Form/Manner of Capital contribution

As per the provisions of Section 32 of Limited Liability Partnership Act, 2008, contribution of a partner may consists of tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, other agreements to contribute cash or property, and contracts for services performed or to be performed. The monetary value of contribution of each partner shall be disclosed in the accounts of LLP in the prescribed manner.

Obligation to Contribute to Capital of LLP

As per the provisions of Section 33 of Limited Liability Partnership Act, 2008, the obligation to contribute to the capital of LLP by each partner shall be as per the subscriber sheet being filled by the Company to the Concerned Registrar of Companies at the time of the LLP Incorporation and the same amount shall be written in the LLP agreement which is filled by the Company to the Concerned Registrar of Companies.

There are 3 options to trat the excess amount; if a partner contributes in excess of the obligation being undertaken by him at the time of the Incorporation of LLP

(Explained with the help of an example)

Example:

If XYZ LLP has a total contribution of Rs. 1, 00,000/- being undertaken by the Partner A and B in equal proportion i.e. Rs. 50,000/- each but A has transferred the amount of Rs. 51,000/- in the XYZ LLP’s Bank Account stated the contribution. Therefore, A has contributed in excess of his obligation at the time of incorporation. Hence, the LLP shall have three options to trat this excess amount of capital contribution:

the LLP shall have three options to trat this excess amount of capital contribution

 

Refund/Payback of Contribution

When a Partner resigns from the office of partner of LLP, As per Section 24 of the Limited Liability Partnership Act, 2008, he shall receive an amount equal to his capital contribution from the LLP upon such resignation.

About the Author

ACS Divya GoelAuthor is Divya Goel, ACS working as Assistant Manager- Company Secretary with Neeraj Bhagat & Co. Chartered Accountants, a Chartered Accountancy firm helping foreign companies in setting up business in India and complying with various tax laws applicable to foreign companies while establishing their business in India. Author can be reached at info@neerajbhagat.com.

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Company: Neeraj Bhagat & Co.
Location: New Delhi, New Delhi, IN
Member Since: 28 Feb 2019 | Total Posts: 75
Neeraj Bhagat & Co. is helping foreign companies in opening up of Liaison/ Branch Office in India and complying with various tax laws applicable to foreign companies while establishing a business in India. Neeraj Bhagat is the founder of Neeraj Bhagat & Co. Chartered Accountants, a Chartered View Full Profile

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50 Comments

  1. VISHNU NARAYAN KENJALE says:

    Whether. LLP can borrow money as a loan, from salaried person having NRE account in indian currency. Can he join as partner in the LLP engage in trading of petroleum product.is there any restriction.

    1. Neeraj Bhagat & Co. says:

      It can borrow from NRO account in Indian currency . Borrowing from NRE account will lead to ECB compliances in LLP. Yes, He can join as partner in

      Exploration activities of oil and natural gas fields, infrastructure
      related to marketing of petroleum products and natural gas,
      marketing of natural gas and petroleum products, petroleum product
      pipelines, natural gas/pipelines, LNG Regasification infrastructure,
      market study and formulation and Petroleum refining in the private
      sector, subject to the existing sectoral policy and regulatory
      framework in the oil marketing sector and the policy of the
      Government on private participation in exploration of oil and the
      discovered fields of national oil companies.

  2. vikas shelke says:

    i have invested X amount in company’s asset(machines), now if somebody wants to enter into LLP with my firm , should we need to consider depreciation of assets value to calculate other partners contribution of investment in the company? or we should consider market value of assets to decide his contribution?

    thanks in advance for your time and help on this matter

  3. Meet says:

    Threshold limit for LLP audit of 25 lacs is to be applied on contribution.
    For this purpose, contribution is to be interpreted as initial contribution as mentioned in the LLP agreement or contribution amount as on the end of FY.
    Please assist on the above .

    1. Neeraj Bhagat & Co. says:

      The Sum (other than Loan) lying in partner’s capital Account is considered as Contribution which should also align with LLP Agreement.

  4. Meet says:

    For LLP audit, the threshold limit of 25 lacs is to be applied on the contribution amount.
    How is the contribution for this purpose is to be interpreted. As Initial contribution (as mentioned in the LLP agreement) or contributions o/s as at the end of financial year.
    Kindly assist on the above matter

    1. Neeraj Bhagat & Co. says:

      The Sum (other than Loan) lying in partner’s capital Account is considered as Contribution which should also align with LLP Agreement.

