Who can actually be a partner in an LLP? Before you set up or advise on an LLP structure, the first question is eligibility — and Section 5 answers it cleanly.
The law says two types of persons can become partners in an LLP: individuals (natural persons) and body corporates (companies, foreign companies, other LLPs, etc.). That's quite broad — it means Rajesh & Co. Pvt. Ltd. can itself be a partner in an LLP alongside Mr. Sharma the individual. This is a key difference from a traditional partnership firm, where only individuals can be partners under the Indian Partnership Act, 1932.
However, not every individual qualifies. Three categories are disqualified from becoming a partner: (a) a person found to be of unsound mind by a competent court — but only if that finding is currently in force (so if a court later reverses the finding, disqualification lifts); (b) an undischarged insolvent — someone who has been declared insolvent but has not yet been formally discharged; and (c) a person whose application to be adjudicated as insolvent is still pending — even before the court rules, the mere pendency of the application disqualifies them. This last point trips up many students: you don't need to be declared insolvent — even applying for adjudication is enough to lose eligibility until the application is disposed of.
Note carefully: these disqualifications apply only to individuals, not to body corporates. A company in financial distress isn't automatically barred here (though other laws may restrict it). For the exam, remember the three disqualifications as a tidy list — they're frequently tested as a 3-mark or 4-mark direct question asking you to 'state who cannot become a partner in an LLP.'