Limited Liability Partnership In India
✅ Limited Liability Partnership (LLP) in India – Detailed Explanation with Case Law
🔹 1. What is an LLP?
A Limited Liability Partnership (LLP) is a hybrid form of business entity that combines the benefits of a traditional partnership with the limited liability features of a company.
It was introduced to provide a flexible, low-compliance structure for small and medium enterprises (SMEs) and professionals.
🔹 2. Governing Law
LLPs in India are governed by:
Limited Liability Partnership Act, 2008
LLP (Amendment) Act, 2021
Rules made under the Act (LLP Rules, 2009)
The law came into effect on 31st March 2009.
🔹 3. Key Features of LLP
| Feature | Description |
|---|---|
| Separate Legal Entity | LLP has its own legal identity distinct from its partners. |
| Limited Liability | Liability of partners is limited to their contribution in the LLP. |
| Perpetual Succession | Continues even if partners leave or change. |
| No Minimum Capital | No mandatory minimum capital contribution. |
| Flexible Management | LLP Agreement governs internal structure and duties. |
| Taxation | LLP is taxed like a partnership firm, not like a company. |
🔹 4. Who Can Form an LLP?
Any two or more individuals or body corporates can form an LLP.
Must have at least two designated partners, and at least one must be a resident of India.
🔹 5. Incorporation Process
Obtain DSC (Digital Signature Certificate)
Apply for DPIN (Designated Partner Identification Number)
Name reservation through RUN-LLP service (Reserve Unique Name)
File incorporation documents with Registrar of Companies (ROC)
LLP Agreement to be filed within 30 days of incorporation
🔹 6. Advantages of LLP
Limited liability protection for all partners.
Lower compliance costs than private companies.
No dividend distribution tax.
Suitable for professionals, startups, and MSMEs.
Audit not mandatory unless turnover exceeds ₹40 lakh or capital contribution exceeds ₹25 lakh.
🔹 7. Case Law on LLPs in India
✅ Rameshwar Associates v. Director, Ministry of Corporate Affairs (2022)
Issue: Whether LLPs can be struck off by the Registrar for non-compliance.
Held: Registrar has powers under Section 75 of LLP Act to strike off defaulting LLPs.
Importance: Reinforces the need for compliance, like filing returns and maintaining books.
✅ Dharmendra Kumar & Anr. v. Union of India (Delhi High Court, 2015)
Issue: Challenge to criminal prosecution for non-filing of LLP forms.
Held: Criminal liability must be backed by clear mens rea (intention); penal provisions must be read strictly.
Significance: Protected LLP partners from excessive penal actions without due process.
✅ Institute of Company Secretaries of India v. Union of India (2019)
Issue: Whether professionals (CS, CA, etc.) can form LLPs for providing professional services.
Held: Professionals are allowed to form LLPs subject to regulatory oversight by their respective institutes.
Importance: Clarified that LLPs are ideal for professional services.
✅ Commissioner of Income Tax v. Suresh Soni LLP (2021)
Held: LLP is not subject to dividend distribution tax, unlike companies.
This makes LLPs more tax-efficient than private limited companies.
🔹 8. LLP vs Private Limited Company
| Criteria | LLP | Private Limited Company |
|---|---|---|
| Legal Status | Separate legal entity | Separate legal entity |
| Liability | Limited | Limited |
| Minimum Members | 2 Partners | 2 Shareholders, 2 Directors |
| Compliance Requirements | Lower | Higher (ROC filings, audits, etc.) |
| Taxation | Partnership firm tax rates | Corporate tax rates |
| Transferability | Less flexible | More flexible |
🔹 9. Amendment via LLP (Amendment) Act, 2021 – Key Changes
Decriminalization of minor offences.
Introduction of Small LLPs (with lower fees and relaxed compliance).
Provision for Compounding of offences.
Allowing LLPs to issue Non-Convertible Debentures (NCDs) to raise funds.
🔹 10. Limitations of LLP
Cannot raise equity capital from public/investors.
Some investors prefer private companies due to shareholding structure.
Certain sectors (like NBFCs or stock broking) are not allowed to operate as LLPs.
🔹 Conclusion
The LLP structure in India is ideal for:
Professionals like CAs, lawyers, architects
Startups and MSMEs looking for flexible structures
Joint ventures or small family businesses with limited risk
With the evolving legal landscape and reduced compliance burden, LLPs have emerged as a strong alternative to traditional companies or partnerships, offering the best of both worlds — flexibility of partnerships and protection of limited liability.
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