Limited Liability Partnership in India: FAQs

If you’re a startup founder, a professional firm, or a small business owner evaluating your business structure options, you’ve likely come across the term Limited Liability Partnership (LLP). Introduced in India through the LLP Act, 2008, this hybrid business form offers the operational flexibility of a partnership with the legal protections and credibility of a private limited company.

But what exactly is an LLP? How does it work, and is it the right fit for your business model? Can it help you scale efficiently while keeping compliance manageable? These are just some of the questions entrepreneurs and business professionals ask when considering LLP registration.

In this blog, we answer the most frequently asked questions about LLPs in India, from their legal nature and registration process to partner roles, compliance obligations, taxation, and more. Whether you’re planning to register a new LLP or looking to better understand the one you already own, this comprehensive guide will help you make informed decisions with confidence.

If you’re ready to explore whether LLP is the right business structure for your venture, here’s everything you need to know.

FAQs on Nature of Limited Liability Partnership (LLP)

Q1. What is the concept of a “Limited Liability Partnership” (LLP)?

A Limited Liability Partnership (LLP) is a current term for a business structure that combines the benefits of a partnership and a Private Limited Company (Pvt. Ltd.). It offers business flexibility like a partnership while safeguarding personal assets through limited liability. An LLP can sue and be sued in its own name, can own property, and survives independent of the changes in partners. Knowing the meaning of Limited Liability Partnership permits entrepreneurs to determine its effectiveness for their business model.

Q2. What is the structure of an LLP?

Partners cannot be less than two designated partners; however, an unlimited number of partners may be added. All processes concerning the LLP are governed by an LLP agreement, which sets forth the mutual rights and obligations of the partners. The LLP, being a legal person, is the owner of assets and liabilities, not the partners individually.

Q3. What are the advantages of forming an LLP?

A Limited Liability Partnership (LLP) offers a range of benefits that make it an attractive option for startups, professionals, and small business owners. Key advantages include limited liability protection for partners, operational flexibility, a lower compliance burden compared to companies, and perpetual succession.

Unlike traditional partnership firms, an LLP is a separate legal entity, meaning it can own property, enter contracts, and continue to exist independently of changes in partnership. The partners are shielded from personal liability for the business’s debts, except in cases of fraud or negligence.

Additionally, LLPs enjoy simplified compliance, minimal regulatory restrictions, no mandatory audit (for small LLPs), and tax efficiency in many scenarios. These factors contribute to its growing popularity across various industries.

To explore these points in depth, read our detailed article on the advantages of Limited Liability Partnership registration.

Q4. In which other countries is the LLP business form available?

The LLP form is known in most countries, including the United Kingdom, the United States, Australia, Singapore, and the Gulf states. The Indian LLP form has been adopted from international practices, i.e., the UK LLP Act 2000 and the Singapore LLP Act 2005, following suggestions of legal experts who have extensively compared these enactments. The Acts permit the creation of LLPs as body corporates, meaning they are separate legal entities distinct from their partners or members.

Q5. How is an LLP different from a traditional partnership firm?

In a general partnership, partners enjoy unlimited liability, i.e., their own funds can be utilized to settle business liabilities. In an LLP firm, partners are provided with limited liability; they are liable only to the extent of their investment. An LLP is also considered a separate entity, while in a partnership firm, partners and the firm are the same legally. For a detailed comparison, read this guide, Difference Between Partnership and LLP.

Q6. How does an LLP differ from a Company?

While both LLPs and Private Limited Companies provide limited liability and separate legal personas, they differ in significant ways. An LLP is governed through an internal LLP Agreement with more autonomy and fewer compliance requirements. A Private Limited Company is governed by the Companies Act, 2013, with higher compliance rules, wider access to capital through equity, and a more formalized decision-making process, thus being the most sought-after option for startups that need funding.

Learn more about the Pvt vs LLP Key Differences.

FAQs on Applicability of the LLP Act

Q1. Is the LLP Act applicable only to specific services like professional services regulated by statutes?

No, the Limited Liability Partnership (LLP) Act is not limited to professional services alone. Any two or more persons who come together to carry on a valid business for profit can enter into an LLP. There was an initial proposal that LLPs were to be limited to professionals only; however, later this idea was made applicable to all businesses, especially in view of the needs of small businesses and venture-funded start-ups. The benefits of an LLP are, therefore, applicable to a vast number of businesses, not just professionals alone.

