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LLP MANTRA
A Publication by Corporate Professionals
{Y-01).{V-VI)
2 o f 11
Regular Sect ion – Contr ibut ion 3-4
LLP in News 7-8
Gray Issues 9
Recent Quer ies on LLP Club 10
Particulars
Page No.
FAQ’S – Contr ibut ion 5-6
Segment on Global Compar ison 9
Publ ic Opin ion 10
Our Of fer ings 11
Insight
3 o f 11
Contribution as per the lexicon interpretation means “Part or Share”. In reference to LLP, contribution can be
termed as, what a partner is contributing towards the Limited Liability Partnership for running of his business. For
ease of understanding, what Share Capital is in case of Company, is Contribution in case Limited Liability
Partnership. Therefore, in case of LLP, the ownership will be judged on the basis of contribution by the partners in
the LLP.
No, as per LLP Act 2008 Contribution is not a pre requisite for formation of a Limited Liability Partnership or for
being a Partner in any Limited Liability Partnership. Under the Act, organizational flexibility has been offered to the
Partners through LLP Agreement wherein the Partners can decide the amount and form of Contribution as per
their suitability. The LLP Agreement must specify the contribution intended to be paid by all the members and the
form in which it will be paid.
As per the requisite of Section 32(1) of LLP Act 2008 the contribution can be in the form of tangible, movable or
immovable or intangible property or other benefit to the limited liability partnership, including money, promissory
notes, and 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 accounted for and disclosed in the accounts of the
limited liability partnership in the manner as may be prescribed.
Valuation of Intangible Contribution In case of intangible form of Contribution, the value of the same shall be
certified by a practicing Chartered Accountant or Cost Accountant or by approved valuer from the panel maintained
by the Central Government. 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.
Contribution
Is it necessary to contribute for a partner?
Form of Contribution
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Whenever a partner of a LLP ceases to be a partner than unless otherwise provided in the LLP agreement, the
former partner or a person entitled to his share in consequence of the death or insolvency of the former partner,
shall be entitled to receive from the limited liability partnership, an amount equal to the capital contribution of the
former partner actually made to the limited liability partnership.
Alike Partnership, the Partners in LLP are allowed to have interest on the contribution. No limit has been
prescribed under the Act for any maximum amount of interest payable by the LLP to its partner. However as far as
tax planning is concerned interest to partners is deductible if conditions of section 184 and section 40(b) of the
Income Tax Act are satisfied. The Income Tax Act allows for the maximum 12% deduction of the interest to the
partners on the amount of their contribution.
Increase in Capital Contribution: The existing Capital of the LLP can be increased as per the provisions
provided in the LLP Agreement. The LLP Act 2008 only requires to File Form 3 with the Registrar of LLP for the
amendment in the particulars of the LLP Agreement and is required to pay the difference amount between the fee
payable on the increased slab or contribution and the fee paid on the preceding slab of contribution through Form
3.
Reduction in Capital Contribution: The existing Capital of the LLP can similarly to enhancement be reduced as
per the provisions provided in the LLP Agreement. The LLP Act 2008 only requires to File Form 3 with the
Registrar of LLP for the amendment in the particulars of the LLP Agreement and is required to pay the normal filing
fee.
Return of Contribution in case of cessation of Partner
Interest on Contribution
Procedural Aspect
5 o f 11
What do you mean by Contribution?
Contribution as per the lexicon interpretation means Part or Share. In reference to LLP, contribution can be
termed as, what a partner is contributing towards the Limited Liability Partnership for running of his business.
Contribution in case of LLP is alike Share Capital in case of Company.
What can be the form of contribution?
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.
Whether contribution can be increased?
Yes, the Contribution of LLP would be provided under the LLP Agreement and the same can be increased by way
of amendment in the LLP Agreement.
How to work out the monetary value of contributions? If any rules prescribed whether the same are in
conformity with general principles of valuation?
Section 32 (2) specifically prescribes that 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. In case
the contribution is in intangible form, the value of the same shall be certified by practicing CA/CWA or a valuer
approved by the Central Government.
Ownership of business and Profit & Loss sharing ratio- whether the two may be different? If yes, how the
ownership of business be determined -Whether by capital contribution or otherwise?
Yes and in that case the ownership will be determined by contribution and in case of nil contribution the ownership
can be determined as per the agreement or in the absence of agreement it should be equal.
FAQ’S on Contribution
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Initial capital contribution to remain fixed or the same may keep on fluctuating with the addition/
withdrawal of additional capital or with addition/ deletion of Profit & Loss?
The Law is silent but the flexibility for addition or deletion is provided through the LLP Agreement. Section 33 (1)
of the LLP Act 2008,specifies that the obligation of a partner to contribute money or other property or other benefit
or to perform services for a limited liability partnership shall be as per the limited liability partnership agreement.
Whether partner can withdraw their contribution like drawings in case of partnership?
Yes, but the terms and conditions for such withdrawal shall be provided in the LLP Agreement.
