Why is the conversion of start-ups so less? The answer lies in the execution of the idea. The ideas are easy to get but difficult to implement. For proper implementation of a start-up, you need to perform a lot of iterations. And of-course for the iterations you need to have a lot of capital. Raising capital for your business is always tough and requires a lot of patience and time. After so much contribution and hard work, there is a possibility that the idea does not work. The odds of getting from launch to liquidity without some disaster happening are one in a thousand. In that case, can we have partners while developing the idea? Will the partners be able to share the debt that we incur? Let us find out.
For a business to work, two or more individuals or entities can come together for raising the capital required. The profits earned from the business are shared with the persons contributing to the business. Similarly, the losses are also shared by them. There are various methods of raising capital for the business. Some of them are:
This article concentrates on the Limited Liability Partnership and the Partnership firm.
The limited liability partnership act was introduced in 2008. According to this act, the partners who participate are liable for liabilities in proportion to their contribution to the business.
For example, three people, Tony Stark, Natasha Romanoff and Dr Bruce Banner, get into an LLP where the ratio of contribution is 3:1:2. Now their business suffers a loss of 60 crores. Therefore, Tony Stark will have a liability of 30 crores, Natasha Romanoff will have a liability of 10 crores, and Dr Bruce Banner will have a liability of 20 crores.
The Partnership Act was introduced in 1932. According to this act, the partners in the partnership earn profits as per their contributing ratio, but the liabilities are indefinite.
For example, three people, Tony Stark, Natasha Romanoff and Dr Bruce Banner, get into a partnership where the ratio of contribution is 3:1:2. Now their business suffers a loss of 240 crores. Therefore, Tony Stark can pay only 75 crores, Natasha Romanoff can pay only 50 crores. Therefore, Dr Bruce Banner will have to pay 115 crores which are higher than the proportion of his contribution to the partnership.
|Sr. No.||Differentiating Parameter||LLP||Partnership|
|1||Governing Act||Limited Liability Partnership Act 2008||Partnership Act 1932|
|2||Legal Entity Status||Legal||Not considered legal|
|3||Name of the firm||Name should have LLP at the end||No specification|
|4||Number of partners||2- infinite||2-20|
Registered under Ministry of Corporate Affairs
Registered under Registrar of firms
|7||Formation Cost||At least Rs. 800||Negligible|
|8||Liability of partners||In proportion to the amount invested||Indefinite|
|10||Common Seal||Name and signature of the LLP as per agreement.||Unavailable|
|11||Legal Proceedings||Can sue and can be sued||Can sue but cannot be sued|
|12||Ownership of assets||Ownership is in the name of the LLP and not in the name of the partners||Jointly owned by all the partners or as per mentioned in the contract|
|13||Participation of foreign individuals||Allowed||Not-allowed|
|14||Transfer of partnership||As mentioned in the agreement||Not-allowed, profit received by the legal heir in case of death|
|15||DIN requirement||Mandatory for each partner to have designated partner identification number||No requirement|
|16||DSC Requirement||Mandatory for at least one partner||No requirement|
|17||Dissolution of partnership||Voluntary or by Law||Mutual consent, by order, insolvency, bankruptcy,|
|18||Existence||Removal or death of any partner does not lead to termination of the partnership||Removal or death of any partner leads to termination of the partnership|
|19||Minutes of meeting||As mentioned in the LLP agreement||No requirement|
|20||Remuneration to partners||As mentioned in the LLP agreement||Remuneration can be paid by the firm|
|21||Annual Filing of Return||Mandatory with MCA||No requirement|
|22||Share Certificate||As per ownership of partners mentioned in the agreement||As per ownership of partners mentioned in the deed|
|23||Audit of Accounts||As per provisions LLP Act other than firms having turnover less than 40 lacs or contribution of fewer than 25 lacs||As per the provisions of Income Tax Act|
|24||Accounting Standards||Not specified||Not required|
|25||Merger, Amalgamation, compromises||Allowed to enter into merger, compromises, amalgamation||Not allowed to enter into merger, compromises, amalgamation|
|26||Oppression and Mismanagement||Solutions available except for redressal||Solutions not available|
|27||Creditability||High as the firm has to comply with a lot of rules||Depends upon the operations of the partnership firm|
|28||Whistle Blowing||Security given to the partners for providing information while auditing||Not provided|
|29||Minor as a shareholder||No such provision||Minor can be a partner or a share holder|
|30||Tax Rates||30% and cess on the income earned||30% and cess on the income earned|
|31||DDT/MAT||To be paid||Not to be paid|
|32||Formalities for Incorporation||LLP Agreement, Forms and fees||Partnership deed, forms or affidavit as required and fees|
|33||Time required for incorporation||Around 10 days||Around 7 days|
|34||Voting Rights||As mentioned in the Agreement||As mentioned in the Deed|
|35||Ceasing the partner||As mentioned in the agreement or with 30 days’ notice without mention in the agreement||As mentioned in the deed|
Limited liability partnership has strict compliance with the laws whereas the partnership firm has lenient laws. It depends on the requirements of the person who wants to get engaged in either of the two.
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