Q2. Who are the likely users or beneficiaries of the LLP Law?

The LLP form is suitable for a variety of users, particularly in today’s service economy. It is suitable for service providers, knowledge industries, new technology start-ups, professionals such as CAs, CSs, lawyers, and even venture capital-backed companies. It is also suitable for micro, small, and medium-sized enterprises, as well as producer companies in the handloom and handicraft industries. Indeed, any organization that desires to have flexibility with the security of limited liability protection can opt to be an LLP.

Q3. Can an entity with charitable or non-profit objectives register as an LLP?

An LLP has to be formed with the sole objective of carrying on a lawful business with the intention of earning a profit. Associations for charitable or non-profit objectives cannot be registered under the LLP Act.

Q4. Do the provisions of the Indian Partnership Act, 1932, apply to LLPs?

No, the Indian Partnership Act, 1932, does not extend to LLPs. LLPs are regulated solely by the LLP Act, 2008, which gives a separate framework apart from the conventional partnership firms.

Q5. Why was a new law created for LLPs instead of amending the Companies Act or the Partnership Act?

A distinct legal framework was necessary due to the distinctive structure of Limited Liability Partnerships (LLPs), which has elements of both companies and partnerships. The Companies Act is meant for larger, listed companies and has stricter regulations. The Indian Partnership Act-based traditional partnerships place unlimited liability on partners, a requirement that is not fit for today’s companies dealing in areas such as information technology, biotechnology, and consultancy. Hence, a more liberal, limited liability idea was brought in the form of a specialized LLP Act to suit these requirements better.

Q6. Which committees recommended the creation of LLP legislation in India?

Numerous committees have appreciated the necessity of the Limited Liability Partnership (LLP) form throughout the years. First among these are the Bhat Committee (1972), the Naik Committee (1992), the Abid Hussain Committee (1997), and the S.P. Gupta Study Group (2001). Subsequently, the Naresh Chandra Committee (2003) and the Dr. J.J. Irani Committee (2005) went to the extent of recommending the passage of an LLP law to address the changing needs of small businesses and professional firms.

FAQs on Partners and Designated Partners

Q1. What are the minimum and maximum number of partners allowed in an LLP?

At least two partners are required to create an LLP. No limit is imposed on the number of partners that can be maximally accommodated. This offers companies maximum freedom to increase the number of their partners according to their requirements without any concern regarding legal restrictions.

Q2. Can a body corporate become a partner in an LLP?

Yes, a body corporate can be a partner in an LLP. The LLP structure allows corporate bodies and individuals to become partners, enabling more flexible and broader business arrangements. Learn more about it in this guide Can a body corporate be a partner in an LLP?

Q3. Who is eligible to become a partner in an LLP?

Any person or body corporate can be an LLP partner. A person is disqualified if:

(a) The court has pronounced them to be of unsound mind, and the aforesaid order is correct.

(b) They are still an undischarged insolvent; or

(c) They have made an application for insolvency, which is under consideration.

These conditions ensure that only skilled and reliable persons are allowed to act as partners.

Q4. What are the requirements regarding Designated Partners in an LLP?

Each Limited Liability Partnership (LLP) must have at least two Designated Partners. Designated Partners hold a privileged position; apart from being responsible for the conduct of the affairs of the LLP, they are also responsible for ensuring compliance by the LLP with all the statutory and legal provisions stipulated by law.

Q5. Who can be appointed as a Designated Partner?

Designated Partners should be individuals, and at least one of them should be an Indian resident. In case body corporates are among the partners of an LLP, then their nominees (who should be individuals) can be appointed as Designated Partners. This way, there is always an accountable individual directly associated with the management of the LLP.

Q6. Is there a requirement for the number of resident Designated Partners to be higher than those based outside India?

There is no such restriction. LLPs, especially those with business everywhere in the world in the service or technology industries, can have partners who are outside India. As long as there is a resident Designated Partner within India, there is no limit on how many other Designated Partners can be outside India. This flexibility supports the global expansion of Indian LLPs without unnecessary restrictions.

Q7. Do Designated Partners require any special identification number? Are there any other eligibility conditions?

In fact, it is mandatory that every Designated Partner is given a Designated Partner Identification Number (DPIN), which functions in a parallel manner to the Director Identification Number (DIN) of directors of companies. Additionally, certain eligibility criteria can be provided under the LLP provision, thus ensuring only the right persons are granted this important position.

FAQs on LLP Agreement

Q1. How are the rights and responsibilities between partners and the LLP defined?

