What is the Difference Between Sole Proprietorship Vs LLP
Both proprietorships and LLPs offer simplicity in their structures, LLPs provide greater liability protection to their partners and more flexibility in management. However, the choice between the two depends on factors such as the nature of the business, risk exposure, taxation considerations, and long-term goals.
Features
Legal Structure
- Liability
- Management
- Taxation
- Continuity and Transferability
- Capital Requirements
- Compliance Requirements
- Business Name
- Legal Status
- Tax Deductions
Proprietorship
Sole proprietor owns and operates the business.
- Owner personally liable for business debts and obligations.
- Owner has complete control and decision- making authority.
- Income taxed as personal income of the owner. Tax rates range from 5% to 30% (plus applicable surcharge and cess).
- Business ends with owner's death or withdrawal, unless succession plans are in place.
- Owner provides all capital for the business.
- Fewer formalities, simpler compliance.
- Often uses proprietor's name or a trade name.
- Considered an extension of the owner.
- May have fewer deductions available.
LLP
Hybrid of partnership and corporation structure.
- Partners have limited liability, generally limited to their capital contribution.
- Partners have flexibility in management and decision-making processes, determined by partnership agreement.
- Taxed as partnership, profits/losses pass through to individual partners. Tax rates range from 30% to 40% (plus applicable surcharge and cess).
- LLP can continue despite changes in partner composition. Transferability of ownership may be easier.
- Partners contribute capital, ownership shares determined by agreement.
- More formalities, compliance requirements may be more complex.
- Must use LLP in the business name.
- Separate legal entity from its partners.
- May have more deductions available, such as business expenses, salaries, etc.
