Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Partnership firms are relatively easy to start and are famous amongst small and medium sized businesses in the unorganized sectors. There are two types of Partnership firms, a registered and un-registered Partnership firm. It is not mandatory to register a Partnership firm; however, a registered Partnership Firm has its own advantages. Registration ensures that you get a legal proof of the firm’s existence. Apart from that, the Partnership Act provides various benefits and rights to every partner like filing a suit in case of disputes, settling claims against third parties, etc. In case of any dispute, the court will first check the terms and conditions under which the partnership was formed and then proceed further. The partnership firm is required to be registered with the Registrar of Firms. There is no fixed process for registration of partnership firms and the process and fees varies in each state.
An advantage of the Partnership firm is that unlike a company or LLP it does not has any extra compliance requirements like annual filing and mandatory statutory audit. The documents of the Partnership firm are not made available to the public.
However, a Partnership firm has its own disadvantages like the liability of the partners is not limited and the liability of the business is the liability of the partners. The banks prefer lending more to a company because of its transparency rather than a Partnership firm. Further, it is easier for a company to attract investment from venture capitalists and angel investors who can simply purchase the share of the company.
A Limited Liability Partnership (LLP) and Partnership Firm may sound the same but have major difference in their incorporation process as well as their features. Where a Partnership firm is easy to constitute it has its own disadvantages. Whereas an LLP may be comparatively difficult to be incorporated and routine compliances may be more but has its own advantages. Below is a comparative analysis of various features of an LLP and Partnership firm: