What is the Difference Between Partnership Vs Limited Liability Partnership (LLP)
These are some of the key tax-related differences between partnerships and LLPs in India. It's essential for businesses to consider these factors along with other legal and regulatory aspects when choosing the appropriate business structure. Consulting with tax professionals or chartered accountants is advisable for personalized advice based on specific circumstances.
Features
meaning
- Liability
- Legal Status
- Taxation
- Regulatory Requirements
- Management Structure
- Compliance
- Name
- Benefits
- Minimum Alternate Tax (MAT)
Partnership
Meaning under the Partnership Act, 1932
- Partners have unlimited liability
- Not a separate legal entity
- Taxed at tax slab @ 30%
- Relatively fewer regulatory requirements
- Typically shared equally among partners
- Less compliance requirements
- The partnership's name must end with "and Company" if it consists of more than 20 members
- Partnerships do not have a separate tax entity, so there are no corporate taxes at the partnership level. The profits are directly passed on to the partners, who are then taxed individually.
- Partnerships are not subject to MAT.
LLP (Limited Liability Partnership)
Meaning under the Limited Liability Partnership Act, 2008
- Liability of partners is limited to their contribution to the LLP. However, partners may still be personally liable for their own negligence or misconduct.
- Separate legal entity from its partners
- LLPs are taxed at a flat rate of 30% on their total income.
- Ministry of Corporate Affairs and annual filing of financial statements
- More flexibility in management structure, can have designated partners responsible for management
- More compliance requirements, including annual filings and maintenance of statutory records
- The name must end with "Limited Liability Partnership" or "LLP"
- LLPs offer limited liability protection to its partners while also enjoying the tax benefits of a partnership. Additionally, LLPs are subject to a lower tax rate compared to companies, which are taxed at 25% (plus surcharge and cess.
- LLPs are subject to MAT, which is levied at 18.5% of adjusted total income if it exceeds the regular income tax payable. However, MAT credit can be carried forward and set off against regular tax liability in subsequent years.
