This write-up here, is not a debate but is simply a discussion that defines limited liability partnerships (LLP) and limited liability companies (LLC), the two most commonly found business organizations in the modern era.
Limitations of the sole trading concern, where a single person owns and operates the entire business, led to the development of partnership firms. It further led to the eventual development of company form of organizations, and development of what is known as a corporate body.
Every nation has passed a set of enactments in order to recognize and authenticate these two organizations. Many people often misunderstand the meaning of these two organizations and consider them to be parallel concepts. There are a considerable number of differences that can be pointed out between LLP and LLC. Here's an explanation.
Limited Liability Company Vs. Limited Liability Partnership
The distinguishing factors between LLP vs. LLC that have been mentioned here, are based upon some important features of both types of organizations such as flotation, succession and ownerships. The only common factor between these two organizations is their limited liberality.
Limited Liability Partnership (LLP)
A limited liability partnership is a contractual business alliance between two or more people, to earn lawful profits, by the operation of a lawful business. The partnership enactment, that is passed in almost all countries sets a particular limit upon the number of members that can initiate such a business alliance.
In most of the cases, it is 20 for an ordinary business, while it is 10 for a banking business. There are several other different conditions and statutory compliance, that are imposed and enforced upon the partnership firms. As a regulatory measure against the rising level of frauds and financial crimes that have occurred in the 19th and 20th century, governments of many nations have made the registration of LLP mandatory. A LLP alliance in such a jurisdiction, if operated unregistered, stands void ab initio, meaning that the firm is illegal.
As the name itself suggests, the liability of members (owners) of the LLP is limited to the amount of investment that they have put in as a capital. In some jurisdictions, the personal assets of the members are also liquidated, in cases, where the firm goes bankrupt. It must be noted that no LLP has a different or separate legal personality from its members, and all partners are agents for each other. They are jointly liable for all contracts (oral, written and implied), entered into, by one of them or all of them.
From the point of view of law, the name of firm does not hold much of a significance, but the members of the firm do. Hence, all legal documents are addressed to the members and not the firm. In cases, where the interest of one partner is to be transferred or sold, the other partners must give their written consent.
Limited Liability Company (LLC)
A LLC is basically a 'body corporate' and 'artificial person' which possess a legal personality of its own. From the point of view of law, an incorporated and registered LLC is an individual and human being, who has rights and duties just like an ordinary person.
The incorporation of a company is quite a complex process, and involves the framing of the 'Memorandum of Association' and 'Articles of Association'. These two documents are basically the Constitution and Charter of the company, and it is obliged as person to behave within the framework of these documents.
The company possess a right as every other person does, such as a right to possess property, right to conduct business, and right to sue and be sued. Thus, like any other person, the company has almost all fundamental rights. However, it is not allowed to violate the framework that has been set up by the Memorandum and Articles of Association.
The members, who are also known as shareholders are not owners or creditors of company. They are simply investors of a common stock who possess some rights in policy formulation. The relation between company and the shareholders is based upon the Articles of Association and management of the company. The management of such companies is basically democratic in nature, with members of management of the company, being elected by shareholders.
There are several more, points that can be added to the comparison between LLP and LLC. There are many differentiating points that can be also pointed out between the different acts and enactments that control these business organizations.