Two chartered accountants going into practice together want the same two things: that one partner's professional error should not reach the other's house, and that they should not spend every October on board minutes for a firm with no board. The LLP was designed for exactly that pair of wishes.
An LLP is a body corporate under the Limited Liability Partnership Act, 2008 in which each partner's liability is capped at their agreed contribution, registered through the FiLLiP form on the MCA portal, with the LLP Agreement filed in Form 3 within 30 days of incorporation.
The bottom line
What you need: two partners and two designated partners, at least one of them resident in India. No minimum capital.
What it saves you: the AGM, the mandatory board meetings and most of the filings a company carries. Audit is required only above ₹40 lakh turnover or ₹25 lakh contribution.
What it costs you: equity fundraising. Venture investors want shares and an ESOP pool, and an LLP has neither.
What an LLP is
An LLP is a body corporate, a separate legal entity distinct from its partners. It owns property, signs contracts, and sues or is sued in its own name. It has perpetual succession, so it survives partners joining and leaving.
The liability protection has two halves worth stating separately. Each partner's exposure is limited to their agreed contribution, so personal assets sit outside the firm's debts. And no partner is liable for another partner's misconduct — which is the clause that makes the structure work for professional practices, where one person's negligence would otherwise sink everyone.
Who should choose it
Professional practices, consultancies and small to mid-sized service businesses. Anywhere the partners fund the business themselves and expect to keep doing so.
Not a business planning a venture round. Angel and VC investors want equity shares, a cap table and ESOPs, and will ask you to convert to a private limited company before they invest. Conversion later is possible through a separate MCA process, and it costs time and money you could have skipped by choosing correctly at the start.
The forms involved
The Limited Liability Partnership Act, 2008 is the statute and the LLP Rules prescribe the procedure. Three names cover the paperwork: RUN-LLP reserves the name, FiLLiP incorporates, and Form 3 files the LLP Agreement.
Step by step
- Obtain Class 3 Digital Signature Certificates for the proposed designated partners from a certifying authority.
- Reserve the name through RUN-LLP on the MCA portal. It must not clash with an existing company, LLP or trademark, and must avoid restricted words.
- File FiLLiP with the details of the LLP, its partners, the contribution and the registered office. Designated partners who do not already hold a DPIN or DIN can apply for one inside this same form.
- Attach the documents, sign with the DSCs and pay the fees.
- Receive the Certificate of Incorporation, together with the LLP's PAN and TAN, once the Registrar approves.
- Execute the LLP Agreement and file it in Form 3 within 30 days. This deadline is the one that costs people money.
The LLP Agreement, and the 30-day trap
The LLP Agreement sets out profit sharing, management, decision-making, what happens when a partner exits and how disputes get resolved. Where the agreement is silent, the default provisions of the Act apply, and they are rarely what the partners would have chosen.
Form 3 has to be filed within 30 days of incorporation. Late filing attracts ₹100 per day, and unlike most penalties it has no upper cap, so an agreement forgotten for a year is a serious number rather than an irritation.
Who can be a partner
A minimum of two partners with no upper limit, and at least two designated partners, of whom at least one must be resident in India. Partners can be individuals or bodies corporate.
Designated partners carry the compliance responsibility personally. That distinction matters when deciding who takes the role — it is not an honorific.
What it costs to keep running
Lighter than a company, but not nothing. Form 11 and Form 8 are due every year, along with the income tax return, whether or not the LLP traded.
Audit applies only above thresholds: turnover above ₹40 lakh or contribution above ₹25 lakh. A separate tax audit applies above ₹1 crore of turnover.
Late filing penalties run at ₹100 per day per form with no cap, which is the single most expensive habit an inactive LLP can develop. Firms that stop trading but never wind up formally accumulate this quietly for years.
Common mistakes
- Choosing an LLP while planning to raise equity. Investors will make you convert.
- Missing the 30-day Form 3 deadline for the LLP Agreement, then paying ₹100 a day until someone notices.
- Proposing a name that clashes with an existing entity or a registered trademark.
- Not realising that designated partners need both a DSC and a DPIN or DIN before anything can be filed.
- Assuming an LLP has no annual compliance. Form 11, Form 8 and the ITR are due every year regardless of activity.
Frequently asked questions
How many partners do I need? At least two partners and two designated partners, with at least one designated partner resident in India. There is no upper limit on partners.
Is there a minimum capital requirement? No. An LLP can be formed with any contribution amount.
Do I need an audit? Only if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh. A separate tax audit applies above ₹1 crore of turnover.
Can an LLP be converted into a company later? Yes, through a separate MCA process, which is the usual route when an LLP decides to raise equity.
What happens if I miss the Form 3 deadline? A penalty of ₹100 per day accrues with no upper limit until the LLP Agreement is filed.
Does an LLP pay tax differently from a company? It is taxed at a flat rate on its profits, and unlike a company it faces no dividend distribution complication when partners withdraw their share.