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Limited Liability Partnership

Limited Liability Partnership is a type of body corporate under the Companies Act, 2013 with features of a separate legal entity from the partners. The LLP has a perpetual succession and any change among the partners shall not affect the rights and liabilities of the LLP.

Though the name partnership, there is no applicability of the Indian Partnership Act, 1932 to an LLP. An LLP can have partners either or both individuals or companies.

There are certain disqualifications for partners as provided by the act. There shall be at least two designated partners and one of them a resident of India. The partner must give prior consent for acting in such form and manner.

Limited Liability Partnership Features

The features of LLP are as follows:

  • Separate Legal Entity

Unlike Partnership firms, LLP has its own assets and liabilities in the name of the firm. The contracts are entered in the name of the firm as well.

  • Profit Sharing

The business profit shares are similar to the partnership firm. The ratio of profit is decided by the partners.

  • Partners can be an Individual or Body of Corporate

The designated partners can be an individual or body corporate either of them. An individual should be of sound mind and solvent where there is no pending application in the court.

  • No Minimum Capital Requirement applicable to Limited Liability Partnership

An LLP can be incorporated with less contribution as the capital of the firm.

  • Mutual Agency

All the designated partners act as an agent and unlike partnership firms, the action of one partner does not bind another one.

  • Limited Liability

As per the provisions of the Act, a partner is not an agent of other partners and liability is limited to an agreed contribution to the LLP.

  • E-Filing of Documents

The process of compliance is facilitated by the Ministry of Corporate Affairs (MCA) website.

  • Conversion into LLP

A company can be converted into an LLP as per the provisions of the Act.

Limited Liability Partnership Advantages and Disadvantages

Copyright, a form of intellectual property law, protects original works of authorship, including literary, dramatic, musical, and artistic works such as poetry, novels, films, songs, computer software, and architecture. Copyright is not protecting the facts, ideas, systems, or methods of operation, although it may protect how these things are expressed.

Registration Process of Copyright

The following are the advantages and disadvantages of LLP:

1. Advantages of LLP:

  • Distinct Legal Entity

    An LLP is separate from its partners and this makes it more like a company. An LLP can be sued and sued by another person. It can enter into contracts with other businesses in its own name.

  • Limited Liability of Designated Partners

    The partners have liability limited to their contributions made. They are liable to pay only up to the amount of contribution made by them. They are not personally liable for any losses made by the business.

  • Fewer Cost of Compliance

    The cost of compliance with the Limited Liability Partnership Act, 2008 in comparison with a public or private company is relatively lesser. The number of compliances is minimum. The two statements are filled annually namely annual return and Statement of Accounts.

  • No requirement for the contribution of Minimum Capital

    As per the provisions of the act, there is no need for minimum capital for incorporating an LLP.

  • Taxation

    LLP has a lower tax rate in comparison with a limited company. It is also not permitted to pay a dividend distribution tax like a limited company.

  • No Audit Requirement

    There is no mandatory audit that is provided for an LLP. However, a business having an annual turnover as Limited Liability Partnership Act, 2008 notes that the limits are exceeded as prescribed under the law must get its accounts audited by a professional chartered accountant in practice.

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2. Disadvantages of LLP:

  • Penal Provisions in case of Non-Compliance

    The compliance to be followed by an LLP are minimum. When these have not adhered to timely, then an LLP can have a penalty like non-filing of annual returns with the Ministry of Corporate Affairs (MCA).

  • Dissolution and Winding of an LLP

    When the requirement of a minimum of two partners is not complied with for six months and in case of unable to pay the debts of an LLP, then it will be dissolved.

  • Difficulty in case of Transfer of Ownership

    The owners are not transferable without taking consent of all partners of the LLP.

  • Facing Problems in Raising Capital

    There are no equity shareholders like angel investors that cannot invest in the LLP. The partners are the shareholders of an LLP.

  • Admission of a New Partner

    The new partner can be admitted with the consent of existing partners and must change the contributions for the admission of a new partner.

Limited Liability Partnership Vs Partnership Firm

The major difference between an LLP and Partnership firm are as follows:

  • The governing law for LLP is the LLP Act, 2008 and for Partnership firms are the Indian Partnership Act, 1932.
  • The registration of an LLP is mandatory under the act whereas the registration of a Partnership firm is voluntary and not mandatory.
  • The LLP registration form must be submitted with the Registrar of Companies through MCA whereas the registration form is submitted with the Registrar of Firms
  • An LLP is incorporated by law whereas a Partnership firm is formed with a contract.
  • The LLP agreement is the constitution of forming a Limited Liability Partnership in India whereas a Partnership deed forms the constitution of the firm.
  • Filing of annual returns with a statement of accounts is required to be filed every year in the forms with the ROC whereas there is no such annual filing requirement for a Partnership firm.
  • An LLP is eligible for entering the contract in its own name whereas a partnership firm is not eligible to enter into a contract in its own name.
  • The designated partners of an LLP have a limited liability that does not exceed the amount of capital contribution made by them whereas, in a partnership firm, the partners have unlimited liability.
  • The name must include the words ‘LLP’ at the end whereas there is no need to mention any compulsory word in its name.
  • In the case of LLP, there is no maximum limit for partners whereas there is a maximum limit of 100 partners in a partnership firm.

Limited Liability Partnership Vs Limited Partnership

An LLP and Limited Partnerships (LPs) are different businesses carried by two or more individuals having different business needs.

