The Indian Concept of Limited Liability Partnerships

Abstract

An alternative business structure that combines the traits of a traditional partnership and a private company is an LLP. Through an agreement between the partners, LLP offers its partners limited liability status as well as the flexibility of internal arrangement. In contrast to a sole proprietorship or a traditional partnership, this combination will provide entrepreneurs and businesspeople with a more organised business vehicle. On October 21, 2008, the Rajya Sabha received the LLP Bill, 2008. On October 24, 2008, the Rajya Sabha approved this. On December 12, 2008, the Lok Sabha approved the bill. The President signed this bill into law on January 7, 2009. This has made it easier for business owners to get into the corporate sector. With the growing trend of LLP registrations and the conversion of classic unlimited partnerships to LLP status in the global landscape, the topic of limited liability partnerships has become increasingly important. The globe over has shown a growing amount of serious interest in converting to LLP status in recent years. With each passing day, the conversion to LLP gains speed. As a type of alternative business vehicle, the LLP was also introduced in nations including the United States, United Kingdom, Singapore, India, and Japan. A new organisational form called an LLP combines the benefits of a company\'s limited liability with the flexibility of a partnership at a low cost of compliance. It is a body corporate that operates continuously like a firm and has its own legal identity.

Introduction

• LLP (Limited Liability Partnership) is a corporate structure introduced under the LLP Act, 2008, offering the benefits of limited liability while allowing flexibility of a partnership.

• Features of LLP include:

  • Unlimited number of partners

  • Members’ liability limited to their contribution

  • Separate legal entity

  • Ability to own property, sue, and be sued

  • Perpetual succession

• The LLP Agreement governs the partnership; otherwise, default provisions apply, which may be unsuitable.

• The LLP Act was passed after multiple committee recommendations and legislative processes spanning from 2003 to 2009.

II. Historical Development of LLP Law in India

• 1957–2005: Various committees, including the Naresh Chandra and JJ Irani Committees, pushed for LLP legislation to benefit service industries and small enterprises.

• 2006–2009:

  • The LLP Bill went through several drafts, committee reviews, and revisions.

  • Final approval and enactment occurred in January 2009, with operational rules and supporting websites launched in April 2009.

  • Provisions for conversion from existing firms to LLPs came into effect by May 31, 2009.

III. FICCI’s Response and Recommendations

The Federation of Indian Chambers of Commerce and Industry (FICCI) supported the LLP law but proposed 13 key amendments, including:

1. Mandatory insurance for LLPs to protect third-party claimants (like in the UK).

2. Alignment with FEMA and FDI laws for foreign investment in LLPs.

3. Limit excessive governmental discretion in applying Companies Act provisions to LLPs.

4. Allow stamp duty exemptions for converted LLPs (like UK law).

5. Address taxation separately via amendments to the Income Tax Act, rather than embedding it in the LLP Act.

6. Clarify tax treatment of LLPs—whether they’re taxed as companies or partnerships.

7. Provide capital gains exemptions on conversion to LLPs.

8. Allow automatic route for foreign investments into LLPs.

9. Change partner induction rules to three-fourths majority, not unanimous consent.

10. Prevent dummy managers and ensure qualified personnel oversee compliance.

IV. Legal and Policy Suggestions

• Implement pass-through taxation by amending the Finance Act of 2009.

• Include provisions for reverse conversion from LLPs.

• Clarify tax liabilities post-conversion.

• Expand capital gains tax exemption under Section 47.

• Adopt a pro-LLP taxation approach to encourage usage.

• Ensure clarity in foreign investment regulations under FEMA, 1999.

V. Human Rights and Narco Analysis

• The use of narco-analysis (truth serum-based interrogation) was critically assessed.

• Recommendations:

  • Ban the practice as it violates human rights and is inhumane.

  • Instead, train investigation agencies in modern, constitutional investigative techniques.

  • Strengthen intelligence systems.

  • Avoid scientific methods that violate constitutional protections.

References

[1] Ministry of Finance & Company Affairs, Department of Company Affairs, Government of India Report of the Committee on Regulation of Private Companies and Partnership(Naresh Chandra Committee, Parti, 2003. [2] Ministry of Finance & Company Affairs, Department of Company Affairs, Government of India, Report of the Committee on Regulation of Private Companies and Partnership(Naresh Chandra Committee, Parti, 2003 [3] Ministryof Finance & Company Affairs, Department of Company Affairs, Government of India, Report of the Committee on Regulation of Private Companies And Partnership(Naresh Chandra Committee, Parti, 2003. [4] TheChandraCommittee’sReportEvenBrieflyDescribed Nuances in LLP Law in the United States, Including For Example a Discussion of Differences in LLP Liability Regimes in Texas and Delaware. The Committee Also Noted That Delaware Permits Foreign Llps, Which the Committee Said Would Be Unwelcome By Any Body of Professionals In India. [5] Irani JJ. Comm. Report on CompanyLaw 19 Available at Ttp://Www.Primedirectors.Com/Pdf/JJ%20Irani%20Repo rt-MCA. Pdf (Listing The Following Regulated Professionals As Examples: Company Secretaries, CharteredAccountants,CostAccountants,Lawyers, [6] Kothri Vinod & Mukerjee Samik (2005): \"Irani Committee Report- An Analysis of Corporate Law reform in India\" The Chartered Accountant Vol 54 No1 July. [7] Jhaveri Shreyas & Sithapathy Vinita (2006): \"Limited liability partnership: An insight\", The Chartered Accountant Vol. 55 No 3 September. [8] www.llp.gov.in [9] www.mca.gov.in.

Copyright

Copyright © 2025 Navdeep Parbhakar. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.