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

In Resources (Legal) by NextBigWhat78 Comments

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

Comments

    1. Sharda Balaji

      Yes. The private or public limited companies incorporated under the Companies Act are limited liability company. We use the words “Private Limited” or “Limited” in India and not LLC.

      -Sharda

  1. Kasi

    @Shrada Balaji

    Can a LLP later changed to Private Limited ?

    And

    Can a LLP form a joint-venture with another privately held firm?

    Thanx in advance for your answers.

    Kasi

    1. Sharda Balaji

      Yes. LLP can be changed to a private limited company later on and vice-versa.
      LLP is a separate legal entity like a company and can contract on its own. It could be with a partnership firm, a company or any other LLP too.

      Sharda Balaji
      http://www.novojuris.com

    2. Sharda Balaji

      Yes. LLP can be changed to a private limited and vice-versa.
      LLP is a separate legal entity and can contract on its own (like a company) It can enter into agreements with a partnership firm, company or another LLP too.

      Sharda Balaji
      http://www.novojuris.com

    3. Sharda Balaji

      Yes, LLP can be changed to a private limited and vice-versa.
      LLP is a separate legal entity and can enter into agreements in its name (like a company). LLP can contract with companies, firms or other LLPs too.

      -Sharda

  2. Ajay

    Excellent info. @sharda, can a LLP be subsidiary of a Private Limited company?

  3. Sharda Balaji

    Himanshu, “Whistle-blowing” is a pretty wide idea but usually refers to reporting out of misconduct like violation of law, fraud, corruption and the like, either internally or externally. Under LLP Act, certain protection is provided to employees/ partners who report misconduct or help with information during investigation.

    Ajay, LLP can be a shareholder and be a subsidiary of a private limited company.

  4. Rahul

    @sharda – excellent summary. Now, since a LLP offers much more organizational flexibility than a company, I got one question :

    Say my contribution to the LLP is in terms of land whose monetary value is accounted for and disclosed in the accounts of the LLP. Is it possible that the LLP makes use of the land for the purpose of carrying out its business without me having to transfer/lease the land out to the LLP?

  5. Vaibhav Aggarwal

    Hi Rahul

    I have not understood the query. How will you be able to contribute to LLP without transferring or leasing the same to LLP. According to LLP Act, partner’s liablity is limited to the amount of his/her contribution. Thus your liability will be limited to the monetary value of the Land. But I am still unsure that without transferring the same in the name of LLP, as your contribution, how this can be treated as your contribution.
    Please explain the query so that it can be answered properly.

  6. Vaibhav Aggarwal

    Hi Sharda

    Thanks for the information. I have two questions few ask in the context of LLPs

    Has government decided about the tax provisions of LLPs ?
    Can an LLP be made between foreign company and Indian Company ?
    Has the section allowing the conversion of Companies and Partnership firms into LLP been notified ?
    What about teh stamp duties on such conversion, has government come up with any provision regarding the same ?
    Can a joint venture be formed between LLP and company and can an LLP and a company be amalgamated to form a LLP ?

  7. Ghanshyam

    Dear Sharda,

    Can a Lawyer and a business man (non LLB / under graduate) persons become Partners in LLP.
    whats the differences between a Law Firm and LLP

  8. Sanjay

    What percenatge of the LLP can be onwed by a foreign national or Foreign Pvt Ltd Company. (The LLP would be involved in importing electronic goods and selling it in India)

  9. Shankar R S

    Dear Sharda,
    I would like to know the legal fees involved in establishing an LLP.

  10. Jags

    Sharda, I’m a corporate lawyer and I safely say – very impressive stuff.

  11. sunny daniel

    hi,
    thanks for this update can u pls mail me the number of firms now has been registered as llp..?

    Regards
    S.Sunny daniel

  12. sunny daniel

    Hi Sharda,

    Thanks for the info….. can u pls mail me the number of firms registered as llp….?

    Regards
    Sunny Daniel

  13. Rajesh Bansal

    Sir,

    1)What does designated partners means and how to decide designated partners ?
    2)What is the tax liability of LLP’s ?
    3)How is the procedure to convert Company into LLP or vice versa i.e lengthy or easy ?

