What are the Differences Between Limited Liability Partnership and Sole Proprietorship?

The two forms Limited Liability Partnership and One Person company are relatively new to the Indian Businesses. There are many differences in the structure of both the forms. We have categorized these differences Between Limited Liability Partnership and Sole Proprietorship under certain parameters as listed below

1. Governing Law

A Limited Liability Partnership is governed by Limited Liability Partnership Act, 2008 on the other hand a Sole Proprietorship is not governed by any such statute

2. Legality

A Limited Liability Partnership is a separate legal entity infront of the law however a Sole Proprietorship is not a separate legal entity.

3. Recommended for

The form Limited Liability Partnership is recommended for Professional like Chartered Accountants, Company Secretaries, Architects, Lawyers etc. The form Sole Proprietorship is recommended for Single small traders.

4. Liability

In case the partners have formed a Limited Liability Partnership the liability of the designated partners becomes limited but in case of Sole Proprietorship since there is not separate legal structure of the entity the liability of the sole proprietor is unlimited.

5. Fines & Penalties

In the case of Limited Liability Partnership the fines and penalties imposed by the governing law is higher than that of Sole Proprietorship.

6. Minimum Designated Partners/ Person required

Minimum number of designated partners required in the case of a Limited Liability Partnership is 2 however as discussed above in case of a Sole Proprietorship only 1 person is required.

7. Annual Filing

Limited Liability Partnership need to file annual returns to registrar of companies. Such requirement is not there for a sole proprietorship

8. Registration Cost

The cost of registration of Limited Liability Partnership is higher than sole proprietorship. Sole Proprietorship as such does not require registration under any law. But it needs to obtain registrations under service tax, Value Added Tax. It also needs a Permanent Account Number and Bank Account.

9. Name Suffix

Letters “LLP” are suffixed to the name of a Limited Liability Partnership no such requirement is there for Sole Proprietorship

Conclusion

Sole Proprietorship is a suitable alternative for traders and small businesses owned and operated by single person and Limited Liability suits more for professionals. Please see the nature of your business and your requirements for choosing an entity form out of the above.

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