FAQS on Contribution by the Partners in LLP Organization

FAQS on Contribution by the Partners in LLP Organization1.  What are the various forms of contribution or capital by the partners?

Ans: As per Sec 32(1) of the LLP Act,2008, the partners may introduce capital or contribute to the organization in the following manner, or combination thereof ;

  • Tangible, moveable property
  • Tangible, immovable property
  • Intangible property
  • Contracts for services performed or to be performed
  • Agreement for contributing cash or property
  • Monetary contribution
  • Promissory Notes

2.  Is the disclosure for the amount and nature of contribution of all partners obligatory to be disclosed in the LLP accounts?

Ans: As per Rules 23(1) of the LLP Rules it is mandatory to disclose the amount and nature of contribution of all the partners in the LLP Accounts.

3.  Which document shall govern the obligation of a partner towards contribution?

Ans: As per Sec 33(1) of the LLP Act, 2008, the LLP Agreement shall govern the obligations of a partner towards contribution.

4.  What is the limit of time period for bringing in the contribution by the partners?

Ans: Nothing mentioned in LLP Act 2008 or LLP Rules 2009, there is no time limit as such for bringing in the contribution by the partners of the LLP and shall be governed by the provisions of the LLP Agreement.

5.  What are the restrictions on the withdrawal of the contribution by the partners?

Ans: There is no such specific restrictions on the withdrawal of the contribution by the partners as per LLP Act,2008 and LLP Rules,2009  and is guided by the provisions contained in the LLP Agreement.

6.  When shall the amount of contribution be liable to be repaid to the partners?

Ans: As per Sec 24(5) of the LLP Act, 2008, the amount of loan shall be liable to be repaid to the respective partner in the event of his cessation (removal, resignation, death etc. as a partner of the LLP.

7.  What is the impact on the profit sharing pattern of the contribution of the partners?                                     

Ans: As per Sec 23(1) of the LLP Act, 2008, the profit sharing pattern shall be governed by the LLP Agreement and shall not be related to the contribution of the partners.

8.  How will the profit sharing pattern of the partners be determined in the event of the LLP Agreement being silent about the profit sharing pattern?

Ans: In the event of the LLP Agreement being silent about the profit sharing pattern, it shall then be as prescribed in the First Schedule to the LLP Act, 2008. The First Schedule prescribes that in the absence of any express provision in the LLP Agreement, the profits shall be shared equally among all the partners.

9.  What are the guidelines for accounting and disclosure of the contribution in any form other than cash in the LLP Accounts?

Ans: As per Sec 32(2) of the LLP Act, 2008, for the contribution in any form other than cash, the monetary value of the contribution shall be accounted for and disclosed in the LLP Accounts.

10.   Who is eligible to be appointed as a valuer for valuation of contribution in any form other than in cash?

Ans: As per Regulation 23(2) of the LLP Rules,2009 , the persons who can act as valuer for valuation of contribution other than cash are:

  • A Practicing Chartered Accountant
  • A Practicing Cost Accountant
  • An Approved from the panel maintained by the Central government.

11.   What is the procedure for increasing the contribution by way of additional capital brought in by existing partners?

Ans: The procedure for increase in the contribution shall be in accordance with the provisions contained in the LLP Agreement. The steps involved are as follows:

  • Check whether the LLP agreement contains a clause for, and procedure for such an increase in contribution.
  • If it contains a clause therein, to modify the LLP agreement prescribed in the LLP Agreement for modification of the Agreement for :

a)  Inclusion of a clause for increase in contribution

b)  Actual increase in contribution

  • If it is silent about the procedure to be followed for modification of the Agreement, to pass a resolution by a majority I  the number of partners for modification of the agreement for:
  • Inclusion of a clause for increase in contribution
  • Inclusion of a clause for increase in contribution

a)  Inclusion of a clause for increase in contribution

b)  Actual increase in contribution

  • Filing of Form 3, by the LLP with the Registrar, within 30 days from the date of modification of the Agreement along with the requisite fees, as mentioned above.

12.   What is the procedure for increasing the contribution by way of additional capital brought in by new partners?

Ans: The procedure for increase in the contribution shall be in accordance with the provisions contained in the LLP Agreement. The steps involved are as follows:

  • To check whether the LLP agreement contains a clause for, and procedure for such an increase in contribution.
  • If yes, to modify the LLP Agreement, by following the procedure prescribed in the LLP Agreement for modification of the Agreement for:

a)  inclusion of a clause for increase in contribution

b)  actual increase in contribution.

  • If the LLP Agreement is silent about the procedure to be followed for modification of the Agreement, to pass a resolution by a majority in the number of partners for modification of the Agreement for:

a)  inclusion of a clause for increase in contribution

b)  actual increase in contribution

  • Filing of Form 3, by the LLP with the Registrar, within 30 days from the date of modification of the Agreement along with the requisite fees, as mentioned above.

13.   Is there any relation between the voting rights of partners and their contribution?

Ans: The voting rights of the partners may not be determined by the contribution brought in by them. The voting rights of the partners can be partners can be specified in the LLP Agreement.

14.   In the event of the LLP Agreement being silent on the matter, how shall the voting rights of the partners be determined?

Ans: In accordance with Regulation 8 of the First schedule to the LLP Act, 2008, if the LLP Agreement is silent about the voting rights of partners, each partner shall be entitled to one vote, irrespective of the capital brought in by him.

15.  How can the lender safeguard his interest with the help of contribution?

Ans: In the absence of restrictions on repayment of contribution, the lender needs to be extra cautious while lending funds to an LLP. The lender needs to install his own systems and procedures for safeguarding his interest.

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