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LLP

Will the LLP Capital Investment Increase Or Decrease?

An LLP is defined as a limited liability partnership, as defined in Section 32 of the Limited Liability Partnership Act of 2008. Contributions include: Tangibles (movables and immovables) Intangibles Other benefits to the LLP, such as money and promissory notes..) lisense organisation

A limited liability partnership can be contributed to by a variety of means, which include money, promissory notes, other agreements to contribute cash, property, or contracts for the performance of or contract to be performed by the partner, according to Section 32 of the Limited Liability Partnership Act of 2008.

Generally, each partner’s contribution will be recorded in a manner prescribed by the Limited Liability Partnership Act, 2008, as well as other benefits that may be provided to the limited liability partnership. There is a prescribed procedure for recording each partner’s contribution in the LLP’s accounts.

Changing Capital Investment in an LLP: What Does the LLP Act Say

Of these if a partner wished to increase or reduce a monetary contribution (or in other words increase or reduce capital investment) an amendment of the LLP Agreement is necessary. The flexibility of the LLP as a business model is clearly visible in such a situation. The LLP Act, 2008 is silent on the method to increase or reduce capital. This is due to the fact that the law wishes to provide the partners of an LLP with the ability to regulate their own business. Thus, as per Section 33 of the LLP Act, 2008, the obligation of a partner for their contribution to the LLP shall be decided as per the LLP agreement.

LLP Agreement Amendment

Amending the LLP Agreement itself to reduce the contribution that a partner is liable to pay must be done as per the procedure for amendment laid down in the LLP Agreement itself. Furthermore, to authenticate the change, E-Form 3 must be filed with a certified true copy of the minutes of the meeting wherein the decision to make the change was taken within 30 days of the change being consented to. Once this process is complete, the contribution payable is effectively reduced.

In accordance with Section 33 of the Limited Liability Partnership Act, 2008, each partner has an obligation to contribute to the capital of the LLP in accordance with the subscriber sheet that the Company submits to the concerned Registrar of Companies at the time of LLP incorporation. The same amount shall be included in the LLP agreement which is submitted to the concerned Registrar of Companies by the company. The excess amount may be treated in three ways; if a partner contributes in excess of his obligation at the time of the incorporation of the LLP (Explained with the aid of an example);

As an example, XYZ LLP has a total investment of ₹1,00,000/- which is being undertaken by Partners A and B in equal proportion i.e. ₹50,000/- each, but A has transferred ₹51,000/- to the bank account of the XYZ LLP as stated in the contribution statement. As a result, A has contributed a greater capital contribution than he was required to make at incorporation. Therefore, the LLP has three options for dealing with this excess capital contribution:

Option 1 

The LLP shall refund the excess amount to the concerned partner as soon as posssible 

Option 2 

Increase the total capital contribution of an LLP and file  form 3 to the concerned registrar of the company within 30 days of the  receipt of contribution 

Option 3 

If the amount has neither been refunded nor the capital contribution of LLP has been increased then such amount will be treated as loan from partners in the hands of LLP and such partner will rank as pari – passu to any other creditor of the Limited Liability Partnership

Payback/Refund of Contribution

In accordance with Section 24 of the Limited Liability Partnership Act, 2008, a partner who resigns from his position as a partner of the limited liability partnership shall receive from the limited liability partnership an amount equal to his capital contribution upon resigning from that position.

Conclusion 

We hope we have provided you with enough information. If you still have questions, feel free to contact the experts at Vakilsearch.

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