India is a startup capital due to the flood of startups in India in the last few years. The three most preferred entity types are Partnership Firm Registration under the Partnership Act of 1932, Limited Liability Partnership Registration under the LLP Act which came in 2008 and the Private Limited Company Registration which has been given under Companies Act of 2013. All three of them are good in their own way. It depends on the type of business and its business plan, which entity type suits the particular business. There is a lot of confusion with respect to partnership vs LLP vs private limited company among the entrepreneurs. Hence to clear every doubt with respect to partnership vs LLP vs private limited company we came up with this blog.
Types of Three Most Preferred Entities
Top three choices of entrepreneurs when it comes to choosing an entity type are mentioned below. Before knowing about partnership vs LLP vs private limited company, you must know them separately. After understanding them separately it will become easy to understand the comparison among the partnership vs LLP vs private limited company.
Partnership Firm
Partnership firms are discussed in Section 4 of the Partnership Act of 1932. According to this section, a partnership firm is an organization of people that come together to conduct any type of business that needs to be legal. It needs at least two members to make this firm. It is impossible to start this firm without two members. Forming a partnership firm is fairly simple. Nothing difficult about incorporating partnership firms exists. A professional might be contacted to assist with the drafting of a partnership agreement. Once completed, the agreement can be registered with the registrar whose jurisdiction includes your company. It is always recommended to register your partnership firm, even though it is not required.
Limited Liability Partnership Firm
The Limited Liability Partnership Act of 2008 gave rise to Limited Liability Partnership Firms, or LLPs for short. It is a type of company structure that can be formed by two or more partners. It’s a contemporary take on partnership firms. This kind of organization combines businesses and partnership firms. The Ministry of Corporate Affairs assists in the online process of forming an LLP. Because of independent legal liabilities in LLPs, partners are exempt from obligation with regard to the FIRM. The LLP’s liability is not the same as that of its partners. Businesses with two or more partners have embraced this type of business model because, first, their operations are more advanced and not only confined to one location.
Private Limited Company
A corporation that has been incorporated under company law is known as a private limited company. It is a legal person that is artificially created or constituted by the law. It is a distinct entity with a common seal and perpetual succession. It is an imperceptible, ethereal thing that only exists in legal thought. It is only a product of the law. It is limited to the attributes that its creation charter bestows upon it. It may be granted formally or as a byproduct of its very being.
Comparison Among Partnership vs LLP vs Private Limited Company
If you are entering into the business world but confused to choose an entity among the partnership vs LLP vs private limited company then you must read the below table where comparison among the partnership vs LLP vs private limited company has been given:
| Partnership Firm | Limited Liability Partnership Firm | Private Limited Company |
| They are the customary approach of conducting business within a partnership. | They represent the contemporary method of conducting partnership business. | They are the combination of both the customary as well as contemporary method |
| The Partnership Act of 1932 governs them. | The Limited Liability Partnership Act that came into force in the year of 2008, governs them. | They are governed by the Companies Act that came into force in 2013 |
| They must register with the registrar in their community. | Through the Ministry of Corporate Affairs, they are incorporated similarly to corporate bodies. | Through the Ministry of Corporate Affairs, they are incorporated |
| A minimum of two partners is necessary. | A minimum of two partners is necessary. | A minimum of two directors are necessary. |
| They lack the advantages of corporate entities and are not endowed with independent legal personalities. | They get every benefit associated with a business entity. | They are having independent legal personalities which makes the director and the company two separate individuals |
| They don’t have the same legal personality as humans, so they can dissolve according to their partners. | They possess independent legal personalities. | They are artificial legal person |
| Members’ liability is infinite in this situation. | Members’ liability is restricted in this case. | Members’ liability is restricted in this case. |
| They are not in constant succession that means perpetual succession | They are in constant succession which means perpetual succession and | Private Limited Companies are kind of corporate bodies hence they are having perpetual succession |
| They do not have the same legal personality as humans. | They have the same legal personality as humans. | They have the same legal personality as humans. |
| Their breakdown is straightforward and easy. | Once created, they are difficult to dissolve. There is a correct process in place for these kinds of businesses to dissolve. | They can be dissolve through two ways, voluntary winding up and Winding up through tribunal |
Conclusion
Any kind of business starts with the incorporation of an entity. There are different types of entities given under different laws as mentioned in the conclusion part of this blog. But among all of them the most preferred are partnership firms, Limited Liability Partnership firms that are LLP and the Private Limited Company. Hence it is really important for the business owner to know about the difference and the comparison among the partnership vs LLP vs Private Limited Company. To understand three of them you need to know about every aspect of them. If you are new in the business field you can also take the help of a professional in order to decide which business entity will be suitable for your business. In case you have any doubt regarding the comparison of partnership vs LLP vs private limited company, you can reach out to us as well.
