Can An LLP Be A Partner In A Partnership Firm?

Imagine this. You are advising a client who already runs a partnership firm, and now they want to bring in an LLP as a new partner. Maybe it is for a strategic joint venture, a family restructuring, or simply to include another group entity for investment and management control. And with LLPs becoming more common in business structures, this request is only growing. According to the Ministry of Corporate Affairs (MCA) data, as of April 2025 there were 394,818 active LLPs, a 19.2 percent increase compared to April 2024 as reported by The Financial Express. But the real problem begins when you try to formalise this structure. Several Registrars of Firms in states like Maharashtra, Rajasthan and West Bengal have historically rejected partnership deeds where an LLP is shown as a partner. Add to that the confusion created by conflicting interpretations in older High Court rulings, and you have founders, CAs and advisors unsure about the correct legal position. So the big question arises. Can an LLP Be a Partner in a Partnership Firm in India and more importantly, is it legally valid and practically safe to admit an LLP as a partner in your existing partnership structure in 2025? In this guide, we break down the clear legal position, practical challenges, and compliance steps to help you stay fully compliant and risk free.

Yes, an LLP Can Be a Partner, Subject to Conditions

The clear and authoritative position today is this. Yes, an LLP can be a partner in a partnership firm in India, provided the documents are drafted correctly and all legal requirements are met. An LLP is treated as a separate legal entity under the LLP Act, 2008. It is a body corporate, which means it can own property, enter into contracts and sue or be sued in its own name. On the other hand, Section 4 of the Indian Partnership Act, 1932 defines partnership as a relation between “persons” who agree to share profits. The General Clauses Act makes it clear that the term “person” includes body corporates. Therefore, an LLP qualifies as a “person” capable of entering into a partnership.

Recent court decisions have confirmed this position.
The Gujarat High Court in Nation v. Deputy State Tax Commissioner (2019, LPA) held that an LLP can indeed become a partner in a partnership firm and set aside the Registrar’s refusal to register such a deed. Similarly, the Kerala High Court in Jayamma Xavier v. Registrar of Firms (2021) held that an LLP is a person in the eyes of law and cannot be barred from entering into a partnership with individuals or other entities.

It is true that some older rulings expressed doubts about this structure. However, the recent High Court decisions and the evolving practice across states clearly support the permissibility of admitting an LLP as a partner in a partnership firm.

Practical takeaway before you proceed

• Review the LLP agreement and ensure that the objects allow participation in a partnership.
• Draft the partnership deed to clearly recognise the LLP as a partner and appoint a nominee who will act for the LLP.
• Be prepared for state wise differences, as some Registrars of Firms may still follow older practices or require additional clarification.

LLP vs Partnership Firm

Before deciding whether an LLP can join a partnership firm, it is important to understand the basic difference between these two business structures. Both are used widely by SMEs, professionals and family businesses, but they operate under very different legal frameworks. This difference is exactly why the question of “Can an LLP Be a Partner in a Partnership Firm in India” even arises. Here is a simple breakdown.

What Is an LLP Under Indian Law?

A Limited Liability Partnership, or LLP, is created under the LLP Act, 2008. It is a separate legal entity that can hold assets, enter into contracts and continue its existence even if partners change. In an LLP, the liability of each partner is limited to their agreed contribution. This structure gives the operational flexibility of a traditional partnership while offering limited liability similar to a company. Because it is recognised as a body corporate, an LLP can act in its own name and has a legal personality distinct from its partners.

What Is a Partnership Firm Under Indian Law?

A partnership firm is governed by the Indian Partnership Act, 1932. It is formed when two or more persons agree to share profits from a business carried on by all or any of them acting for all. Unlike an LLP, a partnership firm does not have a separate legal identity from its partners. The partners have unlimited liability, meaning they are personally responsible for the debts of the firm. A partnership is based on mutual agency and trust, and it exists through the legal relationship between the partners rather than as an independent entity.

Legal Framework

To understand whether an LLP can legally become a partner in a partnership firm, we need to look at three key laws. Each law defines important concepts like legal personality, who can be a partner and how partnership relations are recognised in India. Here is the simplified legal picture.