  5. Shruti Doshi says:

    What is the defination of Contribution in case of LLP? Audit is applicable if its Contribution exceeds 25 lacs, Then whether i need to do summation of Fixed as well as Current Capital contribution to check applicability of audit as per LLP Act?

    1. Neeraj Bhagat & Co. says:

      The definition of contribution is not defined under LLP Act, 2008 but the Act defines the form of Contribution and contribution of a partner may consists of tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, other agreements to contribute cash or property, and contracts for services performed or to be performed. The monetary value of contribution of each partner shall be disclosed in the accounts of LLP in the prescribed manner.

      As per the provisions of LLP Act, 2008, the LLPs are required to get its accounts audited by a practicing Chartered Accountant if its annual turnover in any financial year exceeds Rs.40 lakhs or the capital contribution of partners in LLP exceeds 25 lakhs, hence, the limit of 25 lakhs is solely for Capital contribution and Summation of Fixed assets with Capital Contribution is not required to check the applicability of audit.

  6. Richa Sharma says:

    Greetings Ma’am

    I have a query..Please resolve.
    We have a LLP and contibution of partners increase or decrease due to admission/resignation of partners.
    How to reflect this contribution?
    One year it can be 100000 or another year it can be 90000.
    It will remains fixed or will it change?

    1. Neeraj Bhagat & Co. says:

      LLP Contribution should be fixed and excess capital on account of addition /deletion can be done in Partner’s current account.

  7. Ankitha says:

    Can a LLP exist for two years without actually receiving any contribution from its partners? There is only obligation towards contribution for Rs.100000/- as per LLP agreement. Further, there is no financial transactions also in the LLP.

    1. Neeraj Bhagat & Co. says:

      The time limit has not been defined in LLP Act, 2008 to contribute to the capital of LLP, hence, partners can contribute to the LLP anytime as soon as the operations of LLP starts and yes, LLP can exists without capital for two years.

  8. KAMAL JAIN says:

    One Private Limited Company is converted into LLP having share Premium and reserve of Rs.1.50 crore. The contribution of Partners is Rs.10 Lac. As the contribution is less than Rs.25 Lac, is it required to get itself audited as its reserve are Rs.1.50 cr.

    1. Neeraj Bhagat & Co. says:

      As per definition of contribution under LLP Act, contribution does not include profits and reserves appearing in balance sheet . Therefore premium and accumulated profits do not form part of the contribution . Accordingly if contribution is less than 25 lakhs, audit is not required.
      Form of contribution. – (1) A contribution of a partner may consist of tangible, movable or immovable or intangible property or other benefit to the limited liability partnership, including money, promissory notes, other agreements to contribute cash or property, and contracts for services performed or to be performed.
      (2) The monetary value of contribution of each partner shall be accounted for and disclosed in the accounts of the limited liability partnership in the manner as may be prescribed.

  9. Sreelakshmi says:

    Ma’am,
    For an LLP, if the capital contribution is less than 25 lakhs, audit is not required..
    So, my doubt is how to ascertain capital contribution?
    Is it the closing balance or the annual contribution received..?

  10. Amol K says:

    In case of LLP, if 2 partners do not want to share the financial liability or responsibility, then is it possible for them to still get profit share at high percentage..Of contribution is 90:5:5 ratio..As the 3 rd partner has brought in all funds and the project allotted is on account of the first two partners..Hence these partners want to take money /share and leave..
    .

    1. Neeraj Bhagat & Co. says:

      The profits shall be shared in the ratio of profit sharing as described in the LLP Agreement and generally the partner who does not contribute to the capital shall be treated as defaulter if it needs to be contributed as per LLP agreement.

  11. Alok says:

    One of the partner is not working / contributing towards business activities (not a sleeping partner) and not willing to resign. So does not want to work but wants to eat his share of profit.

    How can the other two partners remove the 3rd partner legally ? What is the procedure. The LLP agreement does not have any specific mention on this. Please advise what legal actions can be taken.

    1. Neeraj Bhagat & Co. says:

      If the LLP Agreement provides such power, a Partner can be removed otherwise he cannot be removed by a majority of the other Partner unless the LLP agreement expressly provides such powers because he has a right in profit sharing as he introduced his capital into the LLP.

  12. Srikar S says:

    Hi Mam, Can the partner bring in stock of books to LLP in the form of partner’s capital?? If yes, whether any form is required to be filed?
    (the stock of books value is 2 Lacs & within the present capital contribution limit). Please help.

