PIMPRI LAW REVIEW JOUR NAL ISSN: 2583-5947 (Online) VOLUME 2 ISSUE 1 2022

Limited Liability Partnership in India: A

Legal and Economic Analysis

Anita Bhagwat Desale1

Abstract
“The present research article titled "LLPs in India: A Legal and Economic Analysis" seeks to
provide a comprehensive analysis of the regulatory and economic framework governing the
Limited Liability Partnership (LLP) model in India. The article analyses the legal structure
and functioning of LLPs, including the provisions governing registration, management, and
operations of LLPs, as well as the statutory rights and duties of partners. The study further
examines the economic implications of the LLP model, particularly with respect to its role in
promoting entrepreneurship, job creation, and economic growth in India. the research
presents a critical analysis of the existing legal and regulatory framework governing LLPs in
India, identifying areas for potential reform. The findings of this research provide valuable
insights into the legal and economic dimensions of LLPs in India and offer recommendations
for policymakers and stakeholders to optimize the benefits of LLPs while addressing the
associated challenges.”

1 Assistant Professor, Government Law College, Mumbai

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INTRODUCTION
The Limited Liability Partnership (hereinafter as LLP) is widely recognized as an innovative
corporate vehicle that combines the benefits of both partnerships and companies, while
simultaneously minimizing the drawbacks of each. The LLP model seeks to provide members
with the flexibility to organize their internal managerial structure based on mutual agreement,
similar to a partnership, while also conferring limited liability status on partners, akin to the
separate legal personality of a company.2

The hallmark of LLPs is their unique ability to grant limited liability protection to their
members. This shields them from personal liability for the actions of the partnership and
restricts their liability to the extent of their contribution to the partnership. This limited liability
feature is a significant departure from traditional partnerships, which typically do not afford
their members with such protection. Moreover, the LLP structure provides an alternative to the
corporate model, which is often criticized for its rigid hierarchy and cumbersome governance
requirements.

Another distinguishing feature of LLPs is their flexible internal management structure. This
structure is based on mutual agreement among the partners, who are free to determine their
own roles and responsibilities, as well as the terms of their partnership. This level of flexibility
is not available to companies, which are subject to more stringent regulatory requirements and
governance structures.

Overall, the LLP model seeks to offer the best of both worlds - the flexibility and informality
of partnerships, combined with the limited liability protection of companies. As such, it is
increasingly popular among professionals and small businesses looking for a more flexible and
adaptable corporate structure. However, like any business model, the LLP is not without its
challenges, and requires careful consideration and management to ensure compliance with
regulatory requirements and optimal governance practices.

In summary, the LLP is an innovative and versatile corporate vehicle that seeks to balance the
benefits and drawbacks of both partnerships and companies. Its limited liability feature and
flexible management structure make it an attractive alternative to traditional business models.
Further research and analysis is necessary to fully understand the implications and
opportunities of the LLP model for businesses and individuals.

2 Khusi Rajanahalli, Limited Liability partnership as better alternative to incorporation , International

Journal of law management & humanities (2020).
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ORIGIN OF LLP – THE GLOBAL PERSPECTIVE

A Limited Liability Partnership (LLP) is a business structure that combines the flexibility of a
partnership and the limited liability of a company. It was first introduced in USA in 1991then
in the United Kingdom in 2000, following the Limited Liability Partnership Act of 2000. The
idea of LLP originated in the United States, where it was introduced in 19913 .

The origins of LLP can be traced back to the need for an alternative business structure that
offers the benefits of a partnership while avoiding the unlimited liability that partners face in a
traditional partnership. In a traditional partnership, each partner is personally liable for the
debts and obligations of the partnership. This means that their personal assets can be used to
settle any claims against the partnership.

The legal status of Limited Liability Partnerships (LLPs) varies around the world. While LLPs
have become increasingly popular in many countries, their legal status can differ depending on
the jurisdiction. In general, however, LLPs are recognized as distinct legal entities separate
from their partners and have limited liability.

