83 Limited Liability Partnership
83.1 Background and Concept
The Limited Liability Partnership Act, 2008 introduced a new corporate form in India — the Limited Liability Partnership (LLP). LLP combines the flexibility of a partnership with the limited liability of a company, designed to suit professional services and small / mid-sized enterprises (kapoor2023?).
The Act took effect from 31 March 2009. The Naresh Chandra Committee (2003) and the Naik Committee (2005) recommended the introduction of LLP in India.
83.2 Definition
Section 3(1) of the LLP Act 2008: an LLP is a body corporate formed and incorporated under this Act and is a legal entity separate from its partners.
Three working ideas:
- LLP is a body corporate with perpetual succession.
- It has separate legal personality — distinct from its partners.
- Partners have limited liability — to the extent of their agreed contribution.
83.3 Features
| Feature | Working content |
|---|---|
| Body corporate | Section 3(1) — separate legal entity |
| Perpetual succession | Continues despite changes in partners |
| Separate legal personality | Can sue and be sued in its own name |
| Limited liability | Partners liable only up to agreed contribution |
| Mutual agency does not apply | One partner’s act does not bind another personally for unauthorised acts |
| Minimum partners | Two |
| Maximum partners | No upper limit |
| Designated partners | At least two; at least one resident in India |
| Foreign LLPs | Permitted with certain conditions |
| Conversion | From firm, private company or unlisted public company |
83.4 Designated Partners
Every LLP must have at least two designated partners who are individuals (not body corporate); at least one must be a resident in India — defined as having stayed in India for at least 120 days during the financial year (under amendment).
Designated partners are responsible for compliance under the Act and have DPIN (Designated Partner Identification Number).
83.5 LLP vs Partnership vs Company
| Dimension | Partnership Firm | LLP | Company |
|---|---|---|---|
| Statute | Partnership Act 1932 | LLP Act 2008 | Companies Act 2013 |
| Body corporate? | No | Yes | Yes |
| Separate legal personality | No | Yes | Yes |
| Perpetual succession | No | Yes | Yes |
| Liability | Unlimited and joint | Limited to agreed contribution | Limited to unpaid amount |
| Minimum members | 2 | 2 | 2 (private), 7 (public) |
| Maximum members | 50 | No limit | No limit (private 200) |
| Mutual agency | Yes | Limited / partner-specific | Not applicable |
| Annual filings | Few | Form 8 (Statement of Accounts), Form 11 (Annual Return) | Many |
| Audit | Optional | Mandatory if turnover > ₹40 lakh or contribution > ₹25 lakh | Mandatory |
| Compliance burden | Low | Medium | High |
83.6 Incorporation of an LLP
| Step | Action |
|---|---|
| 1 | Obtain DSC (Digital Signature Certificate) for designated partners |
| 2 | Apply for DPIN (Designated Partner Identification Number) |
| 3 | Reserve name through RUN-LLP form |
| 4 | File incorporation form FiLLiP (Form for Incorporation of LLP) |
| 5 | RoC issues Certificate of Incorporation |
| 6 | LLP receives LLPIN (LLP Identification Number) |
| 7 | File LLP Agreement in Form 3 within 30 days |
| 8 | Apply for PAN, TAN |
83.7 LLP Agreement
The LLP Agreement is the internal rulebook — it governs partners’ rights and duties, profit sharing, contribution, admission, retirement, dissolution. In its absence, the First Schedule of the LLP Act applies — equal sharing, no interest on contribution, etc.
83.8 Conversion to LLP
The Act allows conversion of:
- Partnership firm → LLP (Schedule II).
- Private company → LLP (Schedule III).
- Unlisted public company → LLP (Schedule IV).
Conversion preserves continuity of contracts, employees and assets.
83.9 Annual Compliance
Two main annual filings:
- Form 11 — Annual Return of LLP — within 60 days of close of financial year.
- Form 8 — Statement of Account and Solvency — within 30 days of end of 6 months from FY end.
LLPs whose contribution exceeds ₹25 lakh or turnover exceeds ₹40 lakh must have their accounts audited by a Chartered Accountant.
83.10 Taxation of LLPs
LLPs are taxed at a flat 30 % rate under the Income-Tax Act, 1961 (with surcharge and cess). LLPs are not subject to dividend distribution tax — partners’ share of profit in the LLP is exempt under Section 10(2A). However, partners’ salaries, interest on capital are taxable as business income in their hands.
83.11 Foreign LLPs
Foreign LLPs may carry on business in India after registering with the RoC. FDI in LLPs is permitted under the automatic route in sectors where 100 % FDI is permitted in companies and there are no FDI-linked performance conditions.
83.12 Winding Up of LLP
Two routes:
- Voluntary winding up — by partners, with regulatory steps.
- Compulsory winding up by Tribunal — for inability to pay debts, fewer than 2 partners for over 6 months, fraud, default.