  13. Vaibhav says:

    Hi..
    Can you tell me. When partner exist from LLP and received amount from incoming partner.
    Let see Initially contribute 5000000 capital and 4000000 loan and now received 1.25 cr.
    Can we taxable excess amount in hand of partner?

    Thanks

    1. Neeraj Bhagat & Co. says:

      Yes, excess amount would be taxable in the hands of outgoing partner. However if increase is due to share of profit on which LLP already paid the tax then it would not be taxable.

  14. manoj says:

    In LLP can partners take their contribution back with out resignation and death ? is there any provisions with respect to this

    1. Neeraj Bhagat & Co. says:

      In the Instant case, the partners cannot take their contribution back completely but if the partner wants to reduce his share from 50% to 40% then he can do so with the consent of another partner. For example, If there are two partners and their total obligation is Rs 1 lakh and in 50-50 ratio and one of them needs to take back 10% of his capital back, then the other partner shall increase its contribution accordingly to 60%.

  15. Prateek garg says:

    A partner may bring in money either as contribution or as unsecured loan. which option is better.

    In a project of around Rs. 2 crores would it be better to register the LLP with entire amount of 2 crore as contribution or register the LLP with a lesser amount of contribution say Rs. 10 Lakh and later bring in balance amount as unsecured loan from Partners to LLP

  16. Nidhi Parekh says:

    In LLP at the time of incorporation partners informed contribution 50000 each but one partner has deposited 25000 only. What should be done in such case.
    Also can partners frequently deposit amount in LLPs current account for business purpose. Is the LLP required to file 3 for increase in contribution even though partners deposit amount for day to day activities

    1. All the partners should contribute to the LLP as per their respective obligations at the time of incorporation as soon as possible, however, there is no time limit prescribed as such within which the contribution shall be received in the Bank Account of the LLP.

      If the Partners are contributing frequently to the Bank Account of the LLP, then there are two options either you can increase the contribution from time to time and file form LLP 3 within 30 days from the date of contributing the Sum to the Bank Account of the LLP or it can be shown as a loan from Partners.

  17. Nidhi Parekh says:

    In LLP at the time of incorporation it was mentioned partners will be contribute 50000 each However out of both partners one partner has contributed 25000. What should be done in this case?
    Also can partners deposit money in LLPs current account for business purpose frequently for business purpose for that is LLP required to file form 3 for increase in contribution

  18. Sahil says:

    Dear Mam..
    I’m planning to open an LLP. If I select that my capital contribution would be a total of 10,000/- ie. 5000/- each. & the profit sharing would be 50-50 What does this mean actually.

    I need advice on the financial aspect kindly let me know how canni reach to you for Getting financial Advice.

    Regards

  19. Sahil says:

    After some days of incorporation of LLP within the Capital of Rs. 1 Lakh as stated in LLP Agreement, all the partners add 3-4 Lakhs in the bank account of LLP for more efficient working of LLP, Then again the agreement will be submitted or it will be OK?

    1. Neeraj Bhagat & Co. says:

      If the partners had contributed to LLP more than their obligation as per Initial LLP Agreement, then the supplementary agreement of LLP shall be submitted with the MCA for their approvals within 30 days of such additions .

  20. Neeraj Bhagat & Co. says:

    If the partner adds more capital into the Bank Account of LLP, that capital will be added to initial capital and profit sharing ratio will be adjusted according to new capital structure of the LLP.

  21. SOUMYAKANT DAS says:

    What if a partner introduced some more capital after few years? Will this amount be added to initial fund and profit sharing adjusted or the present valuation of the company is taken to consideration to distribute the ownership %

    1. Neeraj Bhagat & Co. says:

      As per LLP Act, 2008, the time limit to put in the capital contribution by the partners in LLP’s Bank Account is not prescribed. It is advisable as soon as the bank opened, transfer the capital contribution .

  22. Rohit Sharma says:

    Can the excess amount contributed by partner be shown as variable or fluctuating capital and the same can be treated as Reserve and Surplus while filing up Form 8 of the LLP??
    Please suggest.

    Thanks

  23. Rahul Thapliyal says:

    We have a Limited Liability Partnership. Wherein we wants to introduce to new designated partners. So in that case new designated partners should bring his contribution or existing partners can transfer his share to new partners . Please suggest what to do.

    1. In case of LLP, when a new partner is introduced then he will contribute his share of contribution into the LLP and the outgoing partner shall take his share of contribution with himself.
      As per LLP Act, there is no criteria for transfer of contribution from one partner to another partner.

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