3 Hardeep Kaur Banga, Understanding Tax Liability of Limited Liability Partnership, Available at
http://www.vivaimr.org/pdf/Publication/Understanding%20Tax%20Liability%20of%20Limited%20Liability%2
0Partnership.pdf,
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LLPs in the United States:

The United States played a pivotal role in introducing LLPs as a distinct legal entity. In 1991,
Texas became the first state to enact LLP legislation, allowing professionals such as lawyers
and accountants to operate as LLPs. 4 The rationale behind this legislation was to provide
professionals with limited liability protection while retaining the partnership model's
operational flexibility. Recognizing the success of LLPs in Texas, other states followed suit,
enacting their own LLP statutes.

In the United States, LLPs are recognized in all 50 states and are regulated by state law. 5 The
exact legal status of LLPs can differ depending on the state, but in general, they are considered
separate legal entities from their partners and have limited liability. Partners in an LLP are not
personally liable for the debts and obligations of the partnership beyond their capital
contribution, unless they are negligent or act fraudulently.

LLPs in the United Kingdom:

The United Kingdom has been at the forefront of LLP development. The Limited Liability
Partnerships Act 2000, which came into force in April 2001, established the legal framework
for LLPs in the UK. The Act aimed to provide partners with limited liability, similar to that of
shareholders in a company, while preserving the operational flexibility inherent in traditional
partnerships. This legislation was particularly significant for professional service providers,
such as law firms and accounting practices, who 6 sought a business structure that combined
limited liability with partnership-like features.

LLPs in Singapore:

Singapore recognized the importance of LLPs as a business vehicle and enacted legislation to
accommodate their formation. The Limited Liability Partnerships Act of 2005 provided a legal
framework for professional service providers to operate as LLPs in Singapore.7 The legislation
aimed to offer partners limited liability protection while allowing them to actively manage and

4
W. Smith, “Limited Liability Partnerships: An Idea Whose Time Has Come”. 50(2) The Business Lawyer, , 375-
409 (1995).
5 https://www.upcounsel.com/pllc-vs-llp visited on 22/5/2023

6
A. Jones, the Limited Liability Partnership: A New Legal Entity, 17(2) Butterworths Journal of International
Banking and Financial Law 63-75 (2002).
7
S. Tan, Singapore's Limited Liability Partnerships: Enhancing Competitiveness in Professional Services.
Singapore Journal of Legal Studies, 347-380 (2006).
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operate the business. LLPs in Singapore catered to the needs of various professional services
and provided a balance between limited liability and operational autonomy.

LLPs in Other Countries:

LLP legislation has been adopted in several countries worldwide, each with its own unique
features and requirements. Canada, Australia, New Zealand, Malaysia, Hong Kong, and South
Africa are among the countries that have embraced LLPs to provide a business structure with
limited liability for professionals and service-based businesses.8 These countries recognized
the need for a flexible business form that combines the benefits of limited liability with the
operational advantages of partnerships.

LLPs Development in India

The concept of Limited Liability Partnership (LLP) has gained significant traction worldwide
as an alternative business structure that combines the flexibility of a partnership with the
limited liability protection of a corporation. In India, the LLP form of business organization
was introduced relatively recently with the enactment of the Limited Liability Partnership Act,
2008. This article delves into the legal history of LLPs in India, tracing its origins, key
milestones, and notable developments. Through an examination of legislative changes and
regulatory advancements, we gain a comprehensive understanding of the evolution and
significance of LLPs in the Indian legal landscape.

Enactment of the Limited Liability Partnership Act, 2008: The Limited Liability
Partnership Act, 2008, marked a significant milestone in the legal history of LLPs in India. The
Act was introduced to provide a comprehensive legal framework for the formation, operation,
and regulation of LLPs. It received assent from the President of India on January 7, 2009, and
came into effect on April 1, 2009. The Act established a clear legal framework that outlined
the rights, obligations, and liabilities of partners in LLPs, thereby providing a viable business
structure for professionals and small to medium-sized enterprises (SMEs).

Regulatory Developments and Amendments: Since the enactment of the LLP Act, several
amendments and regulatory developments have shaped the legal landscape of LLPs in India.
The most notable amendment came in 2017 when the Companies (Amendment) Act, 2017,

8
P. Nguyen, Limited Liability Partnerships in Asia: A Comparative Analysis, 15(1) Journal of Corporate Law
Studies, 35-62 (2015).

