LLP Agreement — Limited Liability Partnership Deed (Indian Law)

Under the Limited Liability Partnership Act, 2008, each partner's liability is limited to their unpaid capital contribution as agreed in the LLP Agreement. Partners are not personally liable for the debts, obligations, or wrongful acts of other partners or of the LLP itself — unlike general partnerships under the Indian Partnership Act, 1932 where partners face unlimited joint and several liability. However, a partner (and particularly a Designated Partner) may face unlimited personal liability for acts of fraud, wilful misconduct, gross negligence personally attributable to them, and for regulatory penalties arising from wilful non-compliance with the LLP Act.

Designated Partners (DPs) occupy a position of elevated statutory responsibility under Section 8 of the LLP Act, 2008. Their obligations include: (1) Filing Form 11 (Annual Return) within 60 days of the close of each financial year; (2) Filing Form 8 (Statement of Account and Solvency) within 30 days of completion of six months from the financial year end; (3) Filing amendments to the LLP Agreement (Form 3) within 30 days; (4) Filing changes in partners (Form 4) within 30 days; (5) Maintaining statutory books and records; (6) Ensuring the LLP always has at least two partners and two Designated Partners; and (7) Being personally liable for penalties for non-compliance arising from their wilful default. Every LLP must have at least two Designated Partners, at least one of whom must be ordinarily resident in India, and each must hold a valid DPIN/DIN and have given consent in Form 9.

An LLP Agreement can provide for any profit-sharing arrangement agreed upon by the partners — equal shares, percentage-based ratios, proportional to capital contribution, or a hybrid structure combining fixed and variable components. In addition to profit shares, working partners can receive remuneration (salary/commission) which is deductible as a business expense from the LLP's taxable income, subject to the ceiling prescribed under Section 40(b) of the Income Tax Act, 1961. Partners may also receive interest on their capital contributions, deductible up to 12% per annum. The LLP Agreement must explicitly authorise both remuneration and interest for them to be tax-deductible. Distributions of profit to partners (after payment of LLP-level tax) are exempt in the hands of partners under Section 10(2A) of the Income Tax Act, 1961.

An LLP is treated as a separate taxable entity under the Income Tax Act, 1961, and is taxed at a flat rate of 30% on its total taxable income, plus applicable surcharge (12% where income exceeds INR 1 crore) and health and education cess (4%). Unlike companies, LLPs are not subject to dividend distribution tax (DDT). Partner remuneration and interest on capital (within Section 40(b) limits) are deductible at the LLP level; profits distributed to partners are exempt from tax in their hands. Partners are individually taxable on the remuneration and interest received from the LLP. LLPs may also be subject to GST (if turnover exceeds the threshold), TDS obligations, professional tax, and other indirect tax requirements depending on the nature of their business.

A new partner may be admitted to an LLP only in accordance with the LLP Agreement. Typically, admission requires: (1) Unanimous or special resolution approval of existing partners (as specified in the Agreement); (2) Execution of a Deed of Accession by the incoming partner; (3) Making the agreed capital contribution; (4) Filing Form 4 (notice of change in partners) with the Registrar within 30 days; and (5) Amending the LLP Agreement (Form 3) to reflect revised profit-sharing and capital ratios. If the new partner is to be a Designated Partner, they must also obtain a DPIN/DIN and file Form 9 (consent to act as Designated Partner).

An LLP can be dissolved voluntarily or by order of the tribunal/court under the LLP Act, 2008. Voluntary dissolution requires unanimous consent of all partners and must be notified to the Registrar. The dissolution process involves: (1) Ceasing new business commitments; (2) Collecting all outstanding receivables and settling all liabilities (creditors, employees, tax authorities); (3) Preparing and filing all outstanding statutory returns; (4) Distributing surplus assets among partners in accordance with the LLP Agreement's waterfall; and (5) Filing Form 24 (application for voluntary striking off) with the Registrar after satisfying prescribed conditions. The Registrar, after due process, will strike off the LLP and issue a notice of dissolution.

Annual statutory compliance for an LLP includes: (1) Filing Form 11 (Annual Return) — within 60 days of end of financial year (i.e., by 30th May); (2) Filing Form 8 (Statement of Account and Solvency) — within 30 days of completion of 6 months from end of financial year (i.e., by 30th October); (3) Filing income tax returns — by 31st July (non-audit LLPs) or 31st October (audit LLPs); (4) GST returns (GSTR-1, GSTR-3B, GSTR-9 as applicable); (5) TDS filings (if applicable); and (6) Statutory audit (if turnover exceeds INR 40 lakhs or capital contribution exceeds INR 25 lakhs). Failure to file forms attracts a penalty of INR 100 per day per default under the LLP Act.

The key differences are: (1) LIABILITY — Partners in an LLP have limited liability capped at their capital contribution; partners in a general partnership firm have unlimited joint and several personal liability for the firm's debts. (2) LEGAL STATUS — An LLP is a separate legal entity with perpetual succession; a general partnership is not a separate legal entity. (3) REGISTRATION — An LLP is registered with the Registrar of Companies under the LLP Act, 2008; a partnership firm is registered (optionally) under the Indian Partnership Act, 1932. (4) COMPLIANCE — LLPs have mandatory annual filing obligations under the LLP Act; partnership firms have no equivalent mandatory filings. (5) NUMBER OF PARTNERS — An LLP has no upper limit on partners; a general partnership is capped at 100 partners. (6) TAXATION — Both are taxed similarly as firms under the Income Tax Act, 1961, at 30% flat rate.