Partnership Act & LLP Act
Complete guide to the Indian Partnership Act, 1932 and Limited Liability Partnership Act, 2008 — formation, registration, partner rights, compliance, taxation, and conversion between business structures.
📜 Background
The Indian Partnership Act, 1932 governs traditional partnerships where partners share unlimited liability. The Limited Liability Partnership (LLP) Act, 2008 (effective 1 April 2009) introduced a modern business structure combining the flexibility of partnership with the limited liability of a company. LLPs are governed by the Ministry of Corporate Affairs (MCA).
🤝 Indian Partnership Act, 1932
- 📋 Definition: Partnership is the relation between persons who agree to share profits of a business carried on by all or any of them acting for all. Minimum 2, maximum 50 partners
- 📝 Partnership Deed: Not mandatory but highly recommended. Covers profit-sharing ratio, capital contribution, duties, salary, interest on capital, admission/retirement, dispute resolution
- ⚠️ Unlimited Liability: Each partner is jointly and severally liable for all acts of the firm. Personal assets are at risk. No separate legal entity status
- 📑 Registration: Optional but unregistered firm cannot sue against third parties in court. Register with Registrar of Firms (state level). No penalty for non-registration
- 💼 Partner Types: Active partner (manages daily affairs), sleeping/dormant partner (contributes capital only), nominal partner (lends name, no capital), partner by estoppel
- 💰 Taxation: Firm taxed at flat 30% + surcharge + cess. Partners' salary/remuneration deductible (within limits). Share of profit from firm exempt in partners' hands (Sec 10(2A))
🏗️ LLP Act, 2008
✅ Limited Liability
Each partner's liability is limited to their agreed contribution. No partner is liable for another partner's misconduct or negligence. Separate legal entity from partners.
📋 Formation
Minimum 2 designated partners (at least 1 resident Indian). Incorporate via MCA portal (Form FiLLiP). No minimum capital requirement. DPIN (Designated Partner ID Number) mandatory.
📊 Annual Compliance
Form 11: Annual Return (within 60 days of FY close). Form 8: Statement of Account and Solvency (within 30 days of 6 months from FY close). Penalty: ₹100/day for late filing.
💰 Taxation
Taxed like a partnership firm — flat 30% + surcharge + cess. No DDT (Dividend Distribution Tax). Partners' remuneration deductible within Sec 40(b) limits. Audit if turnover >₹1 Cr (or ₹60 lakh profession).
⚖️ Partnership vs LLP vs Private Limited
| Feature | Partnership | LLP | Pvt Ltd Co. |
|---|---|---|---|
| Liability | Unlimited | Limited | Limited |
| Legal Entity | No | Yes | Yes |
| Min Members | 2 | 2 | 2 |
| Compliance | Minimal | Moderate | High |
| Tax Rate | 30% | 30% | 25% |
| Fundraising | Difficult | Moderate | Easy (shares) |
⚠️ Disclaimer
This page is for educational and informational purposes only and does not constitute legal, tax, or financial advice. While we strive for 100% accuracy, laws and regulations change frequently. Always refer to the official gazette notifications, consult a qualified Chartered Accountant (CA), Company Secretary (CS), or legal professional before making any financial or legal decisions. Tenhash is not responsible for any actions taken based on this information. Last reviewed: March 2026.