Comparison of Partnership and Limited liability Company

Partnership

A partnership involves two or more individuals who share ownership responsibilities in a

business. Responsibilities for managing the company and the income or losses the business
generates. That income is paid to partners, who then claim it on their personal tax returns. The
business is not taxed separately, as corporations are, on its profits or losses.

Limited liability Company

A limited liability company is a business structure in the United States where the owners are not
personally liable for the debts or liabilities of the company. Limited liability company
Companies are hybrid entities combining a company's characteristics with those of a partnership
or sole ownership.

Comparison

Partnership and Limited Liability Company differs from each other in many ways. Following are
the difference between partnership and limited liability company.
1. Legal Existence
A partnership business does not have a legal identity separate from the owners of the business. A
limited liability company combines the operational flexibility of a partnership with the personal
asset protection that comes with operating a corporation. Limited Liability Company has a legal
existence separate from its owners.
2. Formation/Registration
A partnership business forms automatically when two or more individuals decide to go into
business together. Partnerships are not required to file documents with the state to begin the
business. but limited liability company are required to file document, also known as a certificate
of formation, with the state where the business is organized and LLCs must register in each state
where the LLC conducts business. Every state charge a fee to file articles of organization, which
partnership businesses will not have to pay. A company should be compulsorily registered under
the Companies Act. Its formation is very difficult. But registration of a partnership firm is not
compulsory under the Partnership Act. The firm is based on the partnership deed. Its formation is
very easy.
3. Ownership
An LLC may form with a single member, whereas a partnership must have at least two members
in order to form. Furthermore, LLCs may consist of other businesses such as a corporation,
partnership or another LLC. LLCs may also have foreign individuals and businesses
participating as owners of the company. A partnership business cannot have other businesses
acting as partners of the business.
4. Liability
One of the biggest differences between a partnership and an LLC is related to liability issue. In a
partnership, the partners of the company have unlimited liability for business lawsuits, debts
and liabilities. This means that if the relationship is sued, partners will lose their house,
vehicle, and other personal properties if the company assets are insufficient to cover the debt.
Owners of an LLC have limited liability protection against lawsuits and other business-related
liabilities. In other words, the personal assets of an LLC member may not be used to cover the
company's business debts. An LLC member's liability for business debts does not extend
beyond the amount invested in the company .

5. Structure

Partners of a partnership are responsible for managing the day-to-day operation of the company.
Duties and responsibilities of a partner will be described in the company's partnership agreement.
LLC members may choose to control the company's daily affairs, or hire non-members to
manage the company's daily affairs. This flexibility allows an LLC to operate more like a
corporation as opposed to a partnership, if the owners of the company choose not to manage the
company's day-to-day operations.

6. Lifespan

A partnership business may come to an end if a partner decides to sell his ownership interest, or
if a partner die. On the other hand, an LLC may have an unlimited life, unless a specific
dissolution date is listed in the company's articles of organization. Typically, a buy-sell
agreement will allow a partner to buy out a partner who decides to sell his interest in the
business. However, a partnership business is still treated as a business with a limited lifespan, as
explained by the Small Business Notes website.

7. Decision Making

In case of LLC, taking decisions on important issues requires a fairly long time. But in case of a
partnership firm, quick decisions are possible