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Limited Liability Partnerships are one of the most preferred business structures for service sector and for small and medium enterprises.

Limited Liability Partnership concept of business structures are preferably used in UAS, UK, Canada, Japan and various other countries.

In India Limited Liability Partnership Bill, 2006 was introduced in Rajya Sabha on 15th December 2006 and forwarded to Parliamentary Standing Committee, after incorporating suggestions of Parliamentary Standing Committee, the Bill was again put before Rajya Sabha on 21st October 2008.

Limited Liability Partnership Bill, 2008 was passed by the Rajya Sabha on 24th October 2008 and Lok Sabha on 12th December 2008. The Bill received assent of the President on 7th January 2009 as subsequently Limited Liability Partnership Act, 2008 was notified and same was published in Gazette of India on 9th January 2009.

Section 2(n) of Limited Liability Partnership Act, 2008 defines 'Limited Liability Partnership' means a partnership formed and registered under the act.

Section 2(1)(q) of Limited Liability Partnership Act, 2008 defined a 'Partner' in relation to an LLP, to mean any person who becomes a Partner in the LLP in accordance with the LLP Agreement. Section 5 of Act provides that any individual or body corporate may be a Partner in an LLP.

Since an LLP Agreement is required to be filed within 30 days from the date of incorporation, it means that an LLP can be formed without LLP Agreement, but the partners mentioned in the incorporation documents will be the first partners in the LLP Agreement.

Section 22 of Limited Liability Partnership Act, 2008, however, addresses this situation and provides that upon the incorporation of LLP, all the persons who have subscribed their names to the incorporation document shall be the first partners of the LLP.

Wikipedia: A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner's misconduct or negligence.

LLP in India as define in Wikipedia;

LLP is different from a Limited Partnership. It operates like a limited partnership, but in an LLP each member is protected from personal liability, except to the extent of their capital contribution in the LLP.

1. In India, for all purposes of taxation (service tax or any other stipulated tax payment), an LLP is treated like any other Partnership firm.

2.  Be limited to their agreed contribution in the LLP.

3.  Further, no partner would be liable because the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner's wrongful business decisions or misconduct.

4. LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. Indian Partnership Act, 1932 shall not be applicable to LLPs and there shall not be any upper limit on number of partners in an LLP unlike an ordinary partnership firm where the maximum number of partners cannot exceed 20, LLP Act makes a mandatory statement where one of the partner to the LLP should be an Indian.

5. Provisions have been made for corporate actions like mergers, amalgamations etc.

6. While enabling provisions in respect of winding up and dissolutions of LLPs have been made, detailed provisions in this regard would be provided by way of rules under the Act.

7. The Act also provide LP.

8. The Registrar of Companies (Roc) shall register and control LLPs too.


1. Separate legal entity: Like a company, LLP also has a separate legal entity. So, the partners and the LLP in are distinct from each other. This is like a company where partners are different from the company.

2. No requirement of minimum capital: In the case of companies there should be a minimum amount of capital that should be brought by the members or owners who want to form it. But to start an LLP there is no requirement of minimum capital.

3. Minimum number of members: To start a limited liability partnership at least two members are required initially. However, there is no limit on the maximum number of partners.

4. No requirement of compulsory audit: All the companies, whether private or public, irrespective of their share capital, are required to get their accounts audited. But in case of LLP, there is no such mandatory requirement. A limited liability partnership is required to get the audit done only if:

a. If the contributions of the LLP exceeds 25 lakhs or

b. If the annual turnover of the LLP exceeds 40 lakhs [7]


1. It is more flexible to organize the internal structure of LLP. Comparatively, it is complex to organize the internal structure of a company.

2. There is no maximum limit for the number of partners in LLP. In the private limited company, shareholders are limited to the extent of 200 shareholders.

3. Raising and utilization of funds depends on the partners will. Funds can be bought and utilized only as per the norms listed under the Companies Act, 2013.

