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LLP Agreement
The mutual rights and duties of partners amongst themselves and those of the LLP as a separate legal entity shall be governed by the agreement between the partners called the “LLP Agreement”. Entering into an LLP Agreement is not mandatory. In the absence of agreement as to any matter, the mutual rights and liabilities shall be as provided for under Schedule I of the LLP Act, as a matter of default. Therefore, in order to customize the governance of the LLP as per the requirements of a particular business, an LLP may have to exclude or add to the provisions/requirements of Schedule I. Hence, it is advisable to enter into an LLP Agreement, specifically excluding applicability of any or all paragraphs of Schedule I. A specimen LLP agreement is provided with this module. Any changes in the LLP Agreement shall have to be filed in Form 3.

Difference between LLP & 'Traditional' Partnership firm

  • In a “traditional partnership firm”, every partner is liable, jointly with all the other partners and also alone in his individual capacity for all acts of the firm or other partners in course of partnership business, while he/she is a partner. Under LLP structure, liability of the partner is limited to his agreed contribution. Further, no partner is liable on account of the independent or un-authorized acts of other partners, thus allowing individual partners to be shielded from joint liability created by another partner’s wrongful acts or misconduct. 
  • Uniformity: There are differences in the administration of the provisions of the Partnership Act in various states, as the enforcement of the act is at the state level. For example, filings for registration and changes in the details of partners vary from state to state. However, the rules for enforcement of the LLP Act are made by the Central Government and hence there is uniformity in the provisions applicable to LLPs in all states.
  • Since a partnership firm involves full joint and several liability of the partners, firms/enterprises engaged in biotech, information technology, intellectual property and other knowledge based sectors find traditional partnerships unsuitable. Also, businesses that needs to take regular credits from suppliers or vendors (such as retail business or restaurants, for instance) or is likely to incur significant debt in course of business should avoid traditional partnership. LLP can be useful particularly for such businesses.

Which businesses is an LLP suited for?

Originally, it was suggested that the LLP Act be restricted to professional services such as accountants, lawyers, architects and other service based professional businesses only. However, in the Act, no such restriction was placed and any business can operate as an LLP. The ministry website states that the LLP structure will be helpful not only for professionals providing accountancy, legal and various other professional/technical services, but also can be useful for:-

  • Persons providing services of any kind
  • Enterprises in new knowledge and technology based fields where the corporate form is not suited.
  • Venture capital funds where risk capital combines with knowledge and expertise
  • Professionals and enterprises engaged in any scientific, technical or artistic discipline, for any activity relating to research production, design and provision of services. 
  • Small Sector Enterprises (including Micro, Small and Medium Enterprises)
  • Producer companies in Handloom, Handicrafts sector

Social entrepreneurship ventures

With the success of Grameen Bank and the establishment of microfinance as a successful business model, social entrepreneurship has been a 'buzz-word' with entrepreneurs and venture capitalists. It must be noted that a social entrepreneurship venture simply implies that it may be offering some utility to the people at the bottom of the pyramid through provision of goods/services for them. However, it need not necessarily be established on a non-profit basis. It could run on a profit motive as well. Therefore, it is important to understand whether an LLP can be established to carry on a social entrepreneurship venture, whether it is for profit venture or a non-profit venture.

The essential requirement for setting LLP or partnership is the ‘carrying on a lawful business with a view to profit’. Therefore, social entrepreneurship ventures, which do not aim to make a profit and wants to operate on a no-profit-no-loss basis, or whose activity would be primarily funded by donations cannot be structured as LLPs. Also, note that an LLP will not be able to offer any tax benefit to donors like a charitable trust, society or under Section 25 a Company may be able to do if they have necessary registrations for this purpose.


A number of alternate structures are available for structuring social entrepreneurship businesses established with a non-profit objective, such as the following:

  • Trusts
  • Societies under the Societies Registration Act / the Co-operative Societies Act of the concerned state (where applicable)
  • Section 25 Companies (this provides a corporate structure to philanthropic and social service organisations)

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