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introduced provisions for conversion of partnership firms and private companies into LLPs.
This amendment aimed to streamline the process of conversion and provide existing businesses
with the option to adopt the LLP structure. Additionally, the Ministry of Corporate Affairs
(MCA) has introduced various rules and notifications to regulate LLPs, such as the Limited
Liability Partnership (Amendment) Rules, 2018, which simplified compliance requirements
and improved ease of doing business.9

LEGAL PROVISIONS OF LLPs IN INDIA

Limited Liability Partnerships (LLPs) have emerged as a popular business structure in India
due to their flexible nature and the protection they provide to partners. This article aims to
provide a comprehensive overview of the legal provisions governing the incorporation,
management, and winding-up of LLPs in India. By examining the relevant statutes, regulations,
and procedural aspects, this article seeks to enhance understanding of the legal framework
surrounding LLPs.

Incorporation of LLPs: The incorporation process of LLPs in India is governed by the

Limited Liability Partnership Act, 2008 (LLP Act) and the Limited Liability Partnership Rules,
2009. The LLP Act provides detailed provisions for the formation and registration of LLPs. It
mandates the filing of necessary documents, such as the incorporation document, LLP
agreement, and statement of partners, with the Registrar of Companies (RoC). The LLP Rules,
2009 further specify the requirements and procedures for incorporation, including the
reservation of the LLP name, the designated partners' obligations, and the role of the RoC in
processing the application.

Management of LLPs: The LLP Act sets out the legal framework for the management and
administration of LLPs in India. It establishes the role of designated partners who are
responsible for ensuring compliance with the provisions of the Act. The Act also defines the
duties and liabilities of partners, outlining their rights and obligations towards the LLP and
each other. It further specifies the decision-making process, voting rights, and meetings of
partners. Additionally, the LLP agreement plays a crucial role in governing the internal
management of the LLP, including profit-sharing arrangements, capital contributions, and
resolution of disputes.

9Ministry of Corporate Affairs, Government of India, Explanatory Memorandum to Concept Limited Liability
Partnership Rules in relation to establishment of place of business in India by Foreign LLPs available at
https://www.mca.gov.in/Ministry/latestnews/CLLP_7jan2009.pdf,
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Compliance and Reporting: LLPs in India are subject to various compliance requirements,
including the filing of annual statements and returns with the RoC. The LLP Act mandates the
preparation and submission of financial statements, such as the statement of accounts and
solvency, to the RoC. These financial statements provide transparency and accountability,
ensuring that LLPs maintain accurate records of their financial position and performance.
Compliance with tax regulations, such as the filing of income tax returns and payment of
Goods and Services Tax (GST), is also crucial for LLPs to fulfill their legal obligations.

Winding-Up and Dissolution: The LLP Act contains provisions for the voluntary and
involuntary winding-up of LLPs in India. The Act outlines the procedures and requirements
for voluntary winding-up, including the approval of partners, appointment of liquidators, and
distribution of assets. In cases of involuntary winding-up, grounds such as fraud, misconduct,
or oppression may trigger the process. The Act also provides for the recovery of debts and the
settlement of claims during the winding-up process. The role of the RoC and the National
Company Law Tribunal (NCLT) is significant in overseeing the winding-up proceedings and
ensuring compliance with legal requirements.10

10 Limited Liability Partnership Act, 2008

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COMPARATIVE ANALYSIS OF COMPANIES AND LLPS IN INDIA

Limited liability Act, 2008 is an Act through that Limited liability Partnership governed in
India.

Numbers of New Registered LLPs year-wise

from 2009-10 to 2020-21
2020-21, 42185
2019-20, 36177
2017-18, 32935
2016-17, 31043

2015-16, 22505 2018-19, 23705

2014-15, 14682
2013-14, 7982
2010-11, 32206111-12, 42301192-13, 5167
2009-10, 1055
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Registerted LLPs

Numbers of New Registered LLPs year-wise from 2009-10 to 2020-21

Based on the data presented in Graph 01, it can be observed that during the financial year
2009-10, a total of 1055 Limited Liability Partnerships (LLPs) were registered. This number
significantly increased in the subsequent financial year, reaching a total of 3261 LLPs,which is
approximately three times greater than the registrations in the previous financial year.

