What Is a Limited Partnership (LP)?

A limited partnership (LP)—not to be confused with a limited liability

partnership (LLP)—is a partnership made up of two or more partners.
The general partner oversees and runs the business while limited partners
do not partake in managing the business. However, the general partner of
a limited partnership has unlimited liability for the debt, and any limited
partners have limited liability up to the amount of their investment. 

KEY TAKEAWAYS

 A limited partnership (LP) exists when two or more partners go into

business together, but the limited partners are only liable up to the
amount of their investment.
 An LP is defined as having limited partners and a general partner,
which has unlimited liability. 

Understanding Limited Partnerships (LPs) 

A limited partnership is required to have both general partners and limited
partners. General partners have unlimited liability and have full
management control of the business. Limited partners have little to no
involvement in management, but also have liability that's limited to their
investment amount in the LP.

General Partnership (GP)

A general partnership is a partnership when all partners share in the

profits, managerial responsibilities, and liability for debts equally. If the
partners plan to share profits or losses unequally, they should document
this in a legal partnership agreement to avoid future disputes.

A joint venture is often a type of general partnership that remains valid until
the completion of a project or a certain period passes. All partners have an
equal right to control the business and share in any profits or losses. They
also have a fiduciary responsibility to act in the best interests of other
members as well as the venture.

Limited Partnership (LP)

A limited partnership is usually a type of investment partnership, often

used as investment vehicles for investing in such assets as real estate.
LPs differ from other partnerships in that partners can have limited liability,
meaning they are not liable for business debts that exceed their initial
investment.
Partnership Agreement/ Partnership deeds,

in very simple words, are an agreement between partners of a firm.

This agreement defines details like the nature of the firm, duties, and
rights of partners, their liabilities and the ratio in which they will
divide profits or losses of the firm.

Although the drafting of partnership deeds is not compulsory, it is

always advised to do so. This helps in ensuring that all terms agreed
by partners exist in written form on paper. Doing so can reduce
disputes between partners and govern their functioning better.

Unlike similar documents like articles of association of companies,

partnership deeds need not be registered mandatorily. However,
registration can ensure the prevention of legal challenges to its
validity when disputes arise. An ideal partnership deed is
comprehensive and clear about all details pertaining to
the functioning of a firm. It should not contain any ambiguities.

In addition to external filings, the partners of the limited partnership must

draft a partnership agreement. This document is an internal document that
defines how the business will be operated. This agreement outlines the
rights, responsibilities, and expectations of each partner. This document is
not filed with an state or government entity, and the document may be
referred to as the operating agreement.

The partnership agreement should identify two key financial aspects of the
company. First, the agreement should identify how profits and losses will
be shared. This includes how profits will be distributed to partners.
Second, the agreement should identify the process and expectations for
when a partner wants to sell their stake in the partnership. This may
include a notice period or expectations around the first right of purchase
from other partners.

Contents of Partnership Deeds

Although there is no specific format prescribed for drafting a
partnership deed, a typical deed contains the below mentioned
clauses.

1. The name of the firm

2. Name and details of all partners
3. Date of commencement of business
4. Duration of the firm’s existence
5. Capital contributed by each partner
6. Profit/loss sharing ratio
7. Interest on capital payable to partners
8. The extent of borrowings each partner can draw
9. Salary payable to partners, if any
10. The procedure of admission or retirement of a partner
11. The method used for calculating goodwill
12. Preparation of accounts of the firm
13. Mode of settlement of dues with a deceased partner’s executors
14. The procedure followed in case disputes arise between partners
What is a Limited Liability Partnership (LLP)?

Absence of a Partnership Deed

In case partners do not adopt a partnership deed, the following rules
will apply:

a. The partners will share profits and losses equally.

b. Partners will not get a salary.
c. Interest on capital will not be payable.
d. Drawings will not be chargeable with interest.
e. Partners will get 6% p.a. interest on loans to the firm if they
mutually agree.

Limited Liability Partnership (LLP) 

A limited liability partnership (LLP) is a type of partnership where all
partners have limited liability. All partners can also partake in management
activities

However, LLP partners are not responsible for the misconduct or

negligence of other partners.

An LLP has all basic features of a regular partnership firm, except that
of same legal entity status and unlimited liability of partners.
Consequently, limited liability partnerships have legal existence and
identity separate from that of its partners. Furthermore, its partners
have limited liabilities.

Definition of LLP
The Parliament of India passed the Limited Liability Partnership Act
in 2008 to govern LLP businesses in India. According to Section 2 of
this law, an LLP is a partnership registered under the Act. Further, an
LLP agreement means a written agreement either between an LLP’s
partners or between the LLP itself and its partners. This agreement
defines the rights, liabilities, duties, and powers of the partners.

Since the Limited Liability Partnership Act, 2008 specifically

governs limited liability partnerships in India, the provisions of the
Indian Partnership Act, 1932 are not applicable to LLPs. They only
apply to traditional partnership firms.
Features of an LLP
A limited liability partnership contains the following peculiar
features:

1. Separate legal entity

Unlike regular partnership firms, limited liability partnerships are

treated as separate legal entities. This means that LLPs can own
assets and incur liabilities in their own names. They can also enter
into contracts and sue and be sued in their own names.

