
| Proper registration is there for the LLP | No registration is required |
What is the Difference Between Sole Proprietorship and LLP?
From documents to the formation process to liability to advantages and disadvantages there is a lot of difference between sole proprietorship and LLP are very different from each other. Some of the differences between Sole Proprietorship and LLP are given below:
| Particulars | Limited Liability Partnership Firm | Sole Proprietorship Firm |
| Incorporation | Limited Liability Partnership Firms are incorporated just like any other company under the Companies Act. The entire incorporation procedure is online and can be completed through the Ministry of Corporate Affairs website. | Sole Proprietorship firms are one-person firms and they do not require any type of registration for the incorporation. |
| Documentation | Their documentation and paperwork are lengthy and must be as per the law. If a single document is missing one cannot incorporate the LLP | Their documentation and paperwork are easy comparatively |
| Liability | As separate Legal entities, the liability of partners and firms is different. | Here the sole liability is of the proprietor as he is solely responsible for the management and operation of the firm |
| Governing Law | Limited Liability Partnership Act, 2008 | No separate governing law |
| Members | A minimum of two partners is required and there is no bar on the maximum number of partners | Only one proprietor is there not more than that |
| Suitability | Well-established and big businesses which are not limited to one place | Small businesses limited to a particular place |
List of Documents Required for Sole Proprietorship Firm and LLP
Whether it is about the incorporation of a proprietorship firm or LLP in both the entities documents play a very important role. Especially when it comes to LLP the entire process is online on the Ministry of Corporate Affairs. Every single document is needed to be uploaded with the application. If any document is missing one will not get the registration. Hence before registering any of them, one must be aware of the complete documentation of both of them. Documents required for both entities are a little different as there are many differences between sole proprietorship and LLP. The list of respective documents is given below:
Sole Proprietorship
For the incorporation of the Sole Proprietorship Firm, the following documents are required:
- KYC documents of the proprietor will be required
- Identity proof of the owner of the firm is mandatory
- The PAN card of the owner required necessarily
- Office address proof is mandatory, or business address proof
- NOC by the landlord with the rented office address proof or business address proof
- A shop and Establishment certificate must be required
- Chartered Accountant Certification only in special cases
- Income tax returns of the owner or proprietor are needed
Limited Liability Partnership
For the incorporation of the LLP Firm, the following documents will be required:
- PAN card of the directors or partners of the LLP
- Passport-sized photos of all the directors or partners of the LLP
- Identity proof of the directors or partners of the LLP
- Bank statements of all the directors or partners of the LLP
- Office address proof is mandatory, or business address proof
- NOC by the landlord with the rented office address proof or business address proof
- Copy of the passport in case of foreign nationals, directors or partners
- LLP Deed will be required
- MOA and AOA of the LLP
Conclusion
A sole proprietorship firm and a limited liability partnership firm are two different entities suitable for different kinds of businesses. It depends on the business and the choice of the business owner. Although there are many differences between sole proprietorship and LLP, both are good in their own ways. A proprietorship firm is suitable for small businesses on the other hand Limited Liability Partnership firm is suitable for businesses with more than one partner. To choose between them, it’s important to understand the difference between sole proprietorship and LLP. Without understanding them separately, one cannot choose between both of them.