LLP Act, 2008

The LLP Act recognises an LLP as a body corporate and a separate legal entity.
Section 3 of the Act states that an LLP can own property, enter into contracts and sue or be sued in its own name. This means an LLP is capable of taking on rights and obligations independently of its partners. Because of this corporate personality, an LLP can legally enter into business arrangements, including partnerships, as long as its LLP agreement and objects permit it.

Indian Partnership Act, 1932

Section 4 of the Partnership Act defines a partnership as a relation between persons who agree to share profits from a business carried on by all or any of them acting for all. The Act does not restrict the meaning of “persons” to individuals. What matters is the agreement and intention to share profits.
This is exactly where the question arises. If the term “persons” includes legal entities, then an LLP can participate in a partnership arrangement. Courts have now interpreted the law in this broader sense.

General Clauses Act, 1897

Section 3(42) of the General Clauses Act defines “person” to include any company or association or body of individuals, whether incorporated or not. Since an LLP is a body corporate, it qualifies as a “person” under this definition.
This becomes important because the Partnership Act uses the term “persons” but does not define it. The General Clauses Act steps in to expand the meaning, allowing bodies corporate, including LLPs, to be recognised as eligible partners.

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When Can an LLP Be a Partner in a Partnership Firm? – Eligibility and Preconditions

Even though the law allows an LLP to become a partner, it cannot join a partnership firm automatically. Certain legal and internal requirements must be met to ensure the structure is valid, compliant and acceptable to the Registrar of Firms. These conditions come from both the LLP law and standard governance practices followed by professionals. Here is what you must check before admitting an LLP as a partner in any partnership firm.

Conditions Under LLP Law

1. LLP agreement must authorise entering into partnerships
   The LLP agreement should clearly allow the LLP to invest in, partner with or enter into joint business arrangements with other entities. This is usually covered under the objects clause or the business activities section.
   If such permission is missing, the LLP must amend its LLP agreement before acting as a partner.
2. Partners of LLP should pass a formal resolution
   Although not mandated by the LLP Act, it is considered good governance to pass a partners’ resolution approving:

• joining a specific partnership firm
• the name and details of the partnership
• the capital contribution
• the authorised nominee who will represent the LLP

This step helps avoid internal disputes and creates written proof of consent.

Conditions Under Partnership Law

When an LLP joins a partnership firm, the partnership deed must be drafted with extra clarity. Since an LLP is a separate legal entity, the deed should record its role, rights and obligations in a precise manner to avoid future disputes or Registrar-level objections. The key requirements are listed below.

1. Name the LLP as a partner

The partnership deed should clearly mention:

• the full legal name of the LLP
• its LLP Identification Number (LLPIN)
• its registered office address
  This ensures that the LLP is recognised as a proper contracting party to the deed.

2. Provide profit sharing ratio and capital contribution

Just like any individual partner, the LLP’s share in profits and losses must be specified.
If the LLP is contributing capital, the amount and mode of contribution should be mentioned.
If there is no capital contribution, that should also be expressly stated to avoid presumptions.

3. Specify nominee individuals who will act for the LLP

Since an LLP cannot act by itself, the deed must name authorised nominees who can:

• sign partnership documents
• attend partner meetings
• operate bank accounts
• exercise voting rights on behalf of the LLP

This individual usually matches the nominee appointed internally in the LLP resolution, ensuring consistency.

Regulatory and Practical Conditions

Even though the legal position is now clear, the practical acceptance of an LLP as a partner still depends on state level procedures and regulatory considerations. Registrars of Firms do not operate uniformly across India, and some states continue to follow older interpretations. Here are the key practical checks you should make before proceeding.

1. Registrar of Firms practice in the concerned state

Gujarat and Kerala High Courts have already clarified that an LLP can be a partner in a partnership firm. As a result, Registrars in these states generally accept such partnership deeds.
However, local practice may still vary in other states such as Maharashtra or Rajasthan, where older objections were common. This is why professional guidance and proper drafting remain essential.

2. Sectoral restrictions

Some regulated professions may restrict entities like LLPs from participating in certain business structures. For example, sectors such as law or certain financial services may impose conditions on who can be a partner.