Furthermore, in the year 2011-12, a total of 4319 LLPs were incorporated, followed by 5167
registrations in the financial year 2012-13. Subsequently, there was a notable increase in
registrations, with 7982 new LLPs in 2013-14, 14682 in 2014-15, 22505 in 2015-16, 31043 in
2016-17, and 32935 in 2017-18.11

11 Ministry of corpora te Affa ir, Monthly Informa tio n Bulletin on Corporate Sector, (Ma rch 2015 – Octobe r 2022).
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However, a sudden decline in registrations was observed in the year 2018-19, with only 23705
LLPs being registered. This figure represents a decrease of approximately 28% compared to
the total registrations in the previous financial year, where 32935 new LLPs were incorporated.
Surprisingly, the following financial year, 2019-20, witnessed a significant increase in
registrations, with a remarkable jump of 152% compared to the previous year. A total of 36177
LLPs were registered during this period.

In the financial year 2020-21, a total of 42158 LLP registrations were recorded. As of October
2022, the number of active LLPs in India stands at 257944. While as of October 31st, 2022, a
total of 1,492,015 companies remains active. Among them, there are 1,413,099 private
companies limited by share and 68,639 public companies limited by share. Additionally, there
are 296 unlimited companies that continue to be active. In India, there are a total of 9,981 active.
companies limited by guarantee. Out of these, 7,654 are private companies, and the remaining
2,327 are classified as public companies.

As of October 31st, 2022, the total number of active companies in India stands at 1,492,015. In
contrast, the number of active Limited Liability Partnerships (LLPs) is significantly lower,
with a count of 257,944. It is noteworthy that the figure representing the number of companies
is approximately 31 times greater than the count of LLPs. The comparative graphic
representation of total active companies and LLPs presented below as

TOTAL ACTIVE COMPANIES Vs. ACTIVE LLP as on

31st October 2022

2,57,944
LLPs
1492015
2000000
COMPANIES
0
TOTAL ACTIVE
ORGANISATION

COMPANIES LLPs

12

12 Ministry of corpora te Affa ir, Monthly Informa tio n Bulletin on Corporate Sector, (Ma rch 2015 – Octobe r 2022).
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In India, the total number of active Limited Liability Partnerships (LLPs) currently stands at
257,944, accounting for approximately 84% of the total number of incorporated limited
liability partnerships. As of October 31st, 2022, the cumulative obligation of contribution
associated with these active LLPs amounts to approximately 156,683.17 Crore Indian rupees.

It is interesting to note that the highest number of LLPs, totaling 189,125, have an obligation
of contribution below or up to one lakh. These LLPs collectively hold a total contribution
obligation of 1,415.44 crores. Surprisingly, LLPs falling into this category constitute
approximately 73.32% of the total LLPs, yet their contribution obligation represents only
0.903% of the total contribution obligation of active LLPs in India.

Furthermore, there are 28,686 LLPs (11.121%) that have an obligation of contribution ranging
from above one lakh to five lakhs. The total contribution obligation for this group amounts to
903.16 crores, which is 0.576% of the overall obligation of contribution of LLPs. Additionally,
a group of LLPs with an obligation of contribution exceeding 10 lakhs but not exceeding 25
lakhs accounts for 0.818% (1,281 crores) of the total obligation of contribution.

In the category of LLPs with an obligation of contribution above 25 lakhs to 50 lakhs, a total
of 5,665 LLPs exist. Above 50 lakhs to 1 crore, there are 4,817 LLPs (1.867%) that remain
active, collectively representing 2.598% of the total aggregate sum of active LLPs' contribution
obligations.13

TESTING THE NATURE OF RELATION BETWEEN INCORPORATION AND

OBLIGATION OF CONTRIBUTION ABOVE ONE CRORE OF LLP

In order to examine the correlation between the quantity of limited liability partnerships (LLPs)
and the LLPs with an obligation of contribution surpassing one crore, comprehensive data has
been gathered from the monthly booklet published by the Ministry of Corporate Affairs. The
dataset encompasses the number of active LLPs as well as the count of LLPs possessing an
obligation of contribution above one crore, spanning from the financial year 2015-16 until
October 2022. The ensuing presentation provides a detailed breakdown of these figures.

