Change In Contribution In LLP
Change In Contribution In LLP:
Limited Liability Partnership (LLP) is an alternative corporate business form that gives the benefits of limited liability of company and partnership. In the LLP form of business each partner’s liabilities are limited to the amount they have invested in partnership.
Partners can contribute to LLP in both form- tangible and/or intangible property including cash, promissory notes and agreements/ contracts.If contribution in LLP is received in form other than cash, it has to be valued by registered valuer. It is required to account and disclose in accounts the monetary value of contribution of each partner.
In case of LLP, if any partner wishes to change contribution in LLP, it mandatorily requires amendment in LLP agreement. Change in contribution in LLP does not result in any change in profit sharing ratio of partners unless it is specified in LLP agreement. With Pre defined condition in LLP agreement Or As Per Mutual Consent Partners Can Change In Contribution In LLP. Such change of capital contribution in LLP can be increase in capital or decrease in capital. In this article we will discuss reason , process , steps for change in capital contribution in LLP.
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Reasons for Change In Capital Contribution In LLP:
Every business needs to adjust their fund requirement as per their objective, scale and business policies.Easiest way to cope with capital requirement in LLP is by changing contribution in LLP. But for that, LLP need to first follow regulations prescribed in LLP agreement for change in contribution in LLP.
Need for change in contribution in LLP:
- Change in business policy
- Change in partners
- To start new project
- To introduce new technology
- Change in scale of operation
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Increase of Capital Contribution in LLP:
A partner or designated partner of an LLP can increase the contribution in LLP when they need extra funds or at the time of introduction of a new partner .The capital clause can provide that an increase in contribution in LLP is possible if needed. Partner need to amend LLP agreement with supplementary LLP agreement and then increase capital in LLP.
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Decrease of Capital Contribution in LLP:
According to the provisions of LLP act 2008, LLP can be formed without any minimum capital amount. There is no mandatory requirement of minimum capital contribution for LLP formation. Hence, if an LLP needs to decrease its contribution in LLP according to its scale, situation,fund requirement,etc. then it is fully allowed by fulfilling some legal compliance. LLP is required to file FORM 3 to the registrar with a regular filing fee. Registrar is not bound to pay difference between fees paid on higher capital and now on reduced contribution in LLP.
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Supplementary LLP agreement for change in contribution in LLP:
Supplementary agreement in LLP is like extension of original LLP agreement and hence is important document. The validity of Supplementary agreement in LLP is same as of original LLP agreement. Incase of Supplementary agreement in LLP for change in contribution , it should have details about amount of change in contribution, effect with respect to each partner,etc. It is important that all partners of LLP sign the Supplementary agreement in LLP for change in contribution.
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Procedure of Change Change In Contribution In LLP
To make any change in LLP contribution (increase/decrease), it is mandatory that LLP agreement have provisions for alteration in LLP contribution. Incase of change in LLP contribution amending LLP agreement is must and it should be done as specified in LLP agreement itself.
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Documents required incase of increase of Capital Contribution in LLP:
- Copy of resolution passed in meeting w.r.t. increase in contribution in LLP
- LLP agreement
- Notarized supplementary LLP agreement
- Digital signature of designated partner
- Proposed new capital contribution & its distribution
Steps involved in process of change in contribution in LLP include:
Obtain approval of partners: Conduct meeting of all partners of LLP and pass resolution for change in contribution in LLP. Incaseof increase in contribution in LLP, if capital is introduced by a new partner then consent of new partner. Also resolution is required to be passed for adding that new partner.
Drafting of amendment in LLP agreement: After obtaining approval from partners next step is to draft and execute LLP agreement with effect to change in contribution in LLP and its distribution among partners.
Execute supplementary LLP agreement: It is to be executed on requisite stamp paper.A stamp duty of min Rs.100 is applicable to execute supplementary agreement.
Filing forms with ROC:To certify the changes in contribution & LLP agreement E-Form 3 is to be filed with the registrar along with minutes of meeting in which partners approval is obtained within 30 days of change being consented. It is to be filed to get approval of the registrar for supplementary LLP agreement.
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Whether a partner would be able to give a loan or able to transact any other business transaction with LLP?
A partner is able to give a loan or be able to transact any other business transaction with LLP and have the same rights & obligations as a person who is not a partner in LLP.
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