2. Limited liability of partners

The liabilities of partners of an LLP are separate and limited. Their

personal assets will not liable to attachment in case the LLP is
winding up or suffering certain legal consequences of repayment of
debt.

Partners’ liabilities, however, can become unlimited in cases of

offenses like fraud, the commission of an offense, or any other
wrongful and illegal act.

3. Sharing of profits

All partners of limited liability partnerships share profits of business

just as partners of regular firms. They are, however, free to decide the
ratio in which they will share profits.

4. Partners of LLPs

Partners of a limited liability partnership can be either natural

persons, i.e. individuals, or even body corporates. Furthermore, an
individual cannot be a partner if he suffers from unsoundness of mind
or he is insolvent.
LLPs must have a minimum of two partners at all times. Also, the
maximum number of partners is unlimited, while it is restricted to 50
for regular partnership firms. If at any time, the number of partners in
an LLP becomes less than two, and the sole partner carries on
business for more than six months under such circumstances, his
liability towards the firm’s business will become unlimited.
3.1 LLP Incorporation Process

Stepwise procedure for the incorporation of new LLP is discussed as follows:

Step 1: Procure Digital Signature Certificate

Every form or application is filed online with the MCA, which requires to be signed digitally
by the applicants and partners of the LLP. Therefore, the DSC with validity of 2 years
is procured for the Designated Partners of the Limited Liability Partnership. The DSC is
associated with the PAN card of the application. It further requires passport size
photograph and address proof.

Step 2: Reserve LLP Name

The new process requires the applicants to file the web form named RUN-LLP (Reserve
Unique Name – Limited Liability Partnership). The similar web form – RUN is already
deployed to secure company’s name. RUN-LLP has replaced the old form LLP Form 1. The
new form has been simplified that requires information related to the desired name, its
significance and other basic details.
 The application can be made with maximum 2 names in preference order providing
their significance. The names must comply with the applicable provisions for name
reservation. If none of the names is approved by the MCA, another chance is provided
to apply two more names.

The government fees for RUN, as per Register Office Fees Rules, shall be Rs 1,000. DSC
and DIN are not required for filing of RUN form for reservation of name but account of
MCA portal is mandatory. Once the name is allotted for LLP, it is reserved for a period of
90 days from date of approval.

Step 3: Preparation of Documents for Incorporation of LLP

After approval of name, LLP applicant is required to prepare the following documents:


 Proof of office address (Conveyance/Lease Deed/Rent Agreement etc. along with rent receipts)
 NOC from owner of the property
 Copy of utility bills (not older than 2 months)
 Subscription sheet including consent
 In case, a designated partner does not have a DIN, it is mandatory to attach: Proof of identity and
residential address of the subscribers
 All the DPs should have digital signature
 Detail of LLP(s) and/or Company(s) in which partner or designated partner is a director/partner
 Copy of approval in case the proposed name contains any word(s) or expression(s) which requires
approval from Central Government.

Step 4: LLP Incorporation and DIN Application

The major change in the new process is this step and application. Earlier, the incorporation
application was supposed to be filed in LLP form 2, which is now replaced with FiLLiP
(Form for incorporation of Limited Liability Partnership). The most significant part is
integration of DIN Allotment Application with incorporation application. Below mentioned
are the features of the application:


 DPIN/DIN application for maximum 2 Designated Partners (DPs) can be made under the application.
If there are more than 2 DPs who do not hold DIN, they can be added later by following respective filings.
 With this form, the application for name reservation can also be made. However, that is kept at the option
of the applicants. The applicants can either choose to reserve name through LLP-RUN or under this form.

The application is accompanied with required documents including the subscriber’s sheet and
registered office address proof. The e-form will be attested by the partners through PAN
based DSC and certified by the practising professional (CA/CS/CWA).

The application will be processed for approval by Central Registration Centre (CRC). If the
registrar finds it necessary to call for further documents or information, he may do so
by directing for re-submission within 15 days. Another opportunity of re-submission
maybe provided after re-examination of application, which again has 15 days period. It is
provided that the total period for re-submission of documents shall not exceed 20 days in
total.
Upon approval of the application made for LLP registration online, the Certificate
of Incorporation (CoI) will be issued in form 16 along with DPIN/DIN allotted to the
Designated Partners. CoI will also consist of the Limited Liability Partnership Identification
Number (LLPIN). The date of CoI will be the date of LLP incorporation since when it has
come into legal existence. LLP is now entitled to commence business in its name.

Step 5: Apply for PAN and TAN

Unlike the in case of company, the application for PAN and TAN is required to be made
separately for LLP through offline or online mode. The applications are made directly to
the Income Tax Department and also processed by it. The applications are made in forms
49A and 49B respectively with Certificate of Incorporation as supporting proof.

Step 6: Drafting and Filing LLP Agreement

The next step will be to draft LLP Agreement carefully and based on the partners’
requirements. Step-4 and Step-5 both can be processed simultaneously, however, this step
would take a little longer to complete than simply making the application.