The rights and responsibilities between the partners amongst themselves, and between the LLP and the partners, are regulated by what is known as the LLP Agreement. This is a document that stipulates the way in which the LLP will operate, how decisions will be taken, and how profits and liabilities are to be distributed among partners.

Q2. Is it compulsory for every LLP to have an LLP Agreement?

While an LLP Agreement is not formally mandatory, it is highly recommended. Without the specific agreement, the default rules set out under Schedule I to the LLP Act will apply. However, where the partners need to avoid any default provisions or make their agreement bespoke, there is a necessity that they make and file an LLP Agreement fully detailing those exemptions.

FAQs on LLP Registration

Q1. What is the process for registering an LLP in India?

To form an LLP, partners are required to submit an Incorporation Document with the Registrar of Companies (ROC). This is accompanied by the names of at least two partners, the name, and the registered office address. Subsequent to incorporation, the LLP Registration entails filing the LLP Agreement. In case of any change in  LLP Agreement should be filed on Form 3 for a modification of the LLP Agreement and partner particulars (in Form 4) to be filed online, as per the LLP Rules, 2009.

For a comprehensive guide on ROC registration, see this step-by-step guide.

Q2. Can foreign nationals or companies register an LLP in India?

In fact, foreign nationals, foreign Limited Liability Partnerships (LLPs), and foreign companies can also establish an LLP in India. However, there is a requirement to have at least one Designated Partner who is staying in India. Additionally, the LLP is required to comply with all applicable FEMA laws as well as RBI regulations.

Q3. What are the naming guidelines for LLPs under the Act?

Every Limited Liability Partnership (LLP) has to end their name using the words “Limited Liability Partnership” or “LLP”. Additionally, the name should be unique and should not be objectionable to the Central Government. Naming rules, rules of approval of name, and rectification in case of duplication are controlled by prescribed rules of naming.

Q4. How long can an LLP name be reserved once approved?

After approval by the Registrar (through Form 1), the name is held for three months. For foreign companies or LLPs seeking to conduct business in India, the name can be reserved for a period of three years and can also be renewed further by applying through Form 25.

Q5. Can an LLP specify an alternative address for official communication?

Yes, besides its registered office, an LLP can also furnish another address to receive communications from the Registrar. The Rules of the LLP mandate that this should be notified in the prescribed manner. Documents sent to this alternate address will be deemed to be duly served.

FAQs on Change in Partners in LLP

Q1. How can a person become a partner in an LLP?

A person who carries out the role of a partner must sign the Incorporation Document. Those individuals will become partners at the point of LLP incorporation. After the LLP has been formed, additional partners can be added in accordance with the terms of the LLP agreement. For more information on adding a new partner in an LLP, see How to add a new partner in an LLP.

Q2. How does an existing partner exit an LLP?

A partner will leave the LLP as per the terms set out in the LLP agreement. If there is no agreement, a partner can leave by providing 30 days’ notice to the other partners. A partner will also cease to be a partner in the LLP if one of the following events occurs:

• at their death or the dissolution of the LLP;
• by a competent court declaring the person of unsound mind; or
• The person has applied for/or is declared insolvent.

Any changes in the LLP partnership must be formally notified to the Registrar of Companies (RoC) in accordance with the Act.

Q3. What should a partner do if their name or address changes?

If a partner changes their name or address, they must notify the LLP within 15 days of the change. The LLP, in turn, must update the Registrar within 30 days of the name or address change by filing  Form 4.

FAQs on Partner’s Contribution & Transactions

Q1. How can a partner contribute to an LLP, and how is it recorded?

Contributions can assume the form of different types of tangible or intangible assets, such as cash, property, or service contributions. Each partner’s contribution must be recorded at value and disclosed in accordance with the prescribed accounting policies.

Q2. Can a partner lend money to or transact business with the LLP?

Yes, a partner may loan money to the LLP or transact business with the LLP. In these cases, the partner has similar rights and obligations as a third party dealing with the LLP.

Q3. Can a partner transfer their economic rights in the LLP?

Yes, a partner’s economic rights (which can include sharing profits, losses, and receiving distributions upon winding up) can be transferred.

However, this does not automatically make the transferee a partner. In order to become a partner, you must follow the procedures set out in the LLP Agreement or the Act.

FAQs on Liability of Partners

Q1. What is the extent of a partner’s liability in an LLP?

