Structuring of LLP

Rasesh (CS CWA MBA (Fin) B.Com LL.B (Spl))   (6501 Points)

14 March 2010  

Ms. XYZ is a person who is presently doing a home based trading business (buying items from various palces and selling them). This activity is being conducted from her residence. Nothing is being documented. The entire business is managed in cash. The gross monthly turnover is around Rs. 2 lac and the profit is around Rs. 35K. Since the whole business is managed in cash and without documents like invoice etc, Ms. XYZ is fearing as to how to file her IT return.


Now she has decided that she wants to go big and do the business in a legal set up. We have evaluated doing business in the proprietory form, partnership form, LLP and the company form of business and considering her needs, we have zeroed down to LLP.


My queries are on the feasibility as to whether the structure can be formed as under or not:

1) Can the LLP agreement be framed in a manner by which she can be given 95% share of profit and 5% to some close relative who would not bring any capital in cash but the business would be operated from a place belonging to such person. The 5% is given in lieu of rent.

2) Ms. XYZ would be the designated partner. the other person would be a dormant partner. All authorities would be with XYZ only

3) In case anything happens to XYZ, the LLP would be dissolved. 5% of the profits in the LLP would be given to the othe partner and the balance to the legal heirs of XYZ.


I request members to kindly advise me in the matter.