When two or more people start a business together without outside investors, the choice usually comes down to a partnership firm or a limited liability partnership (LLP). This guide sets them side by side. If you are also weighing a private limited company, see LLP vs private limited company.
Side by side
| Factor | Partnership firm | LLP |
|---|---|---|
| Law | Indian Partnership Act, 1932 | Limited Liability Partnership Act, 2008 |
| Legal identity | Not separate from the partners | Body corporate, separate from the partners |
| Partners' liability | Unlimited, joint and several | Limited to the agreed contribution |
| Registration | Optional, with the state Registrar of Firms | Compulsory, with the MCA (RUN-LLP and FiLLiP) |
| Partners | 2 to 50 | At least 2 designated partners; no upper limit |
| Core document | Partnership deed | LLP agreement, filed in Form 3 |
| Income tax (FY 2025-26) | 30%, 12% surcharge above ₹1 crore, 4% cess | Same |
| Statutory audit | None; tax audit only above the section 44AB limits | Above ₹40 lakh turnover or ₹25 lakh contribution |
| Annual filings | Income tax return (ITR-5) | ITR-5, plus Form 11 by 30 May and Form 8 by 30 October |
| Presumptive taxation (44AD) | Available | Not available |
| Continuity | Changes with partners unless the deed provides otherwise | Perpetual succession |
| Our professional fee to set up | From ₹1,499 | From ₹1,499 |
Liability: the deciding factor
In a partnership firm, each partner is liable for all the firm's debts, including those caused by another partner's act in the course of business. A creditor can recover the whole debt from any one partner's personal assets. That joint and several liability is the main risk of a firm.
An LLP is a separate legal person. Its debts are its own, each partner's exposure is limited to their contribution, and one partner is not liable for another's misconduct. For a business with significant contracts, borrowing or professional risk, this alone usually settles the choice.
Tax: the same rate, with one difference
Both pay income tax at 30% on their total income, with a 12% surcharge where income exceeds ₹1 crore and 4% cess, for FY 2025-26. In both, a partner's share of profit is exempt in the partner's hands, and interest on capital and remuneration paid to working partners are deductible within the limits the Income-tax Act sets, and taxed as the partner's business income.
The one difference: a partnership firm can use presumptive taxation under section 44AD (section 58(2) of the 2025 Act), declaring 8% of turnover, or 6% of digital receipts, as income up to the turnover limits. An LLP cannot. For a small trading firm that matters.
Registration and set-up
A firm comes into existence when the partners sign a partnership deed on stamp paper at their state's rate. Registration with the Registrar of Firms is optional, but an unregistered firm cannot sue to enforce its contracts, under section 69 of the Partnership Act, so we recommend registering. See our partnership firm registration guide.
An LLP is incorporated by the MCA. You reserve a name through RUN-LLP (₹200), file FiLLiP (₹500 where total contribution is up to ₹1 lakh, rising in slabs), and then file the LLP agreement in Form 3. Designated partners need a DIN and a digital signature. See LLP registration.
Annual compliance
- Partnership firm: files its income tax return (ITR-5), GST and TDS returns if applicable, and a tax audit only above the section 44AB limits. Changes in partners are reported to the Registrar of Firms. See partnership firm compliance.
- LLP: files Form 11 (annual return) by 30 May and Form 8 (statement of accounts and solvency) by 30 October, even with no business; an audit is needed if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh; designated partners file DIR-3 KYC once every three years. See annual ROC filing.
A late Form 11 or Form 8 carries an additional fee that is a multiple of the normal fee, up to 15 times for a small LLP and 30 times for others. Keeping an LLP compliant costs more than a firm, but far less than a company.
Converting a firm into an LLP
An existing partnership firm can convert into an LLP under the Second Schedule to the LLP Act, by filing Form 17 with the incorporation documents. All the firm's partners become partners of the LLP, and its assets, liabilities, contracts and proceedings pass to the LLP. Conversion can be tax-neutral if the conditions in the Income-tax Act are met; we check them before filing. See conversion services.
Which should you choose?
A partnership firm suits you if:
- The partners know and trust each other, and business risk is low
- Turnover is small and you want the presumptive scheme
- You want the least paperwork and cost
An LLP suits you if:
- You want limited liability for every partner
- You are a professional practice or a growing business with real contracts and borrowing
- You expect partners to change and want the business to continue regardless
Talk to Regikart
Our Company Secretaries draft the partnership deed or the LLP agreement, register the partnership firm or LLP, and handle the annual filings. We work with 250+ clients from Kolkata (head office), Delhi and Bengaluru, and remotely across India. Call or WhatsApp +91 70444 94804.
Frequently asked questions
Is an LLP better than a partnership firm?
For limited liability, yes: an LLP partner's liability is limited to their contribution, while a firm's partners are personally liable without limit. A firm is simpler and cheaper to run and can use presumptive taxation. The right choice depends on your risk and size.
Do a partnership firm and an LLP pay the same tax?
Yes, 30% plus 12% surcharge above ₹1 crore and 4% cess for FY 2025-26, with the partners' share of profit exempt. Only a firm can use presumptive taxation under section 44AD.
Is registration of a partnership firm compulsory?
No, but an unregistered firm cannot sue to enforce its contracts under section 69 of the Indian Partnership Act, so registering is advisable.
Does an LLP need an audit?
Only if its turnover exceeds ₹40 lakh or its partners' contribution exceeds ₹25 lakh in the year.
How many partners can a firm or an LLP have?
A partnership firm can have at most 50 partners. An LLP needs at least two designated partners and has no upper limit.
Can a partnership firm be converted into an LLP?
Yes, under the Second Schedule to the LLP Act, by filing Form 17 along with the incorporation documents. All partners of the firm must become partners of the LLP.
About the author
Regikart CS Team
Company Secretaries at Regikart. Want to discuss this in the context of your business?