In an LLP, all partners act as agents of the LLP but not of the other partners. Partners have limited liability (except for fraud, negligence, and acts not authorized by the LLP), and the LLP uses its own assets to satisfy liabilities it has incurred. 

Q2. What happens if the number of partners falls below two?

If an LLP has only one partner for more than six months, and that partner is aware of that situation, the partner becomes personally liable for all obligations incurred by the LLP during that period. 

Q3. Is a ‘partner by holding out’ liable under the LLP Act?

The Act states that anyone who is not a partner of an LLP but by word (either spoken or written) or conduct represents that he/she (or allows himself/herself to be represented) is a partner of an LLP (referred to as “partner by holding out”) is liable to any person who, because of that representation, has given credit to the LLP. The liability applies whether or not the person was aware, when the credit was given, that the representation had been made.

In addition, if the LLP has obtained credit or otherwise benefited in any way by virtue of such representation, the LLP shall also be liable, without affecting the liability of the individual, but only for the amount of respect of credit obtained or the amount of respect of the benefit received.

The Act also states that if a partner dies and the LLP continues to conduct business, which includes the continued use of the deceased partner’s name, such continued usage does not, in itself, make the deceased partner’s legal representative or estate liable for the actions of the LLP after the death of the deceased partner.

Q4. How is action taken against non-resident partners for non-compliance?

Every LLP must have at least one of its resident Designated Partners (DP) in the country for compliance and for the commencement of an action by lawful means. If there is a civil complaint about non-compliance, the courts may enforce a foreign judgment. The actions taken against foreign partners with respect to criminal obligations will rely on lawful processes such as extradition in the same way that a foreign director of a company is checked (for compliance) against the law.

FAQs on Disclosure, Audit and Filing Requirements for LLPs

Q.1 Whether every LLP is required to maintain and file accounts?

Yes, every Limited Liability Partnership (LLP) is required to maintain annual accounts that show a true and fair view of its position. Further, every LLP must file an annual Statement of Accounts and Solvency with the Registrar of Companies (ROC) in the prescribed format. This is a statutory requirement and forms an important part of compliance with ongoing obligations.

Q.2 Is the audit of all LLPs mandatory?

An audit is not mandatory for all LLPs. Rule 24 of the LLP Rules, 2009, states that an LLP is not subject to an audit requirement if its annual turnover is less than ₹40 lakh or its contribution does not exceed ₹25 lakh in any financial year. If the partners of an LLP choose to have the accounts audited, this must be done in accordance with the rules specified under the LLP Act.

Q.3 Are there any provisions for mandatory insurance under the LLP Act?

The Act does not impose insurance on LLPs. This is due to the different insurance requirements, which might depend on size, type of business, or even a combination of both; therefore, a blanket requirement would only increase costs on smaller LLPs without providing absolute benefit. The Act addresses issues regarding creditworthiness in other forms by an LLP providing a solvency declaration, making financial information available, and possibly being subject to an audit.

Q.4 Is an LLP required to file an Annual Return?

An LLP does have to file an Annual Return, in Form 11, which must be filed with the Registrar of Companies within 60 days of the end of the financial year. The Annual Return contains important disclosures, such as partners and changes, if any, and must be filed whether or not the LLP has turnover. Once filed, the Annual Return is available for public inspection upon payment of the required fee. For a full overview, see the LLP Compliance & Annual Filings Guide.

Q.5 Does the Registrar have the authority to request information from LLPs?

Yes, the Registrar is entitled to call for any information he deems necessary to fulfill his duties under the LLP Act. Such a request could be made of either designated partner, a partner, or an employee of an LLP. If the Registrar is not satisfied with the information received or is not provided any information, he could call for the person to appear before him.

Q.6 What documents are available for public inspection at the Registrar’s office?

The following documents, which have been filed by the LLP are available for public inspection:

• Incorporation document of the LLP
• Names of partners and changes in the partnership
• Statement of Accounts and Solvency
• Annual Return

The fee for inspection is ₹50, and in the case of someone requesting a certified copy or extract of any of that document under section 36 of the Act, it is ₹5 a page.

FAQs on Investigation, Government Oversight, Taxation, and Conversion of LLPs

Investigation and Government Role

Q. What actions can be taken if an LLP is involved in fraudulent activities?

If an LLP is suspected of committing fraud, the Central Government may appoint inspectors to investigate the LLP’s affairs. The procedure for investigating fraud is provided by the LLP Act, which will ensure a due process of law is followed when investigating.