4. LLP is exempt from Dividend Distribution Tax (DDT). Company must pay DDT on dividend distribution.[8]

5. The professionals like CA, CS, Advocates, engineers, Doctors prefer to register LLPs. [9]


LLPs as well have some limitations within. Some of them can be summarized as below.

1.  Any act of the partner without the other partner may bind the LLP

2.  LLP cannot raise money from public.

3.  Angel investors and venture capital firms generally prefer not to invest in LLPs.



SECTION 10(2A) of the Income Tax Act, 1961; exempts the share of income from the LLP in the hands of the Partners.

(2A) 2 in the case of a person being a partner of a firm which is separately assessed as such, his share in the total income of the firm.

Explanation.- For the purposes of this clause, the share of a partner in the total income of a firm separately assessed as such shall, notwithstanding anything contained in any other law, be an amount which bears to the total income of the firm the same proportion as the amount of his share in the profits of the firm in accordance with the partnership deed bears to such profits;]

CBDT vide Circular No. 8/2014 dated 31st March 2014 clarify that the 'Total Income' of the firm under Section 10(2A) of the Act, interpreted contextually, includes income which is exempt or deductible under various provisions of the Act. It is, there for further clarified that the income of the firm is to be taxed in the hands of the firms only and the same can under no circumstances be taxed in the hands of its partners. Accordingly, entire profit credited to the partners’ accounts in the firm would exempt from the tax in the hand of such partners, even if the income chargeable to tax becomes NIL in the hands of the firms because any exemption or deductions as per provisions of the Act.


SECTION 28(V) of the Income Tax Act, 1961 provide that; interest and remuneration received by a partner from the LLP shall be chargeable to Income Tax as Profits and Gains of Business.

Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40(b), the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted.

The entire salary or interest or remuneration received by the partners excluding if any disallowed under provisions of Section 40(b) of the Income Tax Act, 1961 will be taxable as Profits and Gains of Business in the hand of partners.

SECTION 40(b) of the Income Tax Act, 1961 disallows remuneration, interest etc., received

On the first Rs. 3,00,000 of Book Profit or in case of loss

Rs. 1,50,000 or at the rate of 90% of the Book Profit ,whichever is more

On the balance of Book Profit

At the rate of 60%.

Any provision in the LLP Agreement regarding payment of remuneration, interest or bonus to the partners are subject to ceiling mentioned above and same will be payable on to 'Working Partners'


184. Assessment as a firm. -

(1) A firm shall be assessed as a firm for the purposes of this Act, if -

(i) the partnership is evidenced by an instrument; and
(ii) the individual shares of the partners are specified in that instrument.

(2) A certified copy of the instrument of partnership referred to in sub-section (1) shall accompany the return of income of the firm of the previous year relevant to the assessment year commencing on or after the 1st day of April 1993 in respect of which assessment as a firm is first sought.

Explanation. For the purposes of this sub-section, the copy of the instrument of partnership shall be certified in writing by all the partners (not being minors) or, where the return is made after the dissolution of the firm, by all persons (not being minors) who were partners in the firm immediately before its dissolution and by the legal representative of any such partner who is deceased.

(3) Where a firm is assessed as such for any assessment year, it shall be assessed in the same capacity for every subsequent year if there is no change in the constitution of the firm or the shares of the partners as evidenced by the instrument of partnership based on which the assessment as a firm was first sought.

(4) Where any such change had taken place in the previous year, the firm shall furnish a certified copy of the revised instrument of partnership along with the return of income for the assessment year relevant to such previous year and all the provisions of this section shall apply accordingly.

(5) Notwithstanding anything contained in any other provision of this Act, where, in respect of any assessment year, there is on the part of a firm any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession' and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28.

Note: above provisions are mandatory to claim deduction in case of payment of salary, interest, remuneration, bonus commission to the partners.


Published by

FCS Deepak Pratap Singh
(Manager Compliance -SBI General Insurance Co. Ltd.)
Category Corporate Law   Report

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