Limited Liability Partnership  (LLP)

Limited Liability Partnership (LLP)

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Last Updated: Apr 9, 2024

An LLP is a special type of partnership. There is limited liability on some or all of the partners, which means that one partner will not be liable for another’s misconduct. In an LLP, some partners have a limited liability like the corporation's shareholders have. An LLP is a separate legal entity from its partners and is perpetual in succession. An agreement between the partners governs the duties of the partners towards each other. LLPs in India are governed by the Limited Liability Partnership Act, 2008. Minimum two partners are required to set up a LLP. An LLP should also have a minimum of two designated Partners both individuals, one of which is a resident in India. There is no minimum capital requirement for setting up an LLP.

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Registration Process

  1. Obtaining Digital Signature Certificate for the Proposed Partners
  2. Obtaining Director Identification Number for the proposed Partners
  3. Name Approval from Ministry of Corporate Affairs(MCA)
  4. Filing Incorporation
  5. Filing Limited Liability Partnership Agreement (within 30 days from the date of incorporation of the LLP)

Processing Time- 20 days (Approx.)

Responsibilities of a Designated Partner

One of the basic requirements that arise from a person being a designated partner are filing documents, returns, statements etc. Further important duties of a designated partner are mentioned below-

  • The Designated Partner is the authorized person to affix his signature on the statement of account and solvency, which the LLP files.
  • Designated Partner on the behalf of LLP has to file annual returns within 60 days from the date of the closure of financial year to the registrar, failure of which will result in a fine exceeding Rs 10,000 being imposed on the designated Partner.
  • If needed the Designated Partner has to file the returns of the documents.
  • It is the duty of the partner to help the investigating officer on inquiry or inspection, by supporting the authority with necessary documents, information, signing the notes for examination etc.
  • A designated partner also has to reimburse any expenses incurred on an investigation conducted by the investigating officer.

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Key clauses in an LLP agreement

An LLP agreement defines the rights and duties of the partners. The LLP agreement helps in clarifying the relationship between the partners and the LLP.

Business of LLP Clause

The LLP agreement should have a clause that determines the business's type and object to be incorporated. This clause also contains information on the business's main office, which may be different from the registered office.

Governing Body clause

The clause mentions the governing body under which the LLP is governed and established.

Capital Contribution by Partners Clause

Capital contribution refers to the money contributed by each partner at the time of the incorporation of LLP. The LLP agreement clarifies that no interest will be paid to the members on their capital contribution.

Profit/ losses sharing ratio clause

This clause determines the ratio of sharing of the profits and losses. Generally, the profit and losses are divided according to the capital contribution by the partners but not always. Hence, it is necessary to add this clause in the agreement too.

Drawings and Expenses Clause

Every member is entitled to use a certain amount from the LLP fund every month. This is a payment on each member’s annual profit share and recognition that a member has personal requirements which they will not be able to meet if the profit share is determined at the end of each year.

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Indemnity clause

This clause casts an obligation on the members of the LLP to act in good faith and perform their duties to the fullest. Each member is indemnified by the LLP against any claim arising from the performance of duties by the member about the LLP. This clause gives individual members of the LLP protection against third party claim made against them rather against the LLP.

Duties of Partners clause

The partners are required to obligate certain duties towards the LLPs. The duties to be performed by the partners are to be specified in the agreement.

Rights and liabilities of Partners clause

The agreement also has to define the rights and duties possessed by the members and partners while conducting business. Certain liabilities on the partners should be incorporated in the agreement only.

LLP Banks Clause

This clause names with address the banks related to LLP and its transactions.

Accounts Clause

Maintenance of accounts is a statutory requirement in the LLPs under the LLP act, 2008. This clause clarifies which accounts are to be maintained and which books are kept.

Termination clause

This clause determines the termination of any member. When any member ceases to carry business of LLP s/he is entitled to receive his/her share in the LLP, undrawn profits and share of goodwill depending on terms of LLP.

Dispute Resolution Clause

It is a necessary clause in the LLP agreement. A natural output of working together is dispute, the disputes must be amicably solved.

Dissolution Clause

The members may define in the agreement what would happen to the LLP after the death or retirement of member.

Expulsion Clause

Members can be expelled from the LLP, the LLP agreement defines the grounds on which a member may expelled and the procedure thereof.

Insurance Clause

It is normal to have insurance of the premises or assets in a business, this clause defines it in the LLP.

Holidays Clause

The entitlement of holidays and other maternity/paternity leaves is determined in this LLP agreement clause.

Confidentiality Clause

Members mustn’t disclose the matters of the LLP while they are in employment or out of the employment. Hence, this clause defines the various conditions.


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