The key points of differences are:

  • LLPs have designated partners whereas Limited Partnerships (LPs) use the term general partners who are responsible for day-to-day management operations.
  • In LLP there is a limited liability which is limited to the capital contributed by the partner; on the other hand, LPs have an unlimited liability means the general partners are personally liable for business debts.
  • In the case of LLP, the decision-making power is with the designated partner; on the other hand, In Limited Partnerships, the general partners do not have decision-making power.
  • The Limited Liability Partnership has income tax rules as per the law, whereas in limited partnerships, paying income tax is as per individual partners paying taxes according to their share of profit per year. Under an income tax, LP is treated as a general partnership.

Limited Liability Partnership Registration Process

Checking Name Availability

Documents Required

  • PAN card of partners
  • Address proof of partners
  • Photographs
  • Digital signature certificate

Proof of registered office address

  • Description of Business activity
  • Contact details of the partners

Filing of Documents

Signing of Documents

  • The Limited Liability agreement is signed on stamp paper by the designated partners.
  • The FiLLiP must be signed with the DSC of designated partners and certification of a professional.

Filing of Documents

Obtaining DSC and DIN and Company Name

  • Obtaining DSC for each designated partner
  • Obtaining DIN for all the designated partners
  • Obtaining the Name of the company with application on RUN services of at least two names on name reservation.

Filing of Documents

Submit documents and Obtain Certification

  • A certificate of Incorporation is issued with the PAN and TAN of the company.
  • The company can open a current bank account after receiving a certificate of incorporation.

Proprietorship vs Limited Liability Partnership (LLP) vs Company

Basis LLP Proprietorship Private Limited Company Partnership
Meaning It is a form of partnership that has limited liability for each partner. It is a business owned by a single person who is responsible for the management and personally liable for debts. It is a privately held business by two or more individuals having limited liability. A business held by two or more partners who share the profits and losses.
Registration Process It is registered under the Limited Liability Partnership Act, 2008 There is no compulsory registration required for Proprietorship The Pvt Ltd company is registered under the Companies Act, 2013. Registration is voluntary and not compulsory and optional for partnership firms.
Name of the Entity The name must be as per the naming guidelines by the MCA and end with the LLP words. A sole proprietor can choose any name for the business. The name should be as per the guidelines and end with the Private Limited Company. Any name can be chosen by the partners for the partnership.
Legal Status of Entity An LLP has a distinct identity from its partners. A proprietor and a business are the same. A Pvt Ltd company is a separate entity from its members. A partnership does not have a separate status from its partners.
Minimum Number of Members The minimum number of members is two for an LLP. The sole owner is the only member in this business. The Pvt Ltd company has minimum two members. There must be at least partners coming together for partnership.
Maximum Number of Members An LLP has a maximum of unlimited partners. A proprietorship has a single person who is the owner. A Pvt Ltd Company has a maximum of 200 members. A partnership can have unlimited members.
Member(s) Liability An LLP has limited liability for its partners. A proprietorship has an unlimited liability of the sole owner. A Pvt Ltd company has limited liability of its members. A partnership has unlimited liability on their partners.
Existence or Survivability The life of business for an LLP does not depend on its partners A proprietorship depends on the sole proprietor. A Pvt Ltd company has perpetual succession. A partnership business is dependent on its partners.
Documents Needed for Registration An identity and address proof of partners and registered office proof is required. An Aadhar card is required for MSME registration. An Identity proof with address proof and photos, DSC of directors and members are required. An identity proof with PAN card copy is required in case of registration.
Annual Filings An LLP has minimal compliances. A proprietorship does not have compulsory registration and thus, no compliance. A Pvt Ltd company has to submit the annual filing for every year with the Registrar. A partnership is not required to file annual accounts.
Registration Cost The cost of registration is government fees and professional charges. There is no compulsory cost of registration as it is voluntary. The cost are the incorporation cost and professional fees. The cost of registration is voluntary.
Statutory Meetings There is no requirement for annual general meetings. There are no provisions for meetings. A Pvt Ltd company must conduct an annual general meeting. There are no provisions for conducting meetings.
Taxation The tax rate of 30% is applicable. The tax is levied on the total income of sole proprietor. The tax rate of 30% is applicable. The tax rate of 30% is applicable on partnership.
Transferability The ownership is transferrable. There is no transferability. The articles restrict the transferability of shares. There is no provision for transferability.
Foreign Ownership The foreigners can invest in LLP with RBI approval. The foreigners cannot start a proprietorship firm. The foreigners can invest in Pvt Ltd company. The foreigners are unable to start a partnership.

Frequently Asked Questions

Is it mandatory to file annual returns for an LLP?
Yes, an LLP is required to file an annual return with the ROC. The LLP must also maintain accurate books of accounts and have them audited if their income is more than a certain amount.
What are the benefits of LLP to corporations?
An LLP is a form of business i.e., organized, provides flexibility with minimum compliances and takes an initiative in professional expertise with combining financial risk in an efficient way.
In which countries where the LLP form is available?
Countries like the United Kingdom, the United States of America, Australia and Singapore also have LLPs as a form of business. You can search for Limited Liability Partnership meaning in Hindi on google.
What is the difference between an LLP and corporates?
The basic difference is that the LLP is incorporated as per LLP law and companies are formed as per the Companies Act, 2013.
What are the effects after a partner’s death in LLP?
The provision of the Act states that the business will continue even after LLP meaning death of the partner.
Which form is required for filing incorporation for a limited liability partnership?
The Form for Incorporation of LLP (FiLLiP) is required to be filed with the required documents like LLP agreement and other documents with the Registrar of Companies through the Ministry of Corporate Affairs (MCA) official website
What are the guidelines for creating an LLP in India?
The guidelines are given by the Limited Liability Partnership Act with essential features for incorporation and required documents with the prescribed form.

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