Although, in case of a Limited Liability Partnership, the liability of partners is limited but it differs from a company in many respects. The main points of distinction between a ‘limited liability partnership’ and ‘limited liability company’ are as follows:
1) Regulating Act: A Limited Liability Partnership is regulated by the Limited Liability Partnership Act, 2008, whereas a company is governed by the Companies Act, 2013.
The name of a company must end with words ‘Limited or Private Limited’ whereas of limited liability partnership with words LLP or Limited Liability Partnership’.
2) Minimum and Maximum Number of Members: In case of limited liability partnership, minimum number of partners required are 2 whereas in case of public company minimum number of members required are 7. There is no limit to maximum number of partners in case of limited liability partnership but in case of a private company number of members cannot exceed 200.
3) Governance Structure: A basic difference between a limited liability partnership and a joint stock company lies in that the governance structure of a company is regulated by statute (i.e., Companies Act, 2013) through memorandum and articles of association whereas for a limited liability partnership it would be by contractual agreement between partners.
4) Management: In case of a limited liability partnership, management rests with those partners (including designated partners) who are authorised by limited liability partnership agreement. But in the case of a company the right to control and manage the business is vested in the Board of Directors elected by the shareholders. Thus, the management ownership divide inherent in a company is not there in a limited liability partnership.
5) Transfer of Interest: In the case of a limited liability partnership, a partner’s economic rights (i.e., right to a share of the profits and losses and to receive contribution at the time of winding up) shall be transferable (Section 42). However, such transfer shall not by itself cause the disassociation of the partner and a dissolution and winding-up of the Limited Liability Partnership.
Further, such transfer would not make the transferee a ‘partner’ of the Limited Liability Partnership entitled to participate in its management (Section 42). For becoming a partner of Limited Liability Partnership, unless otherwise provided in the Limited Liability Partnership agreement, consent of all the existing partners is required (Schedule I appended to Limited Liability Partnership Act). But in the case of a public company a shareholder can transfer his shares freely without restriction and the transferee succeeds to all the rights of membership.
6) Audit: The audit of the accounts of a company is a legal necessity but it is not so in the case of a Limited Liability Partnership If the capital contribution does not exceed Rs.25 lakhs or if the annual turnover does not exceed Rs.40 lakhs [Rule 24(8) of the LLP Rules, 2009] audit is not compulsory.
7) Meeting: Annual General meeting of shareholders of a company is compulsory by law but in Limited Liability Partnership, the annual meeting of partners is not mandatory.