13 Ministry of corpora te Affa ir, Monthly Informa tio n Bulletin on Corporate Sector, (Ma rch 2015 – Octobe r 2022).
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Active LLPs LLPs have the obligation of contribution above Rs.1 crore.
Year
2015-16 57503 544

2016-17 86678 2626

2017-18 117387 3560

2018-19 131331 4218

2019-20 162792 5324

2020-21 201754 6387

2021-Oct.22 257944 7775

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In this analysis, a total of 7 observations were considered to investigate the correlation between
the variables under examination. The Pearson correlation formula was utilized to determine the
nature of the relationship between the number of LLPs and LLPs with an obligation of
contribution exceeding one crore. The mean value of active LLPs was calculated as 145055.57,

while the mean value of LLPs with an obligation of contribution above one crore was found to
be 4347.7142. Below are the statistical values derived from the data set for further examination.

Number of Observations Mean value Value of r

Active LLPs 7 145055.57

LLPs (1 Crore) 7 4347.7142 0.982629

The strength and direction of the association between the two variables can be assessed using
the Pearson correlation method, a bivariate analytical technique. The correlation coefficient,
which ranges from +1 to -1, signifies the level of significance and trend in the relationship. A
correlation coefficient of ±1 denotes a perfect correlation between the variables. In this
analysis, the calculated value of r is 0.982629, indicating a strong positive relationship between

14 Ministry of corpora te Affa ir, Monthly Informa tio n Bulletin on Corporate Sector, (Ma rch 2015 – Octobe r 2022).

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the variables. In simpler terms, when the total number of active LLPs decreases, there is a
corresponding decrease in the number of LLPs with an obligation of contribution.

CONCLUSION

The impact of the global economic downturn has been felt not only in India but across various
countries, resulting in adverse consequences for almost every industry within the Indian
economy. In addition to the economic slump, persistent price increases, sluggish industrial
development, high fiscal deficits, and expanding current account deficits have further
dampened business confidence.
India's business sector, a key driver of development, bears significant responsibility amidst the
economic uncertainties prevailing worldwide. The Ministry of Corporate Affairs has
consistently pursued the objective of establishing a favorable legal environment that fosters
business expansion. Notably, in 2012-13, the ministry undertook various measures in
legislation, regulation, service delivery, and capacity development to promote inclusive and
sustainable business success.15 The LLP Act, accompanied by the LLP Rules of 2009 and
2012, establishes the obligatory framework for Limited Liability Partnerships (LLPs) in Indian
business. These comprehensive legal provisions define the nature and process of incorporation
of LLPs, elucidate the roles and relationships of partners, and confer rights and liabilities upon
them. The LLP model, being a hybrid amalgamation of partnership and company structures,
necessitates adherence to financial reporting, investigation procedures, compromise
mechanisms, conversion protocols, winding-up procedures, and compliance with international
LLP regulations.

The corporate sector holds immense importance in the overall economy, with "Indian Inc."
playing a crucial role in India's aspirations to attain developed nation status. However, certain
barriers are there on LLPs, like LLPs face limitations on raising capital from public by issuing
shares unlike company.16 This can restrict their ability to scale up operations and attract larger
investments. So, there is a need that the regulation could be reviewed to provide LLPs with
more flexibility to raise capital from public by issuing securities or allow to list on stock
exchange. Furthermore, lack of awareness amongst the public about the LLP structure and its
beneficial features. There should be increased efforts to educate the entrepreneurs about LLP
through awareness programme. By addressing such issues, it can enhance the effectiveness and
attractiveness of LLPs in India. The effect of LLPs will be to promote entrepreneurship, job

15 https://www.mca.gov.in/Ministry/pdf/NationalGuildeline_15032019.pdf
16 The LLP Act, 2008
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availability and sectoral growth contribute to overall growth. The increased number of startups
and SMEs supported by the LLPs cause to higher productivity, innovation and competitiveness
which stimulates economic growth improves living standards and drives the development of
the Indian economy.

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