Limited Liability Partnerships in India This PPT is prepared by P. GAMBHIR & ASSOCIATES (PGA) to provide foreign companies a general information about the options available for setting LLP in India and brief introduction of its regulatory and tax aspects. It contains relevant rules prevailing in India in March, The information contained in this article is not our comprehensive or exhaustive study but for the general information of the readers. It is not meant to address any particular set of circumstances. We strongly recommend readers to seek professional advice before taking any decision. For any further information, please visit PGA at or mail us at or

Introduction To stimulate growth of Indian economy, the Government of India has recently introduced a new form of Corporate Business Entity called the Limited Liability Partnership (LLP) by enacting the Limited Liability Partnership Act, 2008 based on UK/Singapore Models. LLP is a new commercial vehicle that does away with the limitations of traditional partnerships and combines the advantages of both partnership and company form of organization. It is a statute based governed structure that provides flexibility in organizing the internal affairs based on mutual agreement and at the same time provides corporate shield of limited liability. LLP is a body corporate with perpetual succession and separate legal entity, where the liability of partners is limited. Individuals residing outside India and Companies/LLP incorporated outside India may also form and become partners in Indian LLP. Rules are being formulated, permitting foreign LLPs to establish business in India. CA. Parveen Gambhir 2© P. GAMBHIR & ASSOCIATES 2009

Governing Laws LLPs in India are governed by the Limited Liability Partnership Act, 2008 that confers powers on the Central Government to apply the provisions of the Companies Act, 1956 to LLPs. It has been clarified that the provisions of the Indian Partnership Act, 1932 shall not apply to LLPs. Ministry of Corporate Affairs of Government of India shall administer the law. 3© P. GAMBHIR & ASSOCIATES 2009

Features of LLP LLP is a body corporate. LLP has perpetual succession. LLP has a separate legal entity. Partners can manage the entity. For the purpose of business, partner is an agent of LLP but not of other partners. Change in partners shall not affect the existence, rights or duties of LLP. 4© P. GAMBHIR & ASSOCIATES 2009

LLP Name & Name Reservation LLP Name LLP has the right to select its name but need to satisfy name guidelines. Name should reflect the business. LLP is required to get its name approved. LLP needs to have words ‘Limited Liability Partnership’ or ‘LLP’ as last words of its name. Name Reservation A foreign LLP or company can apply to the Registrar for the reservation of a name. Such reservation is initially granted for three years which can be renewed. 5© P. GAMBHIR & ASSOCIATES 2009

LLP Registered Office & LLP Agreement/Charter LLP Registered Office LLP needs to have a registered office in India. LLP may change its registered office. LLP Agreement/Charter Like partnership, LLP may have an agreement defining its name, registered office, names of partners, designated partners, profit sharing arrangement, rights and duties of partners, etc. In the absence of such an agreement, the provisions of Schedule 1 to the LLP Act shall apply. Partners may amend the agreement as per rules. 6© P. GAMBHIR & ASSOCIATES 2009

Partners Needs to have at least two partners that may be individuals or body corporate. No limit on maximum number of partners. Partners may consist of: Companies incorporated in or outside India. LLP incorporated in or outside India. Individuals residing in or outside India. LLP shall have at least two individuals as Designated Partners; at least one of them should be a resident in India. Designated Partners should obtain Designated Partner Identification Number (DPIN) from the Ministry of Corporate Affairs, Government of India. At least one of the designated partners should have Digital Signature Certificate (DSC) as forms relating to incorporation and thereafter are to be filed online after being digitally signed. 7© P. GAMBHIR & ASSOCIATES 2009

Liability of Partners Liability of partners is limited to their agreed contribution that may be tangible or intangible in nature or both. Liability of LLP is not the liability of the partners. No partner is liable for an unauthorized act of other partners or their misconduct. A partner acting to defraud others or for fraudulent purposes shall have unlimited liability. Winding Up The winding up of LLP may be either voluntarily or by the order of the Tribunal, to be established. Till the Tribunal is established, the powers shall vest with the jurisdictional High Courts. 8© P. GAMBHIR & ASSOCIATES 2009

Management & Control & Conversion of Existing Entities Management & Control Shall be governed by LLP agreement, if no such agreement, Schedule 1 of the Act will apply. LLP may appoint any partner as ‘Managing/Executive Partner(s)’. Other partners may also join the management. Designated partners have no implied authority to manage the affairs of LLP. Designated partners are responsible for regulatory compliances. Conversion of Existing Entities Firms, private limited companies and unlisted public limited companies are allowed to be converted into LLP. Compromise and other arrangements possible like merger, amalgamations, etc. 9© P. GAMBHIR & ASSOCIATES 2009

Accounts & Audit Every LLP is to maintain proper books of account. Required to follow financial year from 1 st April of a year to 31 st March of the following year. Required to prepare a Statement of Account and Solvency for every financial year in the prescribed manner within six months from the end of each financial year and such statement is to be signed by the designated partners. LLP to file the Statement of Account and Solvency with the Registrar. LLP accounts are required to be audited, if its turnover exceeds 4 Million INR, in any financial year or shareholders contribution exceed 2.5 Million INR. Required to file an annual return with the Registrar of Companies. All accounts and other documents shall be available to public for inspection. 10© P. GAMBHIR & ASSOCIATES 2009

Tax Laws The Government of India is to notify applicability of various tax laws. The coming budget should bring necessary notifications. Till such time, we need to wait and watch how LLP and its partners are taxed. To our mind: LLP would be liable to pay Service Tax on the value of taxable services provided by it. It would be liable to pay income tax on its income at the rates, as may be announced, including Minimum Alternate Tax (MAT) that is paid on the book profits. It would be liable to pay Fringe Benefit Tax on the value of specified and deemed fringe benefits provided by it to its employees. Rules relating to tax deduction and withholding taxes shall also apply to LLPs. Rules relating to Transfer Pricing on cross border transactions between associated concerns would also be applicable. 11© P. GAMBHIR & ASSOCIATES 2009

Advantages Separate legal entity with perpetual succession. Liability of members is limited. Easy to form and wind up in comparison to subsidiaries. Partners can manage the affairs of LLP. Flexibility in operations. Partner not an agent of other partners. No requirement of minimum capital contribution. No limit on maximum number of partners. Thin Capital Rule applies. Personal assets of partners not exposed. Simple regulations. 12© P. GAMBHIR & ASSOCIATES 2009

Thanks For further information, please visit PGA at or 0r or contact us at: 87-B, Masjid Moth – II, DDA Flats, Greater Kailash - III New Delhi (INDIA) Tel/Fax: , © P. GAMBHIR & ASSOCIATES 2009