Limited Liability Partnership (LLP) in India – All you need to know about

LLP, a legal form available world-wide is now introduced in India and is governed by the Limited Liability Partnership Act 2008, with effect from April 1, 2009. link (pdf) .…

LLP, a legal form available world-wide is now introduced in India and is governed by the Limited Liability Partnership Act 2008, with effect from April 1, 2009. link (pdf) .

LLP combines the advantages of ease of running a Partnership and separate legal entity status and limited liability aspect of a Company.

Here are some of the main features of a LLP

  • LLP is a separate legal entity separate from its partners, can own assets in its name, sue and be sued.
  • Unlike corporate shareholders, the partners have the right to manage the business directly
  • One partner is not responsible or liable for another partner’s misconduct or negligence.
  • Minimum of 2 partners and no maximum.
  • Should be ‘for profit’ business.
  • Perpetual succession.
  • The rights and duties of partners in LLP, will be governed by the agreement between partners and the partners have the flexibility to devise the agreement as per their choice. The duties and obligations of Designated Partners shall be as provided in the law.
  • Liability of the partners is limited to the extent of his contribution in the LLP. No exposure of personal assets of the partner, except in cases of fraud.
  • LLP shall maintain annual accounts. However, audit of the accounts is required only if the contribution exceeds Rs. 25 lakhs or annual turnover exceeds Rs.40 lakhs.

A LLP is indeed advantageous because of comparatively lower cost of formation, lesser compliance requirements, easy to manage and run and also easy to wind-up and dissolve, no requirement of minimum capital contributions, partners are not liable for the acts of the other partners and importantly no minimum alternate tax (as of date). But, LLP cannot raise money from the public.

The process for incorporating a LLP is pretty simple. The flow chart here depicts it clearly.

The Registrar of Companies (ROC) is the authority having jurisdiction over the incorporation. The steps required are:

  • Decide on the Partners and the Designated Partners
  • Obtain Designated Partner Identification Number (DPIN) and a digital signature certificate.
  • Decide on the name of the LLP and check whether it is available.
  • Draft the LLP agreement
  • File the LLP Agreement, incorporation documents and obtain the Certificate of Incorporation.

In order to help you decide on which legal form to choose, here’s a feature comparison between the LLP, Partnership firm and a Company:

Features Company Partnership firm LLP
Registration Compulsory registration required with the ROC. Certificate of Incorporation is conclusive evidence. Not compulsory. Unregistered Partnership Firm will not have the ability to sue. Compulsory registration required with the ROC
Name Name of a public company to end with the word “limited” and a private company with the words “private limited” No guidelines. Name to end with “LLP”” Limited Liability Partnership”
Capital contribution Private company should have a minimum paid up capital of Rs. 1 lakh and Rs.5 lakhs for a public company Not specified Not specified
Legal entity status Is a separate legal entity Not a separate legal entity Is a separate legal entity
Liability Limited to the extent of unpaid capital. Unlimited, can extend to the personal assets of the partners Limited to the extent of the contribution to the LLP.
No. of shareholders / Partners Minimum of 2. In a private company, maximum of 50 shareholders 2- 20 partners Minimum of 2. No maximum.
Foreign Nationals as shareholder / Partner Foreign nationals can be shareholders. Foreign nationals cannot form partnership firm. Foreign nationals can be partners.
Taxability The income is taxed at 30% + surcharge+cess The income is taxed at 30% + surcharge+cess Not yet notified.
Meetings Quarterly Board of Directors meeting, annual shareholding meeting is mandatory Not required Not required.
Annual Return Annual Accounts and Annual Return to be filed with ROC No returns to be filed with the Registrar of Firms Annual statement of accounts and solvency & Annual Return has to be filed with ROC
Audit Compulsory, irrespective of share capital and turnover Compulsory Required, if the contribution is above Rs.25 lakhs or if annual turnover is above Rs. 40 lakhs.
How do the bankers view High creditworthiness, due to stringent compliances and disclosures required Creditworthiness depends on goodwill and credit worthiness of the partners Perception is higher compared to that of a partnership but lesser than a company.
Dissolution Very procedural. Voluntary or by Order of National Company Law Tribunal By agreement of the partners, insolvency or by Court Order Less procedural compared to company. Voluntary or by Order of National Company Law Tribunal
Whistle blowing No such provision No such provision Protection provided to employees and partners who provide useful information during the investigation process.

But, LLP might not be a choice due to certain extraneous reasons, for example, DOT would approve the application for a leased line only for a company; Angels / VCs would be comfortable investing in a company.

The framework for incorporating a LLP is in place and currently registrations are centralized at Delhi.

Please leave your questions in the comments section.

Sharda Balaji

Founder, Novojuris Services India Pvt. Ltd.

A legal consulting company focused on start-ups.

Disclaimer: This article is for informational purposes only and is intended but not promised or guaranteed to be correct, complete and up-to-date. This is not a legal advice or opinion.

Also see: Legal Resources for startups

  1. Hi
    There is a plotting company in pune they make llp for the future development of a parcel of land.and sell the shares of the llp in order to fund the project. Is that legal

  2. Business Model- Pooling money from investors to invest in share market like hedge funds.
    (For starting this business, a bank current account linked with d-mat and trading account is required.)

    Queries regarding Individual Current Account:
    1. Can I start this business on a small level with Individual Current Account?
    2. Is there any legal problem with this business structure?
    3. Will I have to pay income tax on receiving money from investors to invest in share market?
    4. What should I treat investors’ money as?
    5. How much should be the AUM so that I can decide about other business structure?

    Some business structures for starting this business are mentioned below (in order of difficulty to start and operate):
    A. Individual Current Account
    B. Current Account in the name of Sole Proprietor Firm
    C. Current Account in the name of Partnership Firm
    D. Current Account in the name of Limited Liability Partnership Company
    E. Current Account in the name of Private Limited Company

    Queries regarding business structure:
    6. Which business structure is most suitable for this business from legal and tax perspective to start on a small level?
    7. What are tax liabilities and benefits for Company, Investors and Owner in each of the above mentioned cases?
    8. If a company sells shares 3 years after purchase, then does it have to pay income tax on notional profit after every year or on actual booked profit after 3 years? What about taxation of dividend income from shares?
    9. Are there any legal, tax or other risk associated with these above structures?
    10. Is there any eligibility criteria for owner and company to start this business?
    11. Is license required from SEBI or RBI to start this business on a small level?

    Queries regarding Partnership or LLP business structure:
    12. Which among partnership and LLP is a better choice?
    13. How much AUM and how many investors would be appropriate to start partnership or LLP?
    14. Can an employee of private company or MNC become a silent or limited investment partner from legal perspective? Will limited partners have to file return showing capital gains as business income?
    15. What are the legal requirements to be fulfilled when a new limited partner comes in or when an existing partner brings additional money or redeem existing money? Will it not become tedious and complex task for a small level business?
    16. Can I register partnership or LLP at Ranchi address and run the business in Mumbai? Will I and other limited partners have to go to Ranchi to make necessary changes in case a new partner comes in, etc.?

  3. Thank you for providing the information on various types of companies,
    I wish to know whether in a limited liability company, the profits be re-employed in the operations of the company nd not taken by the partners.

  4. Thank you for this valuable knowledge Sharda!
    I Have a question for you, which is following :

    which is more good for us(as we,the partners are Delhi based Young Lawyers) a partnership firm or a LLP ?

Comments are closed.

Sign Up for NextBigWhat Newsletter