Answer to Question #297091 in Management for Jack Patz

Question

Jinen Dedhia wants to start a business and he is exploring to start a partnership firm.

However, he requires clarity on the difference between partnerships under Partnership

Act, 1932 and Limited Liability Partnership Act, 2008 to take a decision on what kind of partnership suits his requirement. So kindly elucidate the difference between the

partnership under the two separate laws.

Answer 1

A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Partnership Act, 1932 is the form of business operation wherein the partners agree to pool their capital and resources, to run a business carried on by all the partners or any one partner on behalf of all the partners and share profits and losses in the manner prescribed in the agreement called partnership deed.  Limited Liability Partnership Act, 2008(LLP) is a business vehicle that integrates the advantages of limited liability of a company and the flexibility of the partnership, that is; for organizing their internal composition and operation as a partnership. LLP has a separate legal existence, distinct from its partners and has a perpetual succession. If there is any change, in the partners, then it will not influence the rights, existence or liabilities of the entity. Below are some key differences between the two partnerships;

• The Partnership Act, 1932 is defined as an association of persons joined for earning profits from business, undertaken by all the partners or any one partner on behalf of all the partners while Limited Liability Partnership is a form of business operation which combines the features of a partnership and a body corporate.
• The incorporation of the partnership Act, 1932 is voluntary, whereas the registration of the LLP is obligatory.
• A partnership Act 1932 firm cannot enter into a contract in its name. However, the LLP can sue and be sued in its name.
• A partnership Act 1932 has no separate legal status apart from its partners, as the partners are individually known as a partner and collectively known as firm. On the contrary LLP has a separate legal entity.
• In LLP, at least two persons can start a partnership and there is no limit of maximum partners, but the maximum number of partners in a Partnership ACT 1932 firm are limited to 100 partners.
• In Partnership Act 1932 the maintenance and audit of books of accounts is not mandatory for a partnership as opposed to the LLP which is required to maintain and audit books of accounts if turnover and capital contribution overreaches 40 lakhs and 25 lakhs respectively.
• The partnership Act 1932 firm cannot hold property in its name. On the other hand, the LLP is allowed to hold property in its name.