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Setting Up of Business, Industrial and Labour Laws · Selection of Business Organization

Partnership and Limited Liability Partnership (LLP) Explained

Updated 11 October 2026 · Fact-checked

A partnership is a relationship between persons who share business profits, with no separate legal identity. An LLP is a body corporate under the LLP Act, 2008, separate from its partners, with perpetual succession and limited liability. In answers, state the feature, cite the section, and apply it to the facts.

Understand Partnership and Limited Liability Partnership

A partnership is a business run by two or more persons who agree to share profits. A traditional firm is not a separate person in law. The firm and its partners are treated as one for most purposes, so partners carry unlimited liability for the firm's debts.

A Limited Liability Partnership (LLP) mixes the flexibility of a partnership with the protection of a company. Under section 3(1) of the LLP Act, 2008, an LLP is a body corporate formed and incorporated under the Act and is a legal entity separate from its partners. It can own property, sue and be sued in its own name, and enter contracts.

Section 3(2) gives an LLP perpetual succession. Section 3(3) says any change in the partners does not affect the existence, rights or liabilities of the LLP. So if a partner dies, retires or joins, the LLP carries on. A traditional firm is often dissolved or reconstituted by such events.

The partners of an LLP have limited liability. In general, a partner is not personally liable for the LLP's debts just because they are a partner. Their exposure is tied to their agreed contribution. This is the main reason people choose an LLP over a plain partnership. Fraud is an exception, so protection is not absolute.

Section 66 deals with business transactions of a partner with the LLP. A partner may lend money to and transact other business with the LLP. The partner has the same rights and obligations on that loan or transaction as a person who is not a partner. For example, a partner who lends ₹5,00,000 to the LLP can be repaid and can claim as a lender like an outsider would.

Key rules to remember

LLP as a separate entity (Section 3(1), LLP Act, 2008)
LLP = body corporate + legal entity separate from its partners
Quote this first when asked about the nature of an LLP.
Perpetual succession (Section 3(2))
LLP has perpetual succession
Existence does not depend on any individual partner.
Change in partners (Section 3(3))
Change in partners ⇒ no effect on existence, rights or liabilities of the LLP
Use this for questions on death, retirement or admission of a partner.
Partner's dealings with the LLP (Section 66)
Partner may lend money and transact business with the LLP, with the same rights and obligations as a non-partner
Applies to the loan or other transaction, not to the partner's capital contribution.
Core contrast
Partnership: no separate entity, unlimited liability | LLP: separate entity, limited liability
Use this as the base of any comparison answer.

How to solve Partnership and Limited Liability Partnership questions

Use this method for any question on partnership versus LLP, or on LLP features.

  1. 1Identify what is asked: a feature, a comparison, or a fact-based problem.
  2. 2Name the entity type in the facts: traditional partnership or LLP.
  3. 3State the rule in plain words and cite the section (3(1), 3(2), 3(3) or 66 of the LLP Act, 2008).
  4. 4Apply the rule to the facts, using the names and amounts given.
  5. 5For comparisons, take one point at a time: legal status, liability, succession, and dealings by partners.
  6. 6Close with a clear one-line conclusion that answers the question asked.

Quickest way: Three-line LLP answer

When to use it: When time is short and the question asks for the effect of an event on an LLP or a partner.

  1. Line 1: state whether the LLP is a body corporate separate from its partners (section 3(1)).
  2. Line 2: cite the specific section that fits: 3(2) or 3(3) for continuity, 66 for dealings with the LLP.
  3. Line 3: apply it to the facts and give the conclusion.

Common mistakes in Partnership and Limited Liability Partnership

  • Treating an LLP as a traditional partnership with no separate legal identity.

    The word 'partnership' in the name misleads students.

    Fix: Remember section 3(1): an LLP is a body corporate and a separate legal entity.

  • Saying an LLP is dissolved when a partner dies or retires.

    Students carry over the rule for a traditional firm.

    Fix: Cite section 3(3): change in partners does not affect the existence, rights or liabilities of the LLP.

  • Saying a partner cannot lend money to or deal with the LLP.

    Students assume a partner and the firm are the same person.

    Fix: Because the LLP is separate, section 66 allows it. The partner has the same rights and obligations as an outsider on that transaction.

  • Saying LLP partners are never liable for anything.

    Limited liability is overstated as absolute protection.

    Fix: Say partners are not liable merely for being partners. Fraud and their own wrongful acts remain outside this protection.

  • Giving wrong section numbers or mixing the Companies Act with the LLP Act.

    Both Acts have a section 66, with different subjects.

    Fix: Section 66 of the LLP Act is about a partner's transactions with the LLP. Section 66 of the Companies Act is about reduction of share capital. Always name the Act.

Worked examples

Example 1

Rohan and Meera are partners in Shree Traders LLP. Rohan dies in an accident. The supplier says the LLP has ended and refuses to deliver goods already ordered. Is the supplier right?

Show the solution
  1. Provision: under section 3(1) of the LLP Act, 2008, an LLP is a body corporate and a legal entity separate from its partners.
  2. Section 3(2) gives it perpetual succession.
  3. Section 3(3) says any change in the partners does not affect the existence, rights or liabilities of the LLP.
  4. Application: Rohan's death is a change in partners. The LLP continues, and its contract with the supplier remains in force.

Answer: The supplier is not right. Shree Traders LLP continues to exist after Rohan's death, and its rights and liabilities are unaffected under section 3(3).

Example 2

Anita is a partner in Kaveri Foods LLP. She lends ₹5,00,000 to the LLP for working capital. Can she do this, and what is her position as a lender?

Show the solution
  1. Provision: section 66 of the LLP Act, 2008 allows a partner to lend money to and transact other business with the LLP.
  2. The partner has the same rights and obligations on the loan or transaction as a person who is not a partner.
  3. Application: Anita's loan of ₹5,00,000 is a valid transaction with the LLP. She is treated like an outside lender for that loan.
  4. This works because the LLP is a separate legal entity under section 3(1), so it can owe a debt to one of its partners.

Answer: Yes. Anita may lend ₹5,00,000 to Kaveri Foods LLP under section 66, and she has the same rights and obligations on the loan as a non-partner lender.

Exam tips

  • For 'features of an LLP', build the answer around section 3: separate entity, perpetual succession, effect of change in partners.
  • In comparison questions, always include legal status, liability and continuity. These are the points examiners expect.
  • Cite section 66 of the LLP Act by name of the Act, so it is not confused with section 66 of the Companies Act.
  • End fact-based answers with a clear conclusion. Marks are given for the conclusion as well as the rule.
  • Do not state liability as absolute. Use careful wording: not liable merely by being a partner.

Practice questions from Selection of Business Organization

Partnership and Limited Liability Partnership in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Partnership and Limited Liability Partnership: frequently asked questions

Is an LLP a separate legal entity?

Yes. Section 3(1) of the LLP Act, 2008 says an LLP is a body corporate and a legal entity separate from its partners. It can hold property and contract in its own name.

What is the main difference between a partnership and an LLP?

A traditional partnership has no separate legal identity and its partners have unlimited liability. An LLP is a separate body corporate with perpetual succession, and its partners enjoy limited liability.

What does section 66 of the LLP Act say?

It says a partner may lend money to and transact other business with the LLP. The partner has the same rights and obligations on that loan or transaction as a person who is not a partner.

What happens to an LLP if a partner leaves?

Nothing changes for the LLP itself. Under section 3(3), a change in partners does not affect its existence, rights or liabilities.