Can an LLP Be a Partner in Another LLP, Hold Shares or Give Loans?
Short answer: Yes. An LLP is a body corporate with a legal identity separate from its partners (section 3, LLP Act, 2008), and section 5 allows any individual or body corporate to be a partner in an LLP. So one LLP can be a partner in another. It acts through an individual nominee, because designated partners must be individuals. An LLP can also hold shares in a company and lend or borrow money, subject to the points below.
What an LLP can and cannot do
| Question | Answer | Basis |
|---|---|---|
| Be a partner in another LLP? | Yes | Sections 3 and 5, LLP Act |
| Be a designated partner? | No. It nominates an individual, who can act as designated partner | Section 7(1) and its proviso |
| Hold shares in a company, including a majority? | Yes | A body corporate can own shares |
| Be a partner in a partnership firm? | Yes, as a body corporate (a legal person) can; a firm itself cannot | Indian Partnership Act, 1932 |
| Can a partnership firm be a partner in an LLP? | No. A firm is neither an individual nor a body corporate | Section 5, LLP Act |
| Give a loan to a company? | Yes, if the LLP agreement allows. But the company must check the deposit rules (see below) | Companies (Acceptance of Deposits) Rules, 2014 |
| Borrow money? | Yes. The LLP Act sets no limit; the LLP agreement may | No restriction in the LLP Act |
LLP as a partner in another LLP
- Nominee and designated partners. Section 7(1) needs at least two designated partners who are individuals, at least one resident in India. Where partners are bodies corporate, individuals who are partners or nominees of the bodies corporate act as designated partners (proviso to section 7(1)).
- Agreement and filings. The partner LLP's entry is recorded in the LLP agreement. As for any new partner, Form 4 and Form 3 are filed within 30 days. See how to add or appoint a designated partner and the partner change procedure.
- Internal approval. The partner LLP should authorise the investment, and name its nominee, by a resolution of its own partners under its own LLP agreement.
LLP holding shares in a company
An LLP can subscribe to shares when a company is formed or buy them later, and it can hold a majority. Note the Companies Act's definition of a holding company (section 2(46)): its Explanation says that "company" includes any body corporate. An LLP is a body corporate, so the Companies Act's holding and subsidiary provisions can apply to a company that an LLP controls. Take advice before structuring a group this way.
Loans between an LLP and a company
- Company borrowing from an LLP. Under rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014, "deposit" covers any money a company receives by way of deposit or loan, with listed exclusions. Clause (vi) excludes money received from another company, but there is no matching exclusion for money from an LLP. So a loan from an LLP to a company can count as a deposit unless another exclusion in rule 2(1)(c) applies. The company should check this before it takes the money.
- LLP lending. The LLP Act does not stop an LLP from making a loan if its agreement allows it. If lending is the LLP's business rather than an occasional loan, financial-sector regulation by RBI can come in, so take advice first.
- LLP borrowing. An LLP can borrow from banks, financial institutions and its partners. Taking money from the public as deposits is regulated, so take advice before borrowing from anyone else.
Frequently asked questions
Can an LLP be a partner in another LLP?
Yes. An LLP is a body corporate (section 3), and section 5 lets any body corporate be a partner. It acts through an individual nominee.
Can an LLP be a designated partner?
No. Designated partners must be individuals. An LLP partner nominates an individual, who can act as a designated partner under the proviso to section 7(1).
Can a partnership firm become a partner in an LLP?
No. Section 5 allows only individuals and bodies corporate, and a partnership firm is neither. The individual partners of the firm can join the LLP in their own names.
Can an LLP hold shares in a private limited company?
Yes, including a majority. Because the Companies Act's holding-company definition treats any body corporate as a company, the holding and subsidiary provisions can apply. Take advice on the group structure.
Can an LLP give a loan to a company?
The LLP can lend if its agreement allows. But for the borrowing company, the deposit rules exclude loans from another company, not from an LLP, so the loan may be treated as a deposit unless another exclusion applies.
Can an LLP be converted into a company?
Yes, under section 366 of the Companies Act. See how to convert an LLP into a private limited company.
Starting a new LLP? We handle LLP registration in Ahmedabad and LLP registration anywhere in Gujarat, fully online on the MCA portal. Start with the documents required for LLP registration.