Taxation-Related FAQs

Q. For which services can Stamp Duty be paid through the MCA21 system?

Stamp Duty can be paid through MCA21 for filing the following forms:

• e-Form 1 (which comprises the Memorandum and Articles of Association)
• e-Form 5
• e-Form 44

This is a method of stamping payments online that will help you comply with the various state stamp duties on filings relating to your LLP.

Conversion of Other Entities into LLPs (and Vice Versa)

Q. Can existing business entities like firms or companies convert into LLPs?

Yes, the LLP Act provides the enabling provisions and legal authorization for the conversion of:

• Registered Partnership Firms (Registered under the Indian Partnership Act, 1932),
• Private companies into LLPs,
• Unlisted Public Companies to LLPs.

The procedure for conversion is laid out in Section 58 and detailed in Schedules II to IV of the LLP Act.

Q2. Is there any stamp duty exemption for conversion to LLPs or during original incorporation?

The LLP Act does not deal with stamp duty provisions, since this is a state subject. Therefore, stamp duty exemptions or obligations are governed by the respective State/Union Territory Stamp Act.

Q3. What happens to existing licenses, approvals, or permits when a firm or company converts to an LLP?

Upon conversion, any existing approval, permit, or license issued to the firm, private company, or unlisted public company under any law shall be transferred to the converted LLP, subject to the provisions of the law under which the approval, license, or permit was issued.

FAQs on Merger and Winding-Up of LLPs

Q1. Can two LLPs merge with each other?

Yes, the LLP Act allows for the merger and amalgamation of LLPs specifically legislated for in Sections 60 to 62 of the Act, which provide for compromises or arrangements, which include mergers, between two or more LLPs. The provisions of the Act ensure compliance and due process with respect to any such proposal.

Q2. When will the winding-up provisions come into effect?

Winding up provisions and procedures will come into place by rules made by the Central Government under The LLP Act, 2008. The rules will set out the compliance framework for carrying out winding up.

FAQs on Offences, Penalties, and Jurisdiction under LLP Act

Q1. What are the key provisions related to offences and penalties under the LLP Act?

The Limited Liability Partnership (LLP) Act, 2008 outlines offences and penalties within its substantive provisions. These cover both procedural defaults and more serious violations.

For procedural non-compliance, such as delays in filing statutory forms, the Act prescribes a default fee levied on a per-day basis, applied in a non-discretionary manner. The applicable rate and maximum duration for such fees may vary based on current MCA regulations. If filings are delayed beyond the permissible window, additional legal consequences or liabilities may also apply.

In the case of serious offences, penalties may include:

1. Fines only, or
   
2. Fines along with imprisonment, especially for:
   • Making false statements at the time of LLP incorporation,
   • Carrying on business with intent to defraud,
   • Knowingly submitting false information or omitting material facts in returns or documents filed under the Act.
     

Such offences fall under the jurisdiction of a Judicial Magistrate of the First Class or a Metropolitan Magistrate, depending on the location.

The Central Government is empowered to compound offences punishable by fine alone by collecting an amount not exceeding the maximum fine prescribed under the Act.

Q2. Can offences be compounded under the LLP Act? Is there any whistle-blower protection?

Yes. The LLP Act enables the compounding of offences that are punishable only with fines. The Central Government may approve a compounding request by collecting an amount up to the maximum fine prescribed for that particular offence.

The Act also includes provisions for the protection of whistle-blowers, encouraging individuals to report misconduct or fraud within an LLP without fear of retaliation. This framework promotes transparency, accountability, and ethical business conduct.

Conclusion

A Limited Liability Partnership is more than just a hybrid business structure—it represents a modern approach to doing business in India. By combining the simplicity of traditional partnerships with the security of limited liability and the legal recognition of a corporate entity, LLPs are especially suited for knowledge-based industries, professional firms, and scalable startups.

Understanding the process of LLP registration, partner responsibilities, and compliance obligations is crucial before you take the next step. Whether you’re evaluating business structures or planning to convert an existing business into an LLP, the insights shared in this blog can serve as your foundation for decision-making.

At LegalWiz.in, we help businesses navigate the complexities of corporate structuring with ease. From LLP registration and partner additions or exits to annual compliance filings and conversion services, our experts provide end-to-end support tailored to your unique business needs.

Looking to register your LLP or need guidance on compliance? Let our experts help you get started today quickly, affordably, and with complete peace of mind.