New Delhi: A growing number of small-time entrepreneurs are converting their companies into limited liability partnerships (LLPs), seeking lower compliance costs and greater flexibility in their operations.
The cumulative number of companies converted to LLPs nearly doubled to 29,816 as of June 2026 from 15,716 five years earlier, according to the corporate affairs ministry data reviewed by Mint.
The conversions, involving mainly small, closely held businesses, also point to lower capital-raising needs, as companies can garner funds more easily than LLPs, analysts said.
LLPs generally have fewer compliance requirements to meet than even small companies due to their limited financial muscle and exposure. They are subject mainly to two filings—an annual return and a yearly statement of account and solvency—with no compulsory board or annual general meetings and no mandatory statutory audit if their turnover is below ₹40 lakh and their capital contribution is lower than ₹25 lakh.
A small company is defined as one with a paid-up share capital of up to ₹10 crore and an annual turnover of up to ₹100 crore. It cannot be a public company.
Broadly, fresh registrations of both companies and LLPs are scaling new highs in recent years and the cumulative number of active companies in India (2.13 million as of June) is more than four times the roughly half-a-million LLPs.
Between April and August, 110,748 new companies were registered—the highest for the first five months of any fiscal year and up 12% from a year earlier, according to the ministry's data. The number of LLPs registered until August this fiscal year jumped 31.1% year on year to 48,972.
Meanwhile, in the year through June, 2,164 companies switched to LLPs, with 688 conversions between April and June.
"The conversions (into LLPs) are mainly concentrated among closely-held, owner-managed businesses that became private companies for a bank account, GST (goods and services tax) account, a tender or the prestige of 'private limited' status and then found they had bought a heavier vehicle than they needed," said Mohit Chaudhary, managing partner at law firm Kings & Alliance LLP.
Queries emailed to the corporate affairs ministry remained unanswered until press time.
Appeal of LLPs
For a small-time entrepreneur, the cost of maintaining a company can be high, irrespective of profitability in the business, according to Shankey Agrawal, partner at BMR Legal. "An LLP lets owners keep limited liability while reducing corporate formalities, including board and shareholder meetings. Partners also have greater flexibility to agree on how the business is managed and how profits are shared with less paperwork," he said.
For a business run by a family or a few individuals, with no immediate plans to bring in outside equity investors, an LLP can be a better fit, Agrawal said.
Moreover, an LLP pays tax on its income, but partners’ profits are generally exempt in their hands. Company dividends, however, are generally taxable for shareholders. "This can favour an LLP where owners regularly distribute profits. Therefore, for many small businesses, the appeal is practical as the LLP structure requires less time on corporate housekeeping and more time on customers and growth," Agarwal said.
Currently, even a small company has to hold board meetings, convene an annual general meeting, maintain registers, file financial statements and annual returns, and undergo statutory audits every year. For an LLP, barring an annual return and a yearly statement of account and solvency, these compliances are not required.
"Similarly, a company pays tax on profits; the shareholder then pays tax again on the dividend, with tax deducted at source under Section 194 of the income tax law. An LLP is taxed as a firm at 30% plus surcharge and cess," said Chaudhary of Kings & Alliance LLP.
The partner’s profit share is exempted under Section 10(2A) of the income tax law, and working-partner remuneration is deductible under Section 40(b).
"For a profitable business that distributes rather than reinvests, the LLP is the cleaner vehicle which is why lawyers, doctors, consultants and family shops convert, not venture-backed start-ups," Chaudhary said.
Certain late filings by an LLP can also attract lower fines than those applicable to a company.
Online conversion from a company into an LLP has also turned out to be convenient via the latest version of the MCA21 portal for corporate filings, as the government pushes to make it easier for businesses to operate in India.