An LLP or Limited Liability Partnership is a business form that has the features of a conventional partnership and a company. Regulated by the Limited Liability Partnership Act 2008, an LLP is a separate legal entity type from its partners with limited liability protection. This implies that the partners are not individually accountable for the liabilities or debts of the business beyond the contribution they had agreed upon. LLPs are very much preferred by professionals and small and medium enterprises alike, as they provide customised agreements, reduced compliance costs and safeguards homes.
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The Limited Liability Partnership (LLP) firm is being increasingly opted for because of its several benefits, including:
Protection of limited liability, which preserves partners' personal assets from the liabilities of the business.
Flexibility in management since the LLP agreement provides for determining roles, responsibilities and profit-sharing arrangements.
Less compliance burden than private limited companies in terms of administrative costs.
No minimum capital stipulation, which makes it an option well within the reach of a wide range of entrepreneurs.
Perpetual succession with the business persisting even with a change in partners.
Important Features of an LLP
The following are important features of an LLP that make it a special and desirable business entity.
Separate Legal Entity
One of the fundamental Limited Liability Partnership characteristics is that the LLP is regarded as a separate legal entity distinct from its partners. This enables the LLP to acquire property as well as enter into contracts and sue or be sued in its own name. This separation ensures business continuity and enhances credibility, even during partner changes.
Limited Liability for Partners
Members of an LLP have limited liability, meaning they are not liable for the debts and obligations of the business except to the extent of their capital contribution unless there has been fraud or misconduct. Limited liability protection is a key benefit, protecting personal assets from the risks involved in business activities.
Flexibility in Management
LLPs are characterised by their partner-led decision-making structure. The partners can organize the business's internal structure, detailing their roles, responsibilities and share in the profits within the LLP agreement. There is no limitation on the number of partners, and all partners can participate in the management of the business.
No Minimum Capital Requirement
A Limited Liability Partnership can be established with any capital amount, giving small businesses and startups lots of flexibility. There is no statutory minimum amount of capital, making this an attractive structure for startup entrepreneurs with varying financial abilities.
Fewer Compliance Requirements than Companies
LLPs face fewer regulatory obligations than private limited companies, requiring only two annual filings: Form 8 (Statement of Accounts and Solvency) and Form 11 (Annual Return), compared to over ten for companies. Audits are mandatory only if turnover exceeds ₹50 lakh or contributions exceed ₹25 lakh (per MCA 2023 revisions). Partner exits are governed by the LLP agreement, ensuring smooth transitions.
Difference Between LLP and Other Business Structures
Feature
LLP
Partnership Firm
Private Limited Company
Legal Status
Separate legal entity
Not a separate legal entity
Separate legal entity
Liability
Limited to capital contribution
Unlimited (personal assets at risk)
Limited to shares held
Management
Flexible, as per the LLP agreement
Flexible, as per the partnership deed
Board of Directors, statutory norms
Minimum Members
2 partners (no upper limit)
2 partners (max 50)
2 shareholders (max 200)
Compliance
Moderate (e.g., ₹5,000 annual filings)
Minimal, no MCA filings
High (e.g., ₹50,000 for audits, filings)
Perpetual Succession
Yes
No
Yes
Fundraising
Limited, via debt (e.g., bank loans)
Limited, via partner contributions
Equity shares (e.g., VCs, angel investors)
Taxation
30% flat rate at the firm level, no dividend tax
30% at the firm level, no dividend tax
25% corporate tax, plus dividend distribution tax (15%)
Banking
Corporate accounts allowed
No corporate accounts, personal accounts used
Corporate accounts mandatory
LLP vs. Partnership Firm
The primary difference between an LLP and a partnership firm lies in their legal status and liability. An LLP is a separate entity, whereas a partnership firm isn't. Liability of partners in an LLP is limited to their capital contribution, whereas in a partnership firm, partners are personally responsible for the debts of the business.
LLP vs. Private Limited Company
An LLP has lower compliance costs compared to a private limited company, which incurs ₹50,000 for mandatory audits and multiple filings. However, companies can raise equity capital by issuing shares to venture capitalists or angel investors, while LLPs are restricted to debt financing, such as bank loans.Â
How to Register an LLP in India?
Eligibility Criteria
To form an LLP in India, the following criteria must be met:
Minimum of two partners (individuals or corporate entities), with no upper limit.
Minimum two designated partners, of which one should be an Indian resident.
The partners should not be disqualified under the LLP Act 2008.
Step-by-Step Registration Process
Several steps to register an LLP are:
Obtain Digital Signature Certificates (DSCs), valid for two years, for all designated partners to authenticate MCA filings.
Apply for a Designated Partner Identification Number (DPIN) for designated partners.