3. FDI implications if the LLP has foreign investment

If the LLP has foreign direct investment, you must ensure that:

• the downstream investment rules are followed
• the partnership firm’s sector is eligible for FDI
• all reporting requirements are complied with

4. Tax or RBI considerations

If the LLP is being used as an investment vehicle, check whether there are:

• specific tax implications on profit sharing
• transfer pricing considerations
• any RBI rules applicable to cross border investments or remittances

Rights, Duties and Liability – What Does an LLP as a Partner Actually Mean?

Once an LLP becomes a partner in a partnership firm, the next question is practical: how does this relationship work in day to day operations? Even though an LLP is a separate legal entity, partnership law treats it just like any other partner in terms of rights, duties and obligations. The only major difference is how liability is applied. Here is the simple breakdown.

Rights of an LLP as a Partner

When an LLP joins a partnership firm, it gets the same rights as any other partner, such as:

1. Right to share profits: The LLP is entitled to receive its agreed share of profits. These profits belong to the LLP and not to the individual partners of the LLP.
2. Right to participate in management through its nominee: Although the LLP itself cannot physically attend meetings, its authorised nominee can vote, sign documents and take part in decision making.
3. Right to access books and accounts: The LLP can inspect the accounts, financials and records of the partnership firm through its nominee.
4. Right to be indemnified: If the LLP incurs expenses or liabilities while acting for the firm, it has the right to be compensated, provided the actions were within authority.

Duties of an LLP as a Partner

Just like rights, the LLP also has duties under partnership law:

1. Duty to act in good faith: The LLP must act honestly and in the best interest of the firm. This duty is exercised through its nominee.
2. Duty to share losses if applicable: If the deed provides for sharing losses, the LLP must bear its share.
3. Duty not to compete or misuse firm property: The LLP cannot engage in competing business or use the firm’s resources for personal benefit unless the deed allows it.
4. Duty to follow the terms of the partnership deed: All conduct must align with the deed, including voting rights, profit distribution rules and internal processes.

Liability of an LLP as a Partner

This is the most important part. How far does the LLP’s liability extend?

1. LLP’s liability is limited: An LLP’s liability in the partnership firm is limited to the extent of its agreed contribution, unless the LLP or its nominees commit fraud or wrongful acts.
2. Individual partners of the LLP are not personally liable: The partners of the LLP are protected. They are not personally responsible for the debts or actions of the partnership firm.
3. Nominee’s wrongful act may expose LLP: If the authorised nominee commits a wrongful act while acting for the firm, the LLP may be liable.
   However, the personal assets of other partners of the LLP remain protected.
4. Firm’s creditors can proceed against LLP but not against its individual partners: This is one of the biggest reasons why LLPs are used as partners in family businesses and group structures. It ring fences personal liability.

Tax Implications When an LLP Is a Partner in a Partnership Firm

When an LLP becomes a partner in a traditional partnership firm, the tax treatment is slightly different from a normal individual partner. Here is how the taxation works:

1. The Partnership Firm Is Taxed Separately

A partnership firm is taxed as a separate legal entity.
It pays income tax on its profits at the applicable tax rate for firms.

2. Share of Profit Received by the LLP Is Exempt

After the firm pays tax, the profit that is distributed to the LLP is exempt in the hands of the LLP under section 10(2A) of the Income Tax Act.

This means:

• The partnership firm pays tax on total profit.
• The LLP receives its share of profit tax free.
• This profit is not taxed again at the LLP level.

3. Remuneration or Interest Paid to LLP Is Taxable

If the firm pays:

• interest on capital, or
• remuneration
  to the LLP,
  then this income is taxable in the hands of the LLP under the normal tax rules.

4. LLP Will Pay Tax on Its Total Income

The LLP must calculate and pay tax on:

• taxable business income (including remuneration or interest from the partnership firm)
• any other business or professional income
• capital gains (if any)
• any disallowed expenses under Income Tax

The current tax rate for LLPs is generally 30 percent plus applicable surcharge and cess.

5. No Dividend Distribution Tax

LLPs do not pay dividend distribution tax.
So partners of the LLP receive their share of profit from LLP tax free.
This creates a clean tax pass-through structure.

