Limited Liability Partnership (LLP): The Business Structure You Need to Know:

What is the Limited Liability Partnership (LLP)?

A Limited Liability Partnership (LLP) is a new form of Legal business entity with limited liability. Through LLP, partners can organize their internal structure as a traditional partnership firm with the added benefit of Limited Liability.

LLP is a hybrid structure that combines features of both partnership and a corporate. An LLP is a separate legal entity and the liability of the partners is limited to the extent of their capital contribution. However, LLP itself will be liable for the full extent of its assets.  

Partners of an LLP are protected from the personal liability for the LLP’s liability and debt. The creditors of an LLP can not pursue the personal property of the partners against their dues. Partners are not personally liable for the misconducts of another partner.   

Every partner of the LLP is, for the purpose of the business of the LLP, the agent of the LLP, but not of other partners.

Advantage of LLP FORM:

1. Easy to form
2. Low cost and less compliance: The cost of forming an LLP is low comparing to the cost of forming a company whether public or private.
3. No requirement of minimum capital contribution: The LLP can be formed with any amount of capital as contributed by partners. There is no requirement of having a minimum paid-up-capital.
4. All partners enjoy their limited liability.

5. Easy to dissolve.

Disadvantage of LLP FORM:

1. Limited Access to Capital: LLPs cannot issue shares like a company, which creates difficulty to raise capital from investors. If you want to scale the business by raising capital from investors then LLP is not a viable option.
2. Partner’s Duties and Liabilities: While the liability of the partner’s is limited to the extent of It’s contribution, partners can still be personally liable in case of fraud, negligence, or if they personally guarantee loans.
3. Penalty on noncompliance: Even though the LLP does not have any activity in the financial year, it is required to file the returns with the Ministry of Corporate Affairs ( MCA) annually else it will have to pay penalty.    
4. LLP’s can not be publicly listed.
5. Some financial institutions may perceive LLP’s as less credible or stable that private limited companies.

Who can be a partner in LLP?

The following can become partner in LLP:

1. Resident Individual (i.e., A person who has stayed in India for a period of at least 120 days during the financial year)   
2. Non-resident individual
3. Overseas citizen **
4. Foreign nationals **
5. Company
6. Foreign Company **
7. Limited Liability Partnership (LLP)
8. Foreign LLP’s **
9. LLPs incorporated outside India.

** In case of introduction of capital/ acquisition of existing stake in LLP by a person resident outside India (other than NRI’s and OCIs investing on repatriation basis) , the compliances of FDI ( Foreign Direct Investment) shall be applicable to LLP in which such investment is made.

Special Notes:

A. Co-operative society cannot become a partner in LLP.

B. Hindu Undivided Family (HUF) cannot become a partner in LLP.

C. Corporation sole cannot become a partner in LLP.

D. An Individual shall not be capable of becoming a partner of LLP, If:

• he has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force; or
• he is an undischarged insolvent; or
• he has applied to be adjudicated as an insolvent and his application is pending.

Designated partner:

Every LLP shall have at least Two designated partners who are individuals and at least one of them shall be a resident in India.

If in an LLP: –

• All the partners are bodies corporate, then nominees of any two body corporates shall act as designated partners.
• One or more partners are individuals and body corporates, then at least two individuals who are partners of such LLP or nominees of such body corporates shall act as designated partners.

Let’s understand the above provision with the following examples:

Example 1: An LLP named as APX LLP, has three partners and all the partners are body corporates viz.

1. ABC LLP;
2. PQR Limited;
3. XYZ Private Limited

As there in no individual as partner in APX LLP, nominees of any above two body corporates shall act as designated partners.

Example 2: An LLP has three partners,

1. One individual- Mr. Ram and
2. Two body corporates viz. M/s XYZ Limited and M/s PQR Private Limited.

In this case, Mr. Ram and one nominee of any of two above body corporates shall be designated partners.