Reserve the name of the LLP through the RUN-LLP service on the Ministry of Corporate Affairs (MCA) portal.
File the Incorporation Form (FiLLiP) online with partner details, registered office and supporting documents.
Obtain the Certificate of Incorporation from the Registrar of Companies (ROC).
Draft and file the LLP Agreement (Form 3) within 30 days of incorporation, outlining roles, profit-sharing, and management structure.
Documents Required
The following documents are required for registering an LLP:
PAN card and Aadhaar card (or other identity/address proof, e.g., passport, voter ID) for all partners.
Passport-size photographs of all partners.
Proof of the registered office address (e.g., rent agreement or utility bill).
No Objection Certificate (NOC) from the property owner.
LLP Agreement.
Government Fees Involved
Government fees differ depending on capital contribution and are generally as follows:
Name reservation fee: ₹200.
Incorporation fee: ₹500 to ₹5000 (subject to capital contribution).
Stamp duty on LLP agreement: Differs by state.
DSC and DPIN fees: Approximately ₹2,000 per partner, depending on certifying authorities.
Compliance Requirements for LLPs
LLPs are required to comply with certain compliance requirements as specified below:
Annual Filings
LLPs are liable to file:
Form 11 (Annual Return): Needs to be submitted within 60 days of the close of the financial year.
Form 8 (Statement of Accounts and Solvency): Needs to be submitted by October 30 from the financial year-end.
Books of Accounts
LLPs are required to keep digital ledgers of accounts, which should be available at the registered office. The records should be maintained on either a cash or accrual basis.
Filing Income Tax Return
LLPs are required to file yearly income tax returns with the Income Tax Department. Being taxed at the partnership firm level, they are subject to a 30% firm-level tax (business profits are taxed only at the firm level, not at the shareholder level).
Audit Requirements
Audits are mandatory for LLPs with a turnover exceeding ₹50 lakh or capital contributions above ₹25 lakh (per MCA 2025 revisions). LLPs below these thresholds are exempt, reducing costs for smaller entities. Audits, conducted by qualified chartered accountants, ensure financial accuracy and regulatory adherence.
Advantages of an LLP
An LLP offers benefits that ensure the business continues to operate smoothly even after changes in ownership.
Protection of Personal Assets: LLPs provide reliable protection for personal assets by restricting the liability of partners to their capital contribution, except in instances of fraud or wrongful conduct.
Operational Flexibility: The operational flexibility of LLP agreements allows partners to determine management forms, decision-making processes, and profit-sharing mechanisms.
Reduced Registration and Compliance Costs: LLPs incur lower costs, with registration fees around ₹15,000 and annual filings at ₹5,000, compared to ₹50,000 for private limited companies (per MCA 2025 data).
Perpetual Succession: An LLP survives partner exits or deaths, ensuring business continuity. This stability, unlike partnership firms that dissolve on partner changes, supports long-term operations and investor confidence.
Disadvantages of LLP
Although advantageous, an LLP has disadvantages that may lead to penalties or legal proceedings.
Limited Fund Raising Power: LLPs are not in a position to issue shares, hence raising capital from the public or venture capitalists is hard.
Limited Recognition Among Some Investors: Companies are preferred by investors and financial institutions compared to LLPs because there is no shareholding structure in an LLP.
Penalties for Failure to Comply: Failure to comply with filing and regulatory requirements can result in penalties, disqualification or even delisting of the LLP from the MCA register.
Insurance for LLPs
Insurance is essential for Limited Liability Partnerships (LLPs) in India to mitigate financial and legal risks, particularly for those in professional or data-driven sectors. The following policies protect LLPs from potential losses and liabilities:
Professional Indemnity Insurance
Essential for LLPs like chartered accountancy or law firms, Professional Indemnity Insurance covers claims of professional negligence (e.g., ₹5 lakh lawsuits for errors in financial advice).
General Liability Insurance
Commercial General Liability Insurance protects LLPs from third-party claims for bodily injury or property damage arising from business operations (e.g., ₹3 lakh claims for client injuries at an LLP’s office).Â
Cyber Insurance
For LLPs handling sensitive data, such as IT or consultancy firms, Cyber Insurance covers losses from data breaches or cyberattacks (e.g., ₹2 lakh for data recovery).
Conclusion
A Limited Liability Partnership (LLP) is a great option for professionals, small businesses and startups because it has limited liability, flexibility, and affordability. Yet, the owners have to be aware of the Limited liability partnership advantages and disadvantages as well as its compliance with regulatory norms so that no penalties can be imposed upon them. Based on its pros and cons, entrepreneurs can decide whether an LLP would suit their business objectives.
Disclaimer: Above mentioned insurers are arranged in alphabetical order. Policybazaar.com does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer.
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