  14. shivi

    hi sharda .. how does it affect tax provisions existing in india?

  15. Kam

    Sharda

    This is a good summary for LLP. I have seen a lot resistance for opening an LLP firm by CA’s and Lawyers. Is it a tough process or its just the lack of awarness

  16. Geetha

    Dear Sharda,

    IF one puts in the money and the other knowledge then can we have a LLP with these terms
    1. Money liability is the partner who has put in the capital and knowledge THe other Partner
    2. The Finance Partner is liable to all the liabilities and the Knowledge Partner is not legally liable for any liabilities of the company
    3. The revenue is shared mutually.

    I would also like to talk to you if possible to understand this better

    Regards
    Geetha

  17. Deep

    Dear Sharda,

    Thanks for excellent summary and sharing of knowledge. We are a proprietory firm and deciding whether to go for LLP or Pvt. Ltd? what would be the recommendation be and what basis should we opt for LLC or Pvt. Ltd.

    Thanks a lot.

    Deep

    1. Kshitij

      Dear Sharda,

      We are a partnership firm established in 1904.

      We are trying to contact a partnership which has converted to LLP to get a first-hand account of the practical pros and cons of the LLP form – or alternatively a Chartered Accountant who has assisted a partnership to convert to an LLP.

      Is it possible to obtain details of such firms/ CAs from the Registrar? Alternatively would there be any other source of this information you can suggest?

      Thanks !

      Kshitij

  18. mazahar

    Dear Sharda
    Thanks for the brilliant summary about the topic. Helped me a lot to understand the basics of starting a business.
    I realised today that apart from having a search engine like google, it is equally important to search for the right word and hit the right link!

    thanks a lot.

    mazahar

  19. Siddhartha Shah

    Hi…Sharda ..wonderful write-up & very informative. Could you tell me that where I could look for drafted LLP documents for finer understading as to the arragements as per law, if available.

  20. Shrikant

    Can I get the complete information, such as act or rules for Limited Liability Partnership?

  21. Mohit

    hello frnds,
    Thnx for giving information regarding LLP. Can any body tell me how LLP can be beneficial in Construction and which are all the construction companies which is associated with LLP.

    Please rply me at my Email id mangal.mohit2001@gmail.com

  22. Neelesh

    Sharda, Thanks for the articile.
    Can an LLP be registered with STPI.
    Also what are the residency requirments for Directors of an LLP ?

    Thanks
    Neelesh

  23. Kamal

    Dear Sharda,
    It’s very knowledgeable summury.
    I would like to know that any tax liability has been decided or not?
    Tkx.

  24. raveendra

    details required
    1-can partners withdraw amount
    2-about insurance
    3-financial provisions on death/retirment/insolvent
    4- about notices

  25. Sajir P.M

    “Partner is not responsible or liable for another partner’s neglegence and misconduct”, Can u explain this phrase? In What are the condition it is applicable?

  26. ruchi

    hey anyone please tell me that what are the ways by which the funds or capital can be raised for the LLP’s .
    AS they cant go public. Is their only 1 way that is via making more and more members who put their own money.

    Kindly reply me ASAP, I will be really vey thankful to you.
    Regards

  27. Karl

    Dear Sharda,

    Is it possible to set up an investment partnership (involved in buying and selling of shares) under the Limited Liability structure or are there only certain specific businesses that can be carried out by an LLP?

    Are there any special qualifications required for being a working partner of an investment partnership?

    Thanks!

  28. Priyanka

    Suppose I have invested Rs 2 lakhs as partner in a LLP. In future , if we wish to transfer our share ,is it possible ;what is the procedure thereof ??

    If we want to increase the corpus fund by introducing more partners.. is it possible ? If Yes , what is the procedure , thereof ??

  29. karthik

    u have information about registration chrage of llp. if u have any link about this please provid me..

