A limited liability partnership (LLP) firm is seen as a hybrid of a corporation and a partnership firm as it contains elements of these two forms of business organizations. Partnership
A partnership firm is one which has two or more partners who agrees to start a business with the aim of making profits by pooling their resources. Most firms consist of at least 2 partners and have a maximum of twenty. However, professional firms like law and accounting firms are exceptions. Due to the nature of the business, such firms tend to have more departments and more partners will give the firm better credibility. The main reason why partnership firms are set up is due to the ease of its formation and flexibility.
Limited Liability Partnership
Being a hybrid of the two forms of business organisations, the ease of its formation, having a flexible operating system and a separate legal entity are the main features of a LLP firm.
Like a partnership firm, the formation of a LLP is cheap and easy with not many formalities. To set up a LLP, two or more partners will register the firm name under the Limited Liability Partnership Act, with at least one local manager in the firm. Similarly, formation of a partnership firm requires partners to register the firm name under the Business Registration Act (BRA). The formation of these two firms will not incur much cost as compared to the formation of a company which requires many procedures and fees to be paid. The process of forming a corporation is relatively more time consuming and expensive.
In terms of raising capital for the business, LLP and partnership firms will have a smaller pool of capital as it is only limited to the partners’ investments. A general partnership firm will have the most difficulty trying to pool resources and will have the smallest pool of capital due to the limited number of partners. LLP is similar to a corporation in the sense that the firm...