The Insolvency and Bankruptcy Code 2016 applies to LLPs.
83.13 Exam-Pattern MCQs
Q1. The Limited Liability Partnership Act came into force in:
A. 2008 B. 2009 C. 2013 D. 2016
Answer: B. The Act was passed in 2008 but came into force on 31 March 2009.
Q2. Match each LLP-Act requirement with its content:
| Requirement | Content | ||
|---|---|---|---|
| (i) | Minimum partners | (a) | Mandatory if contribution > ₹25 lakh |
| (ii) | Designated partners | (b) | At least 2 individuals; one Indian resident |
| (iii) | LLP audit | (c) | Two |
| (iv) | LLP Agreement | (d) | First Schedule applies in its absence |
A. (i)-(c), (ii)-(b), (iii)-(a), (iv)-(d) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(b), (ii)-(c), (iii)-(d), (iv)-(a) D. (i)-(d), (ii)-(a), (iii)-(b), (iv)-(c)
Answer: A.
Q3. Match each form with its content:
| Form | Content | ||
|---|---|---|---|
| (i) | RUN-LLP | (a) | Statement of Account and Solvency |
| (ii) | FiLLiP | (b) | Annual Return |
| (iii) | Form 11 | (c) | Form for Incorporation of LLP |
| (iv) | Form 8 | (d) | Reservation of LLP name |
A. (i)-(d), (ii)-(c), (iii)-(b), (iv)-(a) B. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) C. (i)-(c), (ii)-(d), (iii)-(a), (iv)-(b) D. (i)-(b), (ii)-(a), (iii)-(d), (iv)-(c)
Answer: A.
Q4. LLP-audit is mandatory when:
A. Turnover exceeds ₹1 crore B. Turnover exceeds ₹40 lakh OR contribution exceeds ₹25 lakh C. There are more than 5 partners D. The LLP has any foreign partner
Answer: B. The thresholds: turnover > ₹40 lakh or contribution > ₹25 lakh.
Q5. Match each entity with its statute:
| Entity | Statute | ||
|---|---|---|---|
| (i) | Partnership firm | (a) | Companies Act 2013 |
| (ii) | LLP | (b) | LLP Act 2008 |
| (iii) | Private company | (c) | Indian Partnership Act 1932 |
A. (i)-(c), (ii)-(b), (iii)-(a) B. (i)-(a), (ii)-(b), (iii)-(c) C. (i)-(b), (ii)-(c), (iii)-(a) D. (i)-(c), (ii)-(a), (iii)-(b)
Answer: A.
Q6. Income tax on LLPs in India is at a flat rate of:
A. 25 % B. 30 % C. 22 % D. 40 %
Answer: B. LLPs are taxed at a flat 30 % (plus surcharge and cess).
Q7. Arrange the LLP-incorporation steps in correct order:
- FiLLiP filing
- DSC and DPIN
- RUN-LLP name reservation
- LLP Agreement filing in Form 3
A. (ii), (iii), (i), (iv) B. (i), (ii), (iii), (iv) C. (iii), (iv), (i), (ii) D. (iv), (iii), (ii), (i)
Answer: A. DSC + DPIN → Name reservation → FiLLiP → LLP Agreement.
Q8. Match each LLP feature with its content:
| Feature | Content | ||
|---|---|---|---|
| (i) | Body corporate | (a) | Section 3(1) — separate legal entity |
| (ii) | Limited liability | (b) | Partners liable up to agreed contribution |
| (iii) | Min designated partners | (c) | Two individuals; one resident in India |
| (iv) | Conversion | (d) | From firm, private company or unlisted public company |
A. (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d) B. (i)-(b), (ii)-(c), (iii)-(d), (iv)-(a) C. (i)-(c), (ii)-(d), (iii)-(a), (iv)-(b) D. (i)-(d), (ii)-(a), (iii)-(b), (iv)-(c)
Answer: A.
- LLP Act 2008 in force from 31 March 2009.
- LLP is a body corporate, separate legal entity, perpetual succession, limited liability.
- Min 2 partners; 2 designated partners (individuals; ≥ 1 Indian resident).
- LLP Agreement governs internal affairs; First Schedule applies in its absence.
- Forms: RUN-LLP (name), FiLLiP (incorporation), Form 3 (LLP Agreement), Form 11 (Annual Return), Form 8 (Statement of Account).
- Audit mandatory if turnover > ₹40 lakh or contribution > ₹25 lakh.
- Tax: flat 30 %; partners’ share of profit exempt under Sec. 10(2A) of IT Act.
- Conversion permitted from firm (Sch. II), private company (Sch. III), unlisted public company (Sch. IV).
- Hybrid — partnership in flexibility, company in legal form. Compliance burden lower than company, higher than firm.
- IBC 2016 applies to LLPs.