  30. Rupen Shah

    Dear Sharda Balaji

    I have a query and it would be great if you could give me some advice regarding the same –

    We have a rented property for past 50+ years and it is in the name of our private company this place used to function as a residential as well as office place for us, now the company business is not doing so well but we cannot close the company as we will loose all tenency rights to the rented property and since the formalities for annual filing of returns and ROC are quite complex, we were wondering if there is a possibility wherein maybe we can change the nature of the firm from Private limited company to Partnership without changing the name of the firm i.e. “ABC Agency Pvt. Ltd.” because a name change will mean a new tenant and we will loose our tenancy rights.

    Alternatively, can we change the nature of the firm through merger or acquizition from pvt. ltd. to partnership without relinquishing our tenancy rights and continue to have the rent reciept issued in the name of the company.

    Thanking you in anticipaition of a reply

    Warm Regards

    Rupen Shah

  31. Harish Desai

    What are the legal and documentation charges to form a LLP?

  32. mohammed Yousuf

    Hi!

    i need to have the few companies name , those are called as LLP or its come under LLP

  33. mohammed Yousuf

    i have a partnership firm which i have been running for the last 12 yrs, now i wanted to move from partnership to LLP, is it posible?

  34. mohammed Yousuf

    woul you please make me undersatand about the process in brief to become a LLP ,

  35. Ummet Bhatia

    Is Forign Investment is allowed in LLP. If allowed upto what limit it is allowed

  36. Rajiv Lakhwara

    Dear Sharda Balaji,
    Thanks for educating most of us. I have a specific querry:
    What would be the procedure to change to LLP from Pvt Ltd. company. How complicated would the process be?
    Please enlighten me and thanks
    Rajiv lakhwara
    Gp. capt (retd)

  37. Tara S. Riley

    I was just thinking how much i love technology and the internet….it gives us access to so much goodinformation…just like this post..thanks will be back again A+

  38. Rajesh

    Limited Sole Properitery . LLP should have minimum 1 not two like LLC (USA).

  39. CHARUDATTA D.JOSHI,Pune,M.S.

    Dear Sharda,

    Thanks a lot for enlightening us on newly introduced business entity of LLP and differentiating it with a Pvt.Ltd,Ltd.Co. and a Partnership Firm.I have a question for you : Whether a registered partnership firm can be a partner in LLP with other individual partners in LLP ?

  40. arpit jain

    Sir,

    Is the LLP more open to bringing in fpreign investment than a LTD company.

    If yes, then what are the sectors in which foreign investment as a partner in the LLP is freely allowed without any other formal approvals from the MCA or the concerned Govt authority.

    Thanks

  41. HIMANSHU

    THANKS YAAR,

    BUT I JUST WANT TO KNOW WHAT IS THE TAX LIABILITY IN THE LLP
    ALSO MAT ARE APPLICABLE TO LLP.
    IF “YES” THAN ON WHAT PERCENTAGE

  42. Sassy

    can u give 2 reason why it would be beneficial to conveert a business from a partnership to a public limited liability comapny .

  43. Mansi

    Can LLP be firmed as a company under any group of companies and if “yes” then can that group of companies can issue the certificate that LLP company is a part of XYZ group of companies…..

  44. Meraj

    Can a LLP get into partnership with a general partnership company (LLP as a partner instead of an individual)???

  45. Dr. B. G. Vashi

    Sir,
    Can LLP avail finance from the financial institutions?. How do Banks see and consider LLP?

  46. Abhinav

    Hi, why do you say VC’s would prefer to invest in companies? Also any info on the tax implications (you had said “not yet notified”)?

  47. thomas joseph

    i have doubt whether we can make FDI in LLP .i have a cient in Spaini hope you could help me.
    Regards
    Thomas

  48. nasir khan

    IS THERE A PROVISION TO CONVERT AN LLP INTO PVT. LTD.? IF YES, WHAT IS THE PROCEDURE?

  49. Rahul

    what is the difference between gifting of shares in llp and in private ltd company

  50. Pooja Ahuja

    I want to know if any of my Partner committed fraud in our LLP firm then what are the consequences.

  51. Mtul Dsai

    In LLP there are 4 partners each contributed 25k each, now one partner want to buy 8% stake of another partner.how to execute transcation and what is compliance with MCA?

  52. sitenol

    what is the cost of registering LLP. Suppose I have registered with XYZ LLP . Can some one register it as XYZ Pvt. Ltd.

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