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Accounting Treatment for Interest on Partner's Capital
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Difference between Limited Liability Partnership and Partnership Firm

Last Updated : 21 Apr, 2025
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Limited Liability Partnership and Partnership Firm are two different concepts. The former is a form of organisation; however, the latter is a relationship among people who share mutual interest.

Difference between Limited Liability Partnership and Partnership Firm

What is a Limited Liability Partnership?

A Limited Liability Partnership is a form of partnership where all or some of the partners have liability limited to their capital contribution. No personal property of such partners can be used for paying off the liabilities of the firm. In simple, we can say that a Limited Liability Partnership is a hybrid form of a partnership and a company. A limited Liability Partnership has features of a partnership, along with some of the features of the Company, i.e., limited liability, separate legal entity, perpetual succession, right to hold properties in the name of the firm, a common seal, etc. However, the power to conduct the business directly is restrained by the partners. So, a Limited Liability Partnership is a modified version of a partnership under which the partners can enjoy the benefits of a corporate body.

What is a Partnership?

A Partnership generally means a relationship amongst people sharing a mutual interest. In accountancy, a partnership means a business set up together by two or more persons sharing a common interest to earn a profit. The concept of partnership is a solution to the problems of the sole proprietorship, such as a single person bearing the risk, investing, and managing the capital alone. Hence, it can be concluded that a partnership is an agreement where two or more people agree to conduct a business together or any one of them acting on behalf of others, sharing risk, and investing capital together into a joint business to earn profit. In India, the partnership business is governed by The Indian Partnership Act, 1932. 

Difference Between Limited Liability Partnership and Partnership Firm

Basis

Limited Liability Partnership

Partnership Firm

Legal Identity

A Limited Liability Partnership has a separate legal identity in the eyes of law.An Ordinary Partnership does not have a separate legal identity apart from its partners.

Applicable Act

A Limited Liability Partnership is governed under the Limited Liability Partnership Act, 2008.A partnership firm is governed under the section of the Partnership Act, 1932.

Maximum number of partners

There is no upper limit of partners specified.A partnership firm can have a maximum of 50 members as per the Companies Act, 2013.

Minor partner

A Limited Liability Partnership cannot have a minor as a partner.A minor can join as a partner in a partnership firm.

Liability 

In a Limited Liability Partnership, all or some of the partners shall have liability limited to their capital contribution.Partners have unlimited liability,i.e., the personal assets of the partners can be used to pay the debts of the firm. 

Establishment

A Limited Liability Partnership is created by the Law.A partnership firm comes into existence under a contract.

Perpetual Succession 

A Limited Liability Partnership continues to exist despite partners leaving or joining the firm.A partnership agreement comes to end whenever a partner leaves or a new one joins a firm.

Common Seal

A Limited Liability Partnership has a common seal that serves as a signature of the firm. There is no concept of the common seal. The documents are signed by the partners jointly or by any one of the partners on the behalf of the others.  

Ownership of the assets

A Limited Liability Partnership can own the assets in its own name.An asset of the firm is owned by the partners jointly.

Right to sue

A Limited Liability Partnership can sue or can be sued by others in its own name.A partnership firm cannot sue nor can be sued by others in its own name. The partners are held responsible for all the acts of the firm.

Binding Documents

A Limited Liability Partnership is bound by an agreement.A Partnership Deed is a major binding document.

Registration Requirement

It is mandatory to register a Limited Liability Partnership under the Limited Liability Partnership Act, 2008.Registration of the partnership is optional.

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Accounting Treatment for Interest on Partner's Capital

