LLP vs. Partnership Firm: Which One is Better for GST Registration?

llp vs partnership firm



When starting a business in India, entrepreneurs often choose between a Limited Liability Partnership (LLP) and a Partnership Firm. Both structures have their advantages and legal requirements, especially concerning GST registration. In this blog, we will compare LLPs and Partnership Firms to help you decide which is the better option for your business.


1. Definition and Legal Identity

Partnership Firm

A Partnership Firm is a business structure where two or more people come together under a partnership agreement to run a business and share profits.

  • Governed by the Indian Partnership Act, 1932.

  • It does not have a separate legal identity from its partners.

  • The partners are personally liable for business debts.

Limited Liability Partnership (LLP)

An LLP is a hybrid business structure that combines the flexibility of a partnership with the limited liability of a company.

  • Governed by the Limited Liability Partnership Act, 2008.

  • It is a separate legal entity from its partners.

  • The liability of partners is limited to their contribution.


2. GST Registration Requirements

FactorLLPPartnership Firm
GST RegistrationMandatory if turnover exceeds ₹20/40 lakhsMandatory if turnover exceeds ₹20/40 lakhs
Legal Entity StatusSeparate legal entityNo separate legal entity
PAN RequirementSeparate PAN for LLPPartnership uses firm’s PAN
LiabilityLimited to the contribution of partnersPartners have unlimited liability
Compliance Requirements

Higher, requires annual filing with MCA

Lower, only income tax and GST compliance


3. Liability Protection

  • In a Partnership Firm, partners are personally liable for any debts or legal obligations.

  • In an LLP, the liability of partners is limited to their investment, protecting personal assets.


4. Registration Process

Partnership Firm Registration

  • Draft a Partnership Deed (stamp duty applicable).

  • Obtain a PAN card for the firm.

  • Open a bank account in the firm's name.

  • Apply for GST registration if required.

LLP Registration

  • Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN) for partners.

  • Apply for LLP incorporation with the Ministry of Corporate Affairs (MCA).

  • File LLP Agreement with MCA.

  • Apply for PAN, TAN, and GST registration.


5. Compliance and Taxation

  • Partnership Firms are subject to income tax at a flat rate of 30% plus surcharge and cess.

  • LLPs are also taxed at 30%, but they require additional annual compliance filings with MCA.


Which One Should You Choose?

  • Choose a Partnership Firm if you want a low-cost and easy-to-maintain business structure.

  • Choose an LLP if you want limited liability protection and a separate legal identity.


Conclusion

Both LLPs and Partnership Firms have their own advantages. If you expect to scale your business and need liability protection, an LLP is the better option. However, if you want minimal compliance and easy formation, a Partnership Firm is a good choice.

For GST registration and legal compliance assistance, feel free to ask in the comments!

Comments

Post a Comment

Popular posts from this blog

GST Registration for Non-Resident Taxable Persons in India

India's Goods and Services Tax (GST) system aims to create a single, unified tax structure to streamline the collection of taxes on goods and services. While most businesses in India are required to register for GST if they meet specific thresholds, there are unique provisions for Non-Resident Taxable Persons (NRTPs) under the GST framework. These provisions cater to businesses or individuals located outside India but engaged in the supply of goods and services in India. In this blog post, we will explore what constitutes a Non-Resident Taxable Person (NRTP) , their GST registration requirements, and the relevant provisions that businesses need to follow to ensure compliance under GST in India. Who is a Non-Resident Taxable Person (NRTP)? A Non-Resident Taxable Person is defined under Section 2(77) of the Central Goods and Services Tax (CGST) Act, 2017 , as a person who: Is not a resident of India , Supplies goods or services in India , either directly or indirectly, or Engage...
Read more
  Eligibility Criteria for the Composition Scheme To be eligible for the GST Composition Scheme, businesses must meet the following criteria: Turnover Limit : The business must have a turnover of up to ₹1.5 crore (₹75 lakhs for special category states). Type of Business : The business should be a  manufacturer ,  trader , or  restaurant  (not providing services like consulting or professional services). No Inter-State Supply : The business must not be involved in inter-state sales, i.e., selling goods across state borders. No E-Commerce : Initially, businesses involved in  e-commerce  were not eligible for the Composition Scheme. However, there are provisions that allow certain e-commerce businesses to opt for it, which we will discuss next.
Read more
tell me about gst registration requirments for interstate service providers (is there any threshold of Rs. 10 lac)
Read more