Example 3:  An LLP has 4 Partners,

1. Mr. X (Non-Resident person)
2. Mr. Y (Non-Resident Person)
3. Mr. Z (Resident person)
4. Mr. P (Resident person)

In the above case, the name of at least 2 persons shall be named as designated partners out of which 1 should be resident.

Hence; If Mr. X and Mr. Y are named as designated partners then it shall not serve the purpose because both Mr. X and Mr. Y are Non-residents.

Therefore, along with Mr. X and Mr. Y, one of the resident partners (i.e., out of Mr. Z and Mr. P) should be there.

Maintenance of Books of Accounts

1. The LLP Shall maintain proper books of accounts related to its transactions, according to double entry system, at its registered office for minimum 8 Years.
2. Every LLP with in a period of 6 months, from the end of each financial year, shall prepare a statement of Account and Solvency for the said financial year and, such statement shall be signed by the designated partners.
3. Every LLP shall get its accounts audited from a Chartered Accountant ( CA) if the annual turnover exceeds ₹40 lakh or the capital contribution exceeds ₹25 lakh.
4. Every LLP shall file the statement of Accounts and Solvency with the Registrar of companies ( ROC)  every year, in form LLP-8.

Penalty for non-compliance of above 1,2 and 3 provisions of Books of accounts:

Penalty to LLP: Minimum INR 25,000 which may extend to INR 5 Lakh.

Penalty to every designated partner: Minimum INR 10,000/- which may extend to INR 1 Lakh.

Penalty for non-filing of form-LLP-8:

• Penalty to LLP: INR 100/- per day; subject to maximum INR 1,00,000/-
• Penalty to every designated partner: INR 100/- per day subject to maximum INR 50,000/-

Annual Return:

Every LLP shall file an annual return duly authenticated with the Registrar of Companies (ROC) with in 60 days of the closure of its financial year in form LLP-11 .

Example: If the financial year of an LLP closes on March 31, 2025 then the LLP has to file an annual return with the ROC latest by May 30, 2025.

Penalty for non- filing of Annual Return :-

• Penalty to LLP:- INR 100 per day subject to maximum INR 1 Lakh.
• Penalty to every Designated Partner:- INR 100 per day subject to maximum INR 50,000/-

Comparison Table: LLP vs Traditional Partnership vs Private Limited

Criteria	LLP (Limited Liability Partnership)	Traditional Partnership Firm	Private Limited Company
Governing Law	The LLP Act, 2008	The Indian Partnership Act, 1932	The Companies Act, 2013
Suitable for	Professionals, SMEs, service firms	Small businesses	Startups, scalable businesses
Credibility	Moderate	Low credibility	High credibility
Capital Raising/ Funding	Difficult to attract investors and raise funds.	Limited, mostly self-funded by its partners	Can raise equity, attract Venture capitalists / Angel investors
Foreign direct Investment	FDI is restricted and regulated	Not allowed for unregistered Firms	Easy
Compliance Requirements	Moderate	Low	High, Mandatory audit and ROC filings
Liability of Member/ Partner	Limited to the contribution	Unlimited (partners are personally liable)	Limited to shares held
Legal Status	Separate legal entity	Not a separate legal entity	Separate legal entity
Minimum No. of Members	Two	Two	Two
Maximum No. of Members	No Limit	No Limit	Two Hundred (200 shareholders)
Taxation	It is taxed like a firm.	Unregistered firm is taxed as per individual slab. Registered firm is taxed like a firm.	Corporate Tax
Audit requirement	Required if turnover > threshold	Required if turnover > threshold	Mandatory
Annual Return	Applicable and Mandatory	Not applicable	Applicable and Mandatory

Conclusion: Which one to choose:

• Choose LLP if: you’re a professional or service-based business that wants limited liability and simple operations (e.g., consulting, legal, accounting).
• Choose Traditional Partnership if: you’re running a small, low-risk business and want minimal compliance.
• Choose Private Limited if: you plan to scale, raise investment, or need high credibility.