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    Part-B

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    7 min read
    Shares : Meaning, Nature and Types
    What are Shares?When the total capital of the company is divided into units of small denominations, it is known as shares. For example, if the total capital of the company is ₹ 5,00,000, divided into 10,000 units of ₹50 each, each unit of ₹50 will be called a share (of ₹ 10 each). Thus, in the above
    5 min read
    Difference between Preference Shares and Equity Shares
    Life-blood of any business is finance. Sufficient finance for the company helps to grow and expand the company. The financial needs of any business are concerned with the acquisition and utilisation of funds. It is done through planning, acquiring, utilising, managing, and controlling funds in conne
    5 min read
    Share Capital: Meaning, Kinds, and Presentation of Share Capital in Company's Balance Sheet
    What are Shares?When the total capital of the company is divided into units of small denominations, it is known as shares. For example, if the total capital of the company is ₹ 5,00,000, divided into 10,000 units of ₹50 each, each unit of ₹50 will be called a share (of ₹ 10 each). Thus, in the above
    5 min read
    Difference between Capital Reserve and Reserve Capital
    Capital Reserve and Reserve Capital are most often confused same. However, the former is a reserve created out of the Capital Profits of a firm; whereas, the latter is a part of the increased nominal capital or uncalled share capital of an organisation which shall not be called up, except in the eve
    3 min read
    Accounting for Share Capital: Issues of Shares for Cash
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    9 min read
    Issue of Shares At Par: Accounting Entries
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    3 min read
    Issue of Shares at Premium: Accounting Entries
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    4 min read
    Issue of Share for Consideration other than Cash: Accounting for Share Capital
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    5 min read
    Issue of Shares: Accounting Entries on Full Subscription with Share Application
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    2 min read
    Calls in Arrear: Accounting Entries with Examples on Issue of Shares
    Calls in Arrear refer to the amount of money that a shareholder has not yet paid to a company on shares they have agreed to purchase. In the context of a company issuing shares, the payment for these shares is often requested in installments, known as "calls." If a shareholder does not pay an instal
    4 min read
    Calls in Advance: Accounting Entries with Examples on Issue of Shares
    Calls in Advance is the amount of future calls which is received by the company in advance. Calls in Advance is just opposite to Calls in Arrear. It is a situation when the shareholders of a company pay the amount not yet called upon their shares. Section 50 of the Companies Act, 2013 says that the
    4 min read
    Oversubscription of Shares: Accounting Treatment
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    4 min read
    Oversubscription of Shares: Pro-rata Allotment
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    4 min read
    Oversubscription of Shares: Pro-rata Allotment with Calls in Arrear
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    5 min read
    Forfeiture of Shares : Accounting Entries on Issue of Shares
    What is Forfeiture of Shares?Cancellation of shares of a shareholder who fails to pay the amount due on allotment or on any call within the specific time period is known as Forfeiture of Shares. A company or its directors can forfeit the shares only if its Articles of Association allow for the same.
    5 min read
    Accounting Entries on Re-issue of Forfeited Shares
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    7 min read
    Disclosure of Share Capital in the Balance Sheet: Accounting Entries on Issue of Shares
    A unit of capital or an equal portion of the share capital of an organisation divided, whose ownership is evidenced by a share certificate is known as a Share. Simply put, shares are the denominations of the share capital of an organisation. For example, if the total capital of ABC Ltd. is ₹10,00,00
    3 min read

    Chapter 2: Issue and Redemption of Debentures

    Issue of Debentures: Meaning, Characteristics, Purpose of Issuing Debentures and Example
    A debenture can be described as a debt instrument issued by a company to the public in order to raise funds for medium or long-term usage. It is just like a bank loan, with debt obligation and liability for interest payment, but instead of borrowing from a bank, these are issued and traded in the ca
    5 min read
    Types of Debentures
    What is Debenture?A debenture can be described as a debt instrument issued by a company to the public in order to raise funds for medium or long-term usage. It is just like a bank loan, with debt obligation and liability for interest payment, but instead of borrowing from a bank, these are issued an
    4 min read
    Difference between Shares and Debentures
    Issuing of Shares and Debentures are two of the most prominent source of finance for any business. By issuing shares and debentures, any public company can generate finance from the market. Finance required by the business to establish and run its operations is known as Business Finance. No business
    4 min read
    Issue of Debentures: Accounting Treatment of Issue of Debenture and Presentation of debentures in balance sheet (with format)
    What is a Debenture?A written instrument or document which is issued by the company acknowledging the borrowings is known as Debenture. In this document, the terms of repayment of principal and payment of interest at a specific rate are stated. According to Section 2(30) of the Companies Act, 2013,"
    2 min read
    Issue of Debenture at Par and Premium
    What is a Debenture?A written instrument or document which is issued by the company acknowledging the borrowings is known as Debenture. In this document, the terms of repayment of principal and payment of interest at a specific rate are stated. According to Section 2(30) of the Companies Act, 2013,"
    3 min read
    Issue of Debentures for Consideration other than Cash
    Issue of Debentures for consideration other than cash means that the company has not received amount (in cash or by cheque) against the debentures issued. Debentures may be issued for consideration other than cash in the following situations:To promoters of the company for rendering services for inc
    4 min read
    Issue of Debenture as Collateral Security
    What is Issue of Debentures as Collateral Security?A company may have to issue debentures as a subsidiary or secondary security in addition to the principal security when it takes a loan from a bank or from other party, this is known as Issue of Debentures as Collateral Security. Collateral security
    3 min read
    Interest on Debentures
    A debenture can be described as a debt instrument issued by a company to the public in order to raise funds for medium or long-term usage. It is just like a bank loan, with debt obligation and liability for interest payment, but instead of borrowing from a bank, these are issued and traded in the ca
    3 min read
    Redemption of Debentures
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    4 min read
    Redemption of Debentures: Meaning, Sources and Rules regarding Redemption
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    5 min read
    Redemption of Debentures in case of Lump-Sum
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    3 min read
    Redemption of Debentures in case of Installment
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    2 min read
    Redemption of Debentures in case of Purchase of Own Debentures
    What is Redemption of Debentures?Repayment of debentures to the debenture holders or discharge of the liability on account of debentures is known as the redemption of debentures. They are normally redeemed at the expiry of the period for which they were originally issued. The company may also redeem
    4 min read
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