6. Audit Requirements

If the LLP’s turnover crosses the threshold under the Income Tax Act or LLP Act, it must undergo a tax audit or statutory audit.

7. MAT Not Applicable

Minimum Alternate Tax applies to companies, not LLPs. So the LLP does not have to pay MAT on book profits.

Case Law Round Up On

Courts across India have now examined whether an LLP can legally become a partner in a traditional partnership firm. The following case is one of the most important rulings that settled this position and guided Registrars as well as professionals.

1. Nation (Diamond Nation) v. Deputy State Tax Commissioner, Gujarat High Court (2019, LPA)

Brief facts:
The Registrar refused to record Go Green Diamonds LLP as a partner in the Diamond Nation partnership firm. The Single Judge upheld this refusal. The matter went to the Division Bench in a Letters Patent Appeal.

Key takeaways (4 to 5 crisp bullet points):

• The Division Bench held that an LLP is a body corporate and a legal person, so it is fully capable of being a partner.
• There is no express prohibition in the Indian Partnership Act that stops an LLP from becoming a partner in a partnership firm.
• By reading Sections 4, 49 and 63 of the Partnership Act together with the LLP Act and the General Clauses Act, the Court confirmed that an LLP can legally enter into a partnership firm.
• The Registrar has no authority to refuse recording such a change if the documents and statutory conditions are properly fulfilled.
• The Division Bench set aside the Single Judge order and cleared the way for LLPs to be recognised as partners, making this a strong precedent on the subject.

2. Jayamma Xavier v. Registrar of Firms, Kerala High Court (2021)

Facts: An individual and an LLP executed a partnership deed, but the Registrar refused registration, saying that an LLP cannot be a partner in a partnership firm.

Court held:

• A partnership can be formed between two “persons,” and the term “person” also includes an incorporated body of individuals.
• An LLP is a body corporate, so it qualifies as a “person” under law and can validly enter a partnership.
• The fact that an LLP has internal limited liability does not stop it from taking on the liabilities of a partner under the Partnership Act, just like a company can.
• The Registrar’s refusal was set aside, and registration of the firm was directed.

Practical importance:
The Kerala High Court’s reasoning is simple and very clear, making this one of the most user-friendly explanations supporting LLPs becoming partners in traditional firms.

Earlier Contrary Views and Why They Do Not Prevail Now

Older interpretations often relied on the Supreme Court’s decision in Dulichand Laxminarayan, which held that a partnership firm is not a “person” and therefore cannot be a partner in another firm. But this view does not apply to LLPs because:

• The Supreme Court decision was about a traditional partnership firm, which has no separate legal identity.
• An LLP is a body corporate, created under the LLP Act, and is legally treated as a separate person. LLPs did not even exist when Dulichand was decided.

Because of this clear distinction, courts now treat LLPs differently from firms.

In the early years, some Registrars and lower authorities were reluctant to allow LLPs to become partners. However, recent High Court rulings and tax authorities have accepted the position. For example:

• The Gujarat High Court and Kerala High Court have clearly held that LLPs can be partners.
• The ITAT Bangalore, in the Mulberry Textiles LLP matter, also recognised an LLP’s participation in a partnership as valid in real commercial practice.

Overall, modern jurisprudence strongly supports the permissibility of an LLP becoming a partner in a partnership firm.

Conclusion

So, Can an LLP Be a Partner in a Partnership Firm in India? Yes. The legal position in 2025 is clear. LLPs are recognised as persons under Indian law, and recent High Court rulings in Gujarat and Kerala have confirmed that an LLP can be a partner in a partnership firm. There is no statutory prohibition, and modern judicial interpretation supports this structure. However, the real challenge is not the legal principle. It is the correct drafting and compliance work. Your LLP agreement, partnership deed, nominee clauses, capital contribution terms, and compliance steps must all be prepared carefully. Even a small drafting mistake can lead to Registrar objections or tax issues later.

Disclaimer: This content is for general informational purposes and does not constitute legal advice. For personalized guidance on LLP restructuring or compliance, please consult a qualified legal expert.