A Limited Liability Partnership (LLP) is a relatively new and popular business structure in India, introduced by the Limited Liability Partnership Act, 2008. It combines the benefits of a traditional partnership firm with the limited liability protection of a company. This makes it a preferred choice for professionals, startups, and small to medium-sized enterprises (SMEs) looking for a flexible yet secure legal entity.
Key Characteristics of an LLP
Separate Legal Entity
Unlike a traditional partnership, an LLP is a separate legal entity distinct from its partners. This means it can own assets, incur liabilities, enter into contracts, and sue or be sued in its own name.
Limited Liability
This is the most significant advantage. The liability of each partner is limited to their agreed contribution to the LLP. Their personal assets are generally protected from the debts and obligations of the LLP, unless there is an act of fraud or unauthorized action by the partner. No partner is liable for the independent or unauthorized actions of other partners.
Perpetual Succession
Like a company, an LLP has perpetual succession. Its existence is independent of the entry, exit, retirement, death, or insolvency of any partner. The LLP continues to exist until it is formally wound up.
Minimum Two Partners
An LLP must have at least two partners. There is no upper limit on the maximum number of partners.
Designated Partners
Every LLP must have at least two Designated Partners who are individuals, and at least one of them must be a resident in India (stayed in India for at least 182 days during the immediately preceding financial year). Designated Partners are primarily responsible for ensuring compliance with the provisions of the LLP Act.
LLP Agreement
The mutual rights and duties of partners within an LLP, and their rights and duties in relation to the LLP, are governed by a detailed Limited Liability Partnership Agreement. This written agreement provides flexibility in defining the operational and management structure.
No Minimum Capital Contribution
There is no requirement for a minimum capital contribution to incorporate an LLP. Partners can contribute capital as per their agreement.
Body Corporate
An LLP is considered a “body corporate” under the LLP Act, 2008, giving it a corporate identity.
Agent of LLP, not other partners
A partner in an LLP is an agent of the LLP, but not of the other partners. This contrasts with a traditional partnership where each partner is an agent for all other partners.
Advantages of an LLP
Limited Liability
Protects the personal assets of partners from business debts and liabilities.
Separate Legal Entity
Provides credibility and allows the LLP to enter into contracts and own property in its own name.
Perpetual Succession
Ensures continuity of the business even with changes in partners.
Flexibility in Management
The LLP Agreement allows partners to define their own management structure and profit-sharing ratios, without the rigid compliance requirements of a company.
Lower Compliance Burden
Compared to a Private Limited Company, an LLP has fewer statutory compliance requirements (e.g., fewer mandatory board meetings, simpler annual filings). Audits are only mandatory if turnover exceeds ₹40 Lakhs or contribution exceeds ₹25 Lakhs.
Tax Efficiency
For income tax purposes, an LLP is taxed like a partnership firm (a flat rate of 30% on its profits, plus surcharge and cess as applicable). This avoids the concept of “dividend distribution tax” (DDT) applicable to companies, making profit distribution to partners more tax-efficient as partners are not taxed again on their share of profits from the LLP.
Cost-Effective Incorporation
Generally, the cost of incorporating an LLP is lower than that of a Private Limited Company.
Ease of Fundraising (compared to Partnership)
While not as easy as a Private Limited Company for equity funding from VCs/Angel investors (as LLPs cannot issue shares), they can still raise debt funding and are more credible than traditional partnerships.
Suitable for Professionals
Ideal for professionals (e.g., CAs, lawyers, architects, consultants) who want to combine their expertise and scale their practice with limited liability.
Disadvantages of an LLP
Limited Fundraising Potential (compared to Companies)
LLPs cannot raise equity by issuing shares. This can be a significant drawback for startups looking for venture capital or angel investments that typically require an equity stake.
Higher Compliance Penalties
Although compliance requirements are fewer than companies, the penalties for non-compliance (e.g., not filing annual returns) can be substantial (e.g., ₹100 per day per form).
Difficulty in Transfer of Ownership
Transferring ownership in an LLP can be more complex than transferring shares in a company, as it requires amending the LLP Agreement and often the consent of all existing partners.
No ESOPs
Cannot issue Employee Stock Option Plans (ESOPs), which are a common way for companies to incentivize and retain employees, especially in startups.
FDI Restrictions
While FDI is allowed in LLPs, it is subject to certain conditions and restrictions in some sectors, making it less straightforward than in companies.
Less Public Perception/Credibility (in some sectors)
In certain industries or for very large corporations, a Private Limited Company might still be perceived as more credible or established than an LLP.
LLP Registration Process in India (Governed by MCA)
The registration of an LLP is done with the Registrar of Companies (ROC) under the Ministry of Corporate Affairs (MCA). The entire process is online.
Obtain Digital Signature Certificate (DSC)
- All Designated Partners of the proposed LLP must obtain a Class 3 Digital Signature Certificate (DSC). This is required for digitally signing all e-forms.
- DSCs are issued by Certifying Authorities recognized by the Controller of Certifying Authorities (CCA).
Obtain Designated Partner Identification Number (DPIN)
- Every individual intending to be a Designated Partner of an LLP must obtain a DPIN.
- DPIN can be applied for through Form DIR-3, or directly through the integrated incorporation form (FiLLiP).
Name Reservation (RUN-LLP Form)
- File the RUN-LLP (Reserve Unique Name – Limited Liability Partnership) Form on the MCA portal to get approval for the proposed name of the LLP.
- You can propose up to two names in order of preference. The name must be unique and not resemble any existing company, LLP, or trademark.
- The name, if approved, is reserved for 3 months from the date of approval.
Incorporation (FiLLiP Form)
- Once the name is approved, file the FiLLiP (Form for Incorporation of Limited Liability Partnership). This is an integrated form that can be used for:
- Incorporation of the LLP.
- Application for DPIN (for up to two individuals who do not have one).
- Name reservation (if not already done through RUN-LLP).
- Attach all necessary documents (as listed below) to the FiLLiP form.
- Pay the prescribed government fees.
- Once the name is approved, file the FiLLiP (Form for Incorporation of Limited Liability Partnership). This is an integrated form that can be used for:
Issuance of Certificate of Incorporation (COI)
- Upon successful verification of the FiLLiP form and attached documents, the Registrar of Companies (ROC) will issue the Certificate of Incorporation for the LLP.
- This certificate includes the LLP Identification Number (LLPIN).
- The PAN and TAN for the LLP are usually generated automatically along with the COI or soon after.
File LLP Agreement (Form 3)
- This is a crucial post-incorporation step. The LLP Agreement (detailing partners’ rights, duties, profit-sharing, etc.) must be drafted and signed by all partners.
- This agreement then needs to be filed with the ROC in Form 3 within 30 days of the LLP’s incorporation.
- Stamp duty is applicable on the LLP Agreement, and the value varies by state (e.g., Delhi stamp duty rates would apply for LLPs registered in Delhi).
Open a Bank Account
- After receiving the Certificate of Incorporation and PAN, open a current bank account in the name of the LLP.
Documents Required for LLP Registration (Commonly)
For Designated Partners/Partners
- PAN Card: Mandatory for all Indian national partners.
- Aadhaar Card: As identity and address proof.
- Address Proof: (Not older than 2 months) Voter ID, Driving License, Passport, Bank Statement, Utility Bill (Electricity, Gas, Mobile bill).
- Passport-sized Photographs: Recent colored photos.
- Passport (for Foreign Nationals/NRIs): Mandatory, and copies might need to be apostilled or notarized by the Indian Embassy in their country.
- Proof of Address (for Foreign Nationals/NRIs): Driving license, bank statement, residence card, or any government-issued ID containing the address.
For Registered Office Address
- Proof of Registered Office Address: Utility bills (Electricity, Gas, Telephone bill – not older than 2 months), or a copy of the rent agreement/lease deed if the office is rented.
- No Objection Certificate (NOC): From the property owner if the premises are rented or owned by a third party, giving consent for the LLP to use the address as its registered office.
Compliances for LLP in India
LLPs, while having fewer compliances than companies, still have mandatory annual filings:
Form 8 (Statement of Account & Solvency)
Must be filed annually within 30 days from the end of six months of the financial year. It contains financial data and a solvency statement.
Form 11 (Annual Return)
Must be filed annually within 60 days from the end of the financial year. It contains details of partners, their contributions, and other operational information.
Income Tax Return (ITR-5)
LLP must file its income tax return annually.
Audit Requirements
Audit of accounts is mandatory for an LLP if its:
- Annual turnover exceeds ₹40 Lakhs in any financial year, OR
- Contribution exceeds ₹25 Lakhs.
GST Registration
If applicable, based on turnover or nature of business (e.g., inter-state supply, e-commerce).
TAN (Tax Deduction and Collection Account Number)
If the LLP is liable to deduct TDS.
Other Registrations/Licenses
Specific to the industry (e.g., FSSAI, IEC, Professional Tax, Shop & Establishment).
Get help for LLP registration from our experts for professional firms, consultants, and small to medium-sized enterprises (SMEs) that value flexibility and limited liability, especially when not looking for significant external equity funding in the immediate future.