Whether contribution can be reduced in LLP?
There is no provision under the LLP Act 2008 for reduction of the contribution but the same can be reduced in the
manner provided under the LLP Agreement.
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Firm Bullish on LLP regime
FDI norms to cover LLP
The government is working to bring limited
liability partnerships (LLPs) within the scope of
foreign direct investment guidelines, a move
which will facilitate the inflow of overseas
capital through a corporate structure that has
just recently been allowed in India.
The ministry of corporate affairs, which
administers the LLP Act that came into effect
in April, and the department of industrial policy
and promotion which administers FDI policy,
are working to amend FDI guidelines, a
government official said. The rule change is
expected to happen in a few months. Source: The Economic Times
With no clear-cut guidelines specified for the
conversion of companies into limited liability
partnership firms, the industry chambers as
well as the LLP users have urged the
finance ministry to provide more clarity on
the taxation issue to encourage formation
and conversion of LLPs.
The industry chamber, Assocham has also
written to the finance ministry to give clear-
cut guidelines on the conversion aspect of
companies to LLP. “Since limited liability
partnership will become a very popular
vehicle for carrying out various business
activities in the country, all aspects of
taxation measures dealing with either
incorporation or conversion of existing
entities into LLPs needs to be addressed
fully by the finance ministry," Assocham has
said. Source: The Financial Express
LLP In News
8 o f 11
No tax-free conversion of unlisted companies into LLPs yet
To check out the entire articles click here
The finance ministry is not willing to allow tax-free
conversion of unlisted companies to LLPs, but it is open to
giving the benefit if the number of promoters going for
conversion increases, a ministry official told ET on
condition of anonymity. Capital gains tax will increase the
cost of conversion for companies that have capital assets
including immovable property. This tax is charged on the
value of appreciation of a capital asset, excluding the
effect of inflation. Long-term capital gains from transfer of
property attract 20% tax after three years of purchase.
Experts see this as a speed-breaker in the growth of this
globally-preferred business form. The government will
consider tax-free conversion of a company to an LLP
when this form of business finds wider acceptance, the
official said.
Budget 2009 had allowed tax-neutral conversion of a
general partnership to an LLP if the rights and obligations
of the partners don’t change. The rider on rights and
obligations was introduced to ensure that the sale of a
company is not passed off as a conversion to an LLP.
However, the Budget did not mention conversion of an
unlisted company to an LLP. The tax regime for LLPs
introduced in the Budget is soft compared to that for
companies. These partnerships don’t have to pay 16.9%
dividend distribution tax or the surcharge. Source: The Economic Times
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Facts LLP UK Singapore LLP USA LLP Indian LLP
Contribution No minimum amount
prescribed , contribution
shall be such , as
prescribed under the LLP
Agreement
No minimum amount
prescribed ,
contribution shall be
such , as prescribed
under the LLP
Agreement
No minimum amount
prescribed ,
contribution shall be
such , as prescribed
under the LLP
Agreement
No minimum
amount
prescribed ,
contribution shall
be such , as
prescribed under
the LLP
Agreement
Global Segment
Gray Area
LLP being a self regulatory arrangement is on some corners of the Act lacking for being a fully transparent
structure. Like in case of Reduction of Contribution no expressed provision is provided and the same can be
reduced as per the arrangement in the LLP Agreement. The only requirement is for filing Form 3 after such
reduction that is for Change in the LLP Agreement providing the total Contribution limit of the LLP.
In case where the secured/unsecured creditors are subsisting in any LLP even than the contribution can be
reduced without seeking any consent from the creditors
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If a LLP has not filed Form 3 & Form 4 after 30 days of Incorporation. Now they have filed the same on LLP
Portal and paid the minimum fees of Rs. 50 under miscellaneous fee option and have not paid the full fee
with additional fees of Rs. 100 per day. Now what is the procedure to compound the offence?
Whether LLP can carry on business of hire-purchase or finance?
If an LLP admit new partner whether amendment in agreement is needed for including his contribution and
name in agreement, if needed whether supplement agreement is enough?
Whether any amendment in the LLP Agreement by way of increase of contribution, will subject to stamp
duty?
Whether 2 companies can convert into 1 LLP?
Whether LLP can carry on the business of stock broking?
If capital gain is paid on conversion of company into LLP, who will pay the same, company or
shareholders?
To check the reply of the queries click here
Our Poll of the week “Whether registration of charge like companies should be made mandatory for LLPs”
was favored by 90% audience while 10% audience was against the registration of charge with the Registrar of
LLP.
To count your vote on “Whether registration of charge like companies should be made mandatory for
LLPs?” log in to www.LLPonl ine . in
Recent Queries on LLP Club
Public Opinion
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Disclaimer:
This paper is a copyright of Corporate Professionals (India) Pvt. Ltd. The entire contents of this paper have been developed on the basis of Limited Liability Partnership Act 2008. The author and the company expressly disclaim all and any liability to any person